Can Oregon pay a state employee's legal bills when the employee is criminally charged for something they did on the job and beats the charges?

Subject

Dan Hartman, Administrator, Risk Management Division, Department of Administrative Services

Plain-English summary

The Oregon Tort Claims Act gave state employees state-paid defense and indemnification when they were sued in civil court for things they did in the course of their official duties. But the OTCA did not cover criminal charges. The Department of Administrative Services wanted to know whether it could create a program to reimburse a state employee's legal bills when the employee successfully defended against a criminal charge arising from official duties, in circumstances where the OTCA would have covered the equivalent civil suit.

The AG worked through three possible sources of authority. The first was ORS 278.405, which gave DAS the authority to direct and manage all state risk-management and insurance programs and specifically to "provide all insurance coverages including coverage of related legal expenses" that DAS determined was necessary or desirable for efficient state operation. Although the issue was "not without doubt," the AG concluded that legal-defense reimbursement fit that broad authority.

The second source was DAS's Personnel Division's authority to set salary plans and merit pay systems under ORS 240.145, 240.190, 240.235, 240.240, and 240.245. The AG concluded that a criminal-defense reimbursement program could be included as additional compensation in those plans, subject to approval by the DAS director and legislative review.

The third source was the Public Employees' Benefit Board (PEBB). The AG concluded that PEBB did not have authority under ORS 243.105 to 243.285 to provide such insurance. PEBB's benefit-plan authority did not extend to insurance against legal expenses for criminal-charge defense.

The opinion then turned to collective bargaining. For represented state employees, neither the Risk Management Division nor the Personnel Division could unilaterally implement a criminal-defense reimbursement program. The AG concluded the subject was a mandatory subject of collective bargaining under the Public Employee Collective Bargaining Act (PECBA), ORS 243.650 to 243.782, because it concerned monetary benefits to employees and would relate directly to employment with the state.

Finally, the AG concluded that the analysis did not change if the proposed program also covered situations where OTCA would not have provided indemnification due to malfeasance. The same authority and same bargaining requirements applied. DAS had discretion to set the scope of the program but could not exceed its statutory authority.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

If I'm a state employee and I get criminally charged for something I did on the job, does Oregon pay my lawyer?
The OTCA would cover the equivalent civil suit, but not criminal charges. The AG concluded that DAS had statutory authority to create a reimbursement program, but the existence of the program in any given year depended on whether DAS had actually adopted such a program. The opinion did not itself create one.

Did the AG think DAS's authority was clear, or did the AG have to stretch?
The AG acknowledged the issue was "not without doubt." ORS 278.405 referred specifically to "insurance" coverage, and a court could read criminal-defense reimbursement as outside that. But the statute's catch-all language about coverage "necessary or desirable for the efficient operation of state government" was broad enough to support the program if DAS determined that the program served those purposes.

Could DAS just write the program into the state employee benefits manual?
For unrepresented (non-union) employees in classified, unclassified, and management service, yes, subject to director approval and the legislative review the salary-plan statute required. For represented employees, the AG concluded that DAS had to go through collective bargaining.

Why was it a mandatory subject of bargaining?
Under PECBA, mandatory subjects of bargaining include matters that primarily affect wages, hours, and other terms and conditions of employment. The AG concluded that criminal-defense reimbursement was a monetary benefit closely tied to job performance and was therefore a mandatory subject. Unilateral implementation without bargaining would expose the state to unfair labor practice claims.

What if the employee committed malfeasance? Could DAS reimburse anyway?
The AG said the analysis did not change. DAS had discretion to define the scope of the program. If DAS chose to extend reimbursement to malfeasance situations beyond what OTCA would have covered in the civil context, the same authority and bargaining requirements applied. The legal question was about DAS's authority, not whether reimbursing malfeasance was a good idea.

Could PEBB sell criminal-defense insurance to state employees as part of the regular benefit plan?
The AG concluded no. PEBB's authority was limited to traditional employee benefit plans, which did not include legal-defense reimbursement for criminal charges.

Background and statutory framework

The Oregon Tort Claims Act, ORS 30.260 to 30.300, required the state to provide a defense and indemnification for tort claims against state officers and employees acting in the scope of their employment. Criminal cases sat outside that scheme.

ORS 278.405 gave DAS general authority over state risk management and insurance, including authority "[t]o provide all insurance coverages including coverage of related legal expenses required by law, requisitioned by individual agencies, or which the department determines necessary or desirable for the efficient operation of state government."

The Personnel Division's statutes, ORS 240.145, 240.190, 240.235, 240.240, and 240.245, authorized the division to develop a comprehensive personnel system, including a uniform salary plan and merit pay system. Under ORS 240.245, the salary plan was subject to director approval and legislative review.

PEBB's statutes, ORS 243.105 to 243.285, authorized the board to provide medical, hospital, surgical, life insurance, and similar benefits. The AG read that list as limiting; legal-defense reimbursement for criminal charges did not fit.

PECBA, ORS 243.650 to 243.782, governed state-employee collective bargaining. The AG followed standard mandatory-subject analysis: monetary benefits tied to employment generally fall within the mandatory zone.

Citations

• ORS 30.260 to 30.300 (Oregon Tort Claims Act)
• ORS 278.405 (DAS risk-management authority)
• ORS 240.145, 240.190, 240.235, 240.240, 240.245 (Personnel Division authority)
• ORS 243.105 to 243.285 (PEBB authority)
• ORS 243.650 to 243.782 (PECBA, mandatory subjects of bargaining)
• PGE v. Bureau of Labor and Industries, 317 Or 606 (1993) (statutory interpretation)

Source

• Landing page: https://www.doj.state.or.us/oregon-department-of-justice/office-of-the-attorney-general/attorney-general-opinions/
• Original PDF: https://www.doj.state.or.us/wp-content/uploads/2000/09/op2000-2.pdf

Original opinion text

HARDY MYERS

DAVID SCHUMAN

Attorney General

Deputy Attorney General

DEPARTMENT OF JUSTICE
GENERAL COUNSEL DIVISION

September 18, 2000

Dan Hartman, Administrator
Risk Management Division
Department of Administrative Services
1225 Ferry Street S.E.
Salem, OR 97310
Dan Kennedy, Administrator
Human Resources/Labor Relations Division
Department of Administrative Services
155 Cottage Street N.E.
Salem, OR 97310
Re:

Opinion Requests OP-2000-2

Dear Messrs. Hartman and Kennedy:
You have asked several questions about the authority of the Department of
Administrative Services (DAS) to reimburse the legal expenses incurred by a state employee in
successfully defending against a criminal prosecution. Your questions and our short answers are
set out below, followed by a discussion.
1.
Does DAS have authority to adopt by rule a program to reimburse the legal fees
and costs incurred by a state employee in the employee's successful defense against a criminal
prosecution on charges arising from the performance of official duties in circumstances where
the employee would be entitled to state-paid legal defense and indemnification under the Oregon
Tort Claims Act (OTCA) had the charges been brought as a civil tort action?
Although the issue is not without doubt, we believe DAS has such authority under the
statutes authorizing it to direct and manage the risk management and insurance programs of state
government so long as DAS determines that such a program is necessary or desirable for the
efficient operation of state government. In addition, subject to approval by DAS's director and
legislative review, DAS's Personnel Division may amend the merit pay system and salary plans
for classified, unclassified and management service employees to include such a reimbursement
program as an additional item of compensation. As discussed in the response to question two,
however, neither the DAS Risk Management Division nor the DAS Personnel Division may
unilaterally implement such a compensation program for represented employees.

1162 Court Street NE, Salem, OR 97310 Telephone: (503) 378-4620 Fax: (503) 378-3784 TTY: (503) 378-5938

September 20, 2000
Page 2

We conclude that the Public Employees’ Benefit Board (PEBB) does not have authority
to provide insurance to reimburse state employees for legal expenses incurred in defending
against criminal charges arising from the performance of official duties.
2.
May DAS lawfully agree, in a collective bargaining agreement, to reimburse the
fees and costs incurred by a state employee in the circumstances described above? Would this be
a mandatory subject of bargaining?
DAS may agree to such a provision in a collective bargaining agreement. The provision
would be a mandatory subject of collective bargaining.
3.
Would your answers to question two be different if a proposed reimbursement
program also applies to situations in which the OTCA indemnification and defense provisions
would not be available for an analogous tort claim because the employee committed malfeasance
in office?1/
No.
Discussion
1.

DAS's Authority to Reimburse Employees for Criminal Defense Expenses

Your first question is whether DAS may establish a program to reimburse state
employees for expenses incurred in successfully defending against criminal prosecution on
charges arising from the performance of official duties in circumstances where the employee
would be entitled to state-paid legal defense and indemnification under the OTCA had the
charges been brought as a civil tort action. We have identified three potential sources of such
authority: (1) the statute authorizing DAS to establish and maintain risk management and
insurance programs for the state, (2) the statutes authorizing DAS's Personnel Division to
establish a merit pay system and salary plans for classified, unclassified and management
employees, and (3) the statutes authorizing PEBB to provide benefit plans for state employees.2/
a.

DAS's Authority to Provide Insurance Programs of State Government

We first consider whether DAS's risk management powers and duties3/ include the
authority to provide insurance to reimburse employees for criminal defense costs. Those powers
and duties are set forth in ORS 278.405, which states in part:
The Oregon Department of Administrative Services shall direct and
manage all risk management and insurance programs of state government except
for employee benefit insurance programs as otherwise provided in ORS chapter
243. Authority granted the department in this section includes but is not limited
to the following authority:

September 20, 2000
Page 3

(1) To provide all insurance coverages including coverage of related
legal expenses required by law, requisitioned by individual agencies, or which the
department determines necessary or desirable for the efficient operation of state
government, including but not limited to casualty insurance, property insurance,
workers' compensation insurance and surety insurance.
(2) To purchase insurance policies, develop and administer self-insurance
programs, or any combinations thereof, as may be in the best interest of the state
in carrying out the authorities granted in subsection (1) of this section.
ORS 278.405(1) and (2) (emphasis added).4/
In interpreting a statute, our goal is to discern the intent of the legislature. ORS 174.020;
PGE v. Bureau of Labor and Industries (PGE), 317 Or 606, 610, 859 P2d 1143 (1993). We
first examine the statute's text and context, including other provisions of the statute, related
statutes, and prior versions of the statute. In so doing, we consider statutory and judicially
developed rules of construction that bear directly on how to read the text, such as the rule that
"words of common usage typically should be given their plain, natural, and ordinary meaning,"
id. at 611, and the rule that a reviewing court is "not to insert what has been omitted, or to omit
what has been inserted." ORS 174.010; PGE, 317 Or at 611. If the legislative intent is clear
from the statute's text and context, the search ends there. If the text and context are not clear, we
may resort to the legislative history for evidence of the legislature's intent. PGE, 317 Or at 611612. If, after considering the text, context and legislative history, we are unable to determine the
legislature's intended meaning, we may resort to general maxims of statutory construction to
resolve any remaining uncertainty. Id. at 612.
The text of ORS 278.405 begins by granting DAS broad general authority to "direct and
manage all * * * insurance programs of state government except for employee benefit insurance
programs as otherwise provided in ORS chapter 243." ORS 278.405(1) specifically authorizes
DAS to provide "all insurance coverages" that it determines to be "necessary or desirable for the
efficient operation of state government."
We first consider whether the proposed reimbursement program can be structured as an
"insurance program" within the meaning of ORS 278.405. Criminal defense expense
reimbursement can be provided through a legal expense insurance policy purchased from an
insurer or a program of self-insurance.5/ We believe that either arrangement would constitute an
"insurance program" for purposes of ORS 278.405.
The next issue is whether the proposed insurance program would be one "of state
government" for purposes of ORS 278.405. It is possible to interpret the phrase "insurance
programs of state government" as limiting DAS’s authority to situations in which the state itself
has some risk of loss or liability, i.e., an insurable interest. The examples of permissible
insurance coverages listed in ORS 278.405(1) -- casualty, property, worker's compensation and
surety insurance -- provide some support for this interpretation because they all protect the state

September 20, 2000
Page 4

itself against a risk of loss or liability. For the reason that follows, we do not believe the
statutory context supports such a limited interpretation.
ORS 278.405 expressly excepts from DAS’s authority “employee benefit insurance
programs, as otherwise provided in ORS chapter 243.” Employee benefit insurance provides
coverage for employees to insure them against the risk of loss of wages (e.g., death or disability
insurance) or the risk of liability for medical or other costs (e.g., health insurance). Such
employee benefit insurance does not insure the state against any risk to the state itself for loss or
liability. If the phrase “insurance programs of state government” were intended to limit DAS’s
authority to situations in which the state itself had an insurable interest, there arguably would be
no need to except employee benefit insurance from DAS’s authority.
Although the issue is not entirely without doubt, we therefore conclude that the reference
to "insurance program of state government" was not intended to limit DAS’s authority to
situations in which the state has an insurable interest. Rather, ORS 278.405 grants DAS
discretionary authority to establish and maintain all insurance programs, other than employee
benefit insurance programs provided in ORS chapter 243, that it determines to be necessary or
desirable for the efficient administration of state government.6/
We next consider whether the proposed insurance program would be an "employee
benefit insurance program as otherwise provided in ORS chapter 243," in which case it is
expressly excluded from DAS’s authority. ORS 278.405. ORS chapter 243 authorizes employee
benefit insurance plans through PEBB. For the reasons explained below in Part 1.c. of this
opinion, we believe that ORS chapter 243 does not authorize PEBB to provide the criminal
defense expense reimbursement coverage described in your question.
Finally, we consider the scope of DAS’s authority to provide insurance under ORS
278.405(1) and (2). The text of ORS 278.405 indicates that the legislature intended to delegate
broad authority to DAS in this area. The first sentence of ORS 278.405 states that DAS's general
authority over "insurance programs of state government" includes, but is not limited to, the
authority described in subsections (1) to (6). In turn, ORS 278.405(1) grants DAS discretionary
authority to provide all insurance coverages requisitioned by agencies or which DAS determines
to be "necessary or desirable for the efficient operation of state government."
We previously construed ORS 278.405 as giving DAS broad delegative authority,
explaining as follows:
ORS 278.405(1) and (2) permit the Department of General Services to
provide any insurance coverages requisitioned by a state agency or which the
department "determines necessary or desirable for the efficient operation of state
government," either by procuring private insurance policies, establishing selfinsurance programs, or mixing the two methods. That part of subsection (1) [of
ORS 278.405] which permits the department to provide such coverage as it
"determines necessary or desirable for the efficient operation of state
government," contains terms of delegation under which the Department of

September 20, 2000
Page 5

General Services has broad policymaking authority to determine what forms of
insurance programs are reasonably helpful to the effective operation of Oregon
state governmental programs.
Letter of Advice dated March 31, 1986, to Holly Miles, Manager, Job Training Partnership
Administration (OP-5924) at 3, citing Springfield Education Assn. v. School Dist., 290 Or 217,
223, 228-230, 621 P2d 547 (1980).7/
ORS 278.405(1) lists examples of the insurance coverages that DAS is authorized to
provide as “including but not limited to casualty insurance, property insurance, workers’
compensation insurance and surety insurance.” The Oregon Supreme Court has recognized that
the word “including” as used in a statute may have one of several meanings.
“Including” can and has been interpreted as a word of enlargement, or of
illustrative application, as well as a word of limitation[.]
Premier Products Co. v. Cameron, 240 Or 123, 125, 400 P2d 227 (1965). Here, the inclusion of
the words “but not limited to” belies any suggestion that the list of examples was intended as a
limitation in the form of an exhaustive list of the types of insurance that DAS may provide. See
Gholson v. US, 532 A2d 118, 119 (DC App 1987) (“legislative intent that ‘include’ be read as a
term of enlargement rather than limitation is further underscored by coupling its use with the
phrase ‘but not limited to’”); Pennsylvania H.R. Com'n v. Alto-Reste Pk Cem Ass'n, 453 Pa
124, 130-31, 306 A2d 881, 885-86 (1973) (same).
The list of examples may be illustrative, however, evincing a legislative intent to
authorize DAS to provide only insurance that is similar to the list of examples. Certainly, there
is no suggestion in the examples listed that the legislature contemplated that DAS would provide
criminal defense insurance. Yet, by its express terms, ORS 278.405(1) authorizes DAS to
provide all insurance coverages that DAS determines necessary or desirable for the efficient
operation of state government. The use of the word “all” would appear to negate any conclusion
that the legislature had something less in mind. See Quintero v. Board of Parole and PostPrison Supervision, 329 Or 319, 986 P2d 575 (1999).
In summary, we conclude that the proposed reimbursement program, if adopted in the
form of insurance, would be an "insurance program of state government." For the reasons stated
in Part 1.c., we also conclude that such a program would be other than an "employee benefit
insurance program as otherwise provided in ORS chapter 243." Accordingly, ORS 278.405
authorizes DAS to establish and maintain the proposed reimbursement program if DAS
determines that the program is necessary or desirable for the efficient operation of state
government.8/ DAS may establish the program by purchasing a legal expense insurance policy
from an insurance company or establishing a program of self-insurance.9/ As discussed below in
Part 2, however, DAS may not unilaterally implement such a reimbursement program as to
represented employees.

September 20, 2000
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b.

DAS's Authority to Establish Compensation Plans

DAS's Personnel Division has statutory authority to establish and implement a merit pay
system for classified service positions, ORS 240.235(1), and salary plans for unclassified and
management service positions for which salary is not fixed by law. ORS 240.240(2). Under
these provisions, DAS Personnel may adopt, as an additional item of compensation or salary, a
reimbursement program for legal expenses incurred by classified, unclassified or management
service employees in successfully defending against criminal charges arising out of the
performance of official duties.10/
Modifications of the current merit pay system or salary plans must be approved by DAS's
director, ORS 240.235(2) and 240.240(2), and submitted to a legislative review agency.
ORS 291.371(2). Moreover, as discussed in Part 2 below, DAS may not unilaterally implement
such a reimbursement program as to represented employees.
c.

PEBB's Authority to Provide Employee Benefit Insurance

PEBB has authority to establish and administer health and dental benefit plans with
expenses paid in whole or in part by the state, ORS 243.125, 243.135, and is required to offer
long term care insurance to eligible employees and their eligible family members, ORS 243.291.
In addition, PEBB may
contract with carriers to provide at the expense of participating eligible employees
and with or without state participation for coverage, including but not limited to,
insurance or other benefit based on life, supplemental medical, supplemental
dental, optical, accidental death or disability insurance plans.
ORS 243.275(1). For purposes of this letter, we refer to this authority as the authority to provide
"other insurance benefits."
PEBB also has authority to offer flexible benefit plans under which it may offer:
(a) Health or dental benefits as provided in ORS 243.125 and 243.135.
(b) Other insurance benefits as provided in ORS 243.275.
(c) Dependent care assistance as provided in ORS 243.550.
(d) Expense reimbursement as provided in ORS 243.560.
(e) Any other benefit that may be excluded from an employee's gross
income under the federal Internal Revenue Code.
(f) Any part or all of the state contribution for employee benefits in cash
to the employee.

September 20, 2000
Page 7

ORS 243.221(2); see also ORS 243.560(1) (authorizing PEBB to provide an expense
reimbursement plan), ORS 243.555(1) and (3) (defining "expense reimbursement plan" and
"qualified employee expenses"). ORS 243.221(2)(b) incorporates PEBB's authority to provide
other insurance benefits under ORS 243.275(1).
The only other provisions in ORS 243.221(2) that arguably authorize PEBB to provide
legal expense insurance or reimbursement are ORS 243.221(2)(d) (expense reimbursements) or
(e) (other excludable benefits). For this purpose, "expense reimbursement" is limited to
reimbursement of "qualified employee expenses." ORS 243.555(1). "Qualified employee
expenses" are "expenses for dependent care, medical expenses, insurance premiums and any
other expenses qualified for tax free reimbursement under the federal Internal Revenue Code."
ORS 243.555(3). Similarly, excludable benefits under ORS 243.221(2)(e) are benefits "that may
be excluded from an employee's gross income under the federal Internal Revenue Code."
Thus, legal expense insurance would be eligible for inclusion in a flexible benefit plan as
an expense reimbursement or excludable benefit only if the value of the coverage is excludable
from the employee’s gross income or otherwise qualifies for tax free reimbursement under the
federal Internal Revenue Code. ORS 243.221(2)(d), (e); 243.555(1), (3). The state's
reimbursement of an employee's personal legal expenses would not qualify for such favorable
tax treatment. See Old Colony Trust Co. v. Com., 279 US 716, 49 S Ct 499, 73 L Ed 918, 7
AFTR 8875, 1 USTC 408 (1929) (employer payment of employee's personal expenses as a
benefit must be included in employee's gross income in absence of specific exclusion);
O'Malley, Thomas, 91 TC 352 (1988) (no exclusion for legal expense reimbursement). Because
the federal Internal Revenue Code contains no express exclusion for reimbursement of an
employee's personal legal expenses, such an employee benefit would be taxable income to the
employee.11/ Thus, group legal insurance does not qualify as an "expense reimbursement" or
other excludable benefit that may be included in a flexible benefit plan under ORS 243.221(2)(d)
or (e). Accordingly, PEBB has no authority to provide, as part of a flexible benefit plan,
employee benefit insurance in the nature of reimbursement of an employee's legal costs incurred
in defending criminal charges.
We next consider PEBB's statutory authority to provide other insurance benefits. Under
ORS 243.275(1), PEBB may contract with carriers to provide coverage "including but not
limited to, insurance or other benefit based on life, supplemental medical, supplemental dental,
optical, accidental death or disability insurance plans.”12/ It seems clear that the phrase
"including but not limited to" modifies either the phrase "insurance or other benefit" or the list of
permissible insurance coverages ("life, supplemental medical, supplemental dental, optical,
accidental death or disability").13/ Because the former phrase already contains broad, expansive
language ("or other benefit"), it seems unlikely that the legislature would find it necessary to add
the words "including but not limited to" to that particular phrase. We therefore conclude that the
phrase "including but not limited to" probably was intended to modify the list of permissible
insurance coverages.

September 20, 2000
Page 8

The question then becomes how broad this grant of authority was intended to be. We
conclude above that the phrase “including but not limited to” in ORS 278.405(1) is expansive of
DAS’s authority to provide insurance and that the list of examples following this phrase does not
qualify or restrict that authority. Our conclusion as to DAS’s authority is predicated in part on
the fact that the list of examples in ORS 278.405(1) follows a statement authorizing DAS to
provide “all” insurance. PEBB’s authority under ORS 243.275 is not expressly so all
encompassing.
Nevertheless, we find the text and context of ORS 243.275(1) ambiguous and the
legislative history unhelpful.14/ Therefore, we consider, at the third level of statutory
interpretation under PGE v. BOLI, the maxims of statutory construction. The maxim that
appears most pertinent is that directing a court to construe a statute as it believes the legislature
would have acted, had the legislature specifically addressed the issue. State v. Gulley, 324 Or
57, 66, 921 P2d 396 (1996) (citing PGE, 317 Or at 612). One possible clue to what the
legislature would have done is contained in the insurance benefits that PEBB is expressly
authorized to provide. All of those benefits -- medical, dental, life, disability and long-term care
-- insure against contingencies that could affect a broad spectrum of employees and their family
members, i.e., sickness, injury, death and disability. The great majority of state employees, on
the other hand, are unlikely ever to face criminal prosecution on charges arising out of the
performance of their official duties. Moreover, criminal defense insurance, unlike the expressly
authorized PEBB insurance benefits, is not typically included in employee benefit packages.
Yet, if we were to conclude that PEBB has authority under ORS 243.275(1) to provide criminal
defense insurance, then DAS would not have authority to do so because ORS 278.405 excepts
from DAS’s authority employee benefit insurance programs provided in ORS chapter 243. As
between DAS and PEBB, we believe it more likely that the legislature would have intended to
give DAS authority over a program of insurance that reimburses the legal fees and costs incurred
by a state employee in the employee’s successful defense against a criminal prosecution on
charges arising from the performance of official duties. Such insurance does not merely reduce
an employee’s expenses as do other PEBB benefits. Rather, it tends to serve the same policy that
the Tort Claims Act does, i.e., providing assurance to public employees that the discharge of
public duties will not create a risk of personal liability which would discourage people from
seeking public employment or, once employed, from taking official action. Thus, we conclude
that ORS 243.275(1) does not authorize PEBB to provide such criminal defense insurance
because it is not an “employee benefit insurance program.”15/
2.

DAS's Authority to Negotiate and Enter into Collective Bargaining Agreements for
Employee Legal Expenses

You next ask whether DAS has authority to agree in a collective bargaining agreement to
reimburse a state employee's legal expenses incurred in the employee's successful defense
against a criminal prosecution in circumstances where the employee would be entitled to statepaid legal defense and indemnification under the OTCA had the charges been brought as a civil
tort action. You also ask whether this would be a mandatory subject of bargaining. We first
address DAS's authority to agree to such a provision in a collective bargaining agreement and
then discuss whether such a subject is a mandatory or a permissive subject of bargaining.

September 20, 2000
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a.

Personal Legal Expenses as a Collective Bargaining Subject

The Public Employees Collective Bargaining Act (PECBA), ORS 243.650 to 243.782,
obligates the state and labor unions representing state employees to engage in collective
negotiations with a willingness to enter into written and signed contracts evidencing agreements
resulting from those negotiations. ORS 243.656(5). DAS represents state agencies in collective
bargaining. ORS 243.696, 240.321(1). Employees in state-recognized bargaining units must
have "all aspects of their wages, hours and other terms and conditions of employment"
established through collective bargaining between the state and the unions. ORS 240.321(2).
Certain subjects, however, may not lawfully be included in collective bargaining
agreements and, if included, are unenforceable. Springfield Education Assn., v. Springfield
School District No. 19, 1 PECBR 347, 350 (1975). A prohibited subject of bargaining is one
that, if adopted, would require either party to the collective bargaining agreement to perform an
unfair labor practice, violate law or violate public policy. Petition for a Declaratory Ruling
Filed by the City of Portland, 8 PECBR 8115, 8121 (1985); Eugene School District No. 4J v.
Eugene Education Association and Jack S. Hunter, 4 PECBR 2403, 2406 (1979); see also
Petition for Declaratory Ruling Filed Jointly by Corvallis School District 509J and Mid-Valley
Bargaining Council, 13 PECBR 598 (1992) (contract proposal for two-tiered seniority system
was prohibited subject of bargaining because it conflicted with statute requiring single track
system for teachers). A subject is also prohibited if it falls within the exclusive province of an
agency whose responsibilities and authority with regard to the subject are incompatible with the
collective bargaining process. See, e.g., AFSCME v. Oregon State Executive Department, 14
PECBR 180 (1992) (health insurance benefits); Association of Oregon Corrections Employees
v. State of Oregon, Dept. of Corrections, 14 PECBR 832 (1993), aff'd 133 Or App 602, 892 P2d
1030, rev den 321 Or 268 (1995) (underinsured motorist coverage).
The Court of Appeals recently concluded that it would not violate public policy for a
public body to reimburse an employee's successful criminal defense costs in circumstances
where the employee would be entitled to state-paid legal defense and indemnification under the
OTCA had the charges been brought as a civil tort action. See Eugene Police Employees'
Association v. City of Eugene, 157 Or App 341, 348, 972 P2d 1191 (1998), rev denied 328 Or
418, 987 P2d 512 (1999) (employer reimbursement of represented employees' expenses in
successfully defending against criminal charges not a prohibited subject of bargaining).
Furthermore, the proposed reimbursement program would not cause either party to the collective
bargaining agreement to violate any express provision of law. The remaining question,
therefore, is whether such a reimbursement program would be a prohibited subject of bargaining
because it falls within the exclusive province of an agency whose responsibilities and authority
with regard to that subject are incompatible with the collective bargaining process.
We conclude above that DAS has authority to establish a program to reimburse
employees' legal expenses incurred in successfully defending against criminal charges arising out
of the performance of official duties by amending the state's merit pay system and salary plans

September 20, 2000
Page 10

pursuant to ORS chapter 240. The Court of Appeals has held that the Personnel Division's
authority to establish employee classification and compensation plans is not irreconcilable with
its duty to bargain over salaries under PECBA. AFSCME v. Executive Dept., 52 Or App 457,
471, 628 P2d 1228, rev den 291 Or 771 (1981) (while Personnel Division is responsible for
establishing general salary grades and classifications, specific salaries within each range paid to
bargaining unit employees are subject to negotiation or arbitration under PECBA). Accordingly,
the Personnel Division's authority to provide criminal defense expense reimbursement as
compensation does not relieve it of the obligation to bargain over that subject.
We also conclude above that DAS may establish an insurance program under
ORS 278.405 to provide reimbursement of successful criminal defense expenses. In Association
of Oregon Corrections Employees v. State of Oregon, Dept. of Corrections, 14 PECBR 832,
ERB held that the authority to provide underinsured motorist's insurance coverage was within the
exclusive province of the Department of General Services (DGS) and that such coverage
therefore was a prohibited subject of bargaining. Under the law in effect at the time, the
Department of General Services (DGS) was the agency authorized under ORS 278.405 to
manage the state's risk management and insurance programs. ERB concluded that DGS's
"obligations under its organic law are incompatible with the processes required under the
PECBA as discussed generally in [AFSCME v. Oregon State Executive Department]." Id.
at 875.
Although the ERB opinion contains no express analysis, it incorporates by reference the
analysis set forth in AFSCME v. Oregon State Executive Department, 14 PECBR 180. In that
case, ERB concluded that employee health insurance benefits were a prohibited subject of
bargaining because they were within the exclusive province of the State Employes' Benefit
Board (SEBB).16/ Id. at 189. Although SEBB was "situated organizationally" in the Personnel
Division of the Executive Department, which at that time represented the state in collective
bargaining, ERB concluded that SEBB was operationally independent from the Executive
Department, stating:
SEBB is not a public employer. Its decisions are not controlled by a public
employer. Rather, it is an autonomous statutory entity which * * * is specifically
charged with the responsibility to carry out express legislative purposes in a
manner irreconcilable with the bargaining process.
In sum, SEBB and the Executive Department are not a single bargaining
entity. SEBB is not a public employer -- or even a functional equivalent -- for
purposes of the PECBA.
Id. at 192-93. ERB based this conclusion in part on SEBB's organizational structure, under
which an independent board was charged by statute with establishing and administering the
state's health and dental benefit plans. ERB also found that SEBB's statutory powers and duties
were incompatible with the collective bargaining process. Under those statutes, SEBB had an
affirmative duty to provide health and dental benefits, to make benefit plan decisions based on
the welfare of both the state and its employees and to give primary consideration to cost

September 20, 2000
Page 11

containment principles. The statutes also gave SEBB the authority to terminate any insurance
agreement or contract "which in the board's judgment requires such action." Id. at 190-91, citing
ORS 243.145(1).
The ERB opinion in Association of Oregon Corrections Employees v. State of Oregon,
Dept. of Corrections, provides some support for the conclusion that the criminal defense expense
insurance at issue here also is a prohibited subject of bargaining because authority to provide
such insurance is within the exclusive province of DAS. That opinion, however, dealt with the
authority of DGS, which no longer exists. Before July 29, 1993, the Executive Department
represented the state in collective bargaining and DGS, a completely separate agency, was
responsible for the state's insurance programs under ORS 278.405. Effective July 29, 1993,
however, DGS was abolished and its duties and functions were transferred to DAS. Or Laws
1993, ch 500, § 1.17/
DAS's Risk Management Division administers the state's risk management and insurance
programs and DAS's Personnel Division represents the state in collective bargaining. The Risk
Management Division has no statutory authority or existence independent of DAS; it is merely
an administrative construct subject to DAS's complete direction and control. See note 3, above.
Although the Personnel Division is created by statute and assigned specific statutory powers and
duties, it is controlled by DAS's director. ORS 240.055, 240.057. Thus, a critical element of
ERB's reasoning in Association of Oregon Corrections Employees v. State of Oregon, Dept. of
Corrections -- that separate, independent agencies were charged with managing the state's
insurance programs and representing the state in collective bargaining -- no longer exists. Under
the current statutory scheme, a single agency -- DAS -- performs both functions.
We also believe that DAS's statutory authority over state insurance programs is not
necessarily inconsistent with the bargaining process. Unlike the statutes that governed SEBB,
DAS's governing statutes do not require DAS to provide the type of insurance at issue here, nor
is there anything in ORS 278.405 that constrains DAS’s authority to provide such insurance
other than the need for DAS to determine that doing so is “necessary or desirable for the efficient
operation of state government.” When faced with apparent conflicts between a public employer's
duty to bargain over mandatory subjects and its authority over the same subject under another
statutory scheme, Oregon courts have, for the most part, resolved the issue in favor of the
bargaining obligation. See, e.g., Circuit Court v. AFSCME, 295 Or 542, 669 P2d 314 (1983)
(PECBA requires juvenile court judges to bargain with union over juvenile court counselors'
salaries, grievance procedures and all other mandatory subjects, notwithstanding judges'
statutory authority to hire, fire and set salaries of employees); AFSCME v. Executive Dept., 52
Or App at 471 (while State Personnel Division is responsible for establishing general salary
grades and classifications, specific salaries within each range paid to bargaining unit employees
is subject to negotiation or arbitration under PECBA). Although the issue is not entirely free
from doubt, we believe that ERB and the courts would reach the same conclusion here.
In summary, we conclude that the reimbursement of legal expenses incurred in an
employee's successful defense against a criminal prosecution, where the employee would be

September 20, 2000
Page 12

entitled to OTCA indemnification and defense for an analogous tort claim, is not a prohibited
subject of bargaining.
b.

Mandatory and Permissive Subjects of Bargaining

We next consider whether the proposed criminal defense legal expense reimbursement is
a mandatory or permissive subject of bargaining. Under PECBA, the state must bargain
collectively in good faith with its employees' exclusive representatives over "employment
relations." ORS 243.650(4), 243.656(5), 243.672(1)(e). Only those subjects defined as
"employment relations" under ORS 243.650(7)(a) are mandatory for bargaining. Portland Fire
Fighters Assn., v. City of Portland, 305 Or 275, 282-283, 751 P2d 770 (1988). A public
employer may bargain over permissive subjects but has no legal obligation to do so. Tualatin
Valley Bargaining Council v. Tigard School District, 314 Or 274, 840 P2d 657 (1992).
“‘Employment relations’ includes, but is not limited to, matters concerning direct or
indirect monetary benefits.” ORS 243.650(7)(a). A program to reimburse employees’ legal
expenses clearly provides “direct or indirect monetary benefits.” Based on the plain language of
ORS 243.650(7)(a), the Court of Appeals recently held that a proposed collective bargaining
agreement provision under which the employer would be required to reimburse represented
employees for expenses incurred in successfully defending against criminal charges is a
mandatory subject of collective bargaining. Eugene Police Employees' Association v. City of
Eugene, 157 Or App at 354. Based on the holding in that case, DAS would have a duty to
bargain with the exclusive representative of state employees over a proposal to provide the
criminal defense expense reimbursement described in your question. Because this is a
mandatory subject of collective bargaining, DAS may not implement such a reimbursement
program for represented employees by amending the merit pay system or salary plans under ORS
chapter 240, without bargaining in good faith with the employees' representatives.
3.

Personal Legal Expenses when Charges Arose from Malfeasance in Office or Willful
or Wanton Neglect of Duty

Your final question concerns DAS's authority to agree in a collective bargaining
agreement to reimburse a state employee's expenses in successfully defending against a criminal
prosecution if the criminal charges arose from the performance of official duties but the
employee would not be entitled to legal representation and defense under the OTCA because the
employee was guilty of malfeasance in office or willful or wanton neglect of duty. For the
reasons discussed above, the reimbursement of criminal defense costs in such circumstances
would not cause either party to the collective bargaining agreement to violate any express
provision of law, nor would it fall within the exclusive province of an agency whose
responsibilities and authority with regard to that subject are incompatible with the collective
bargaining process. The Court of Appeals recently held that the use of public funds to defend
public employees against liability for conduct that constitutes either malfeasance in office or
willful or wanton neglect of duty does not violate public policy. Eugene Police Employees'
Association v. City of Eugene, 157 Or App at 344-45.

September 20, 2000
Page 13

Under the court’s holding, DAS would have authority to agree in a collective bargaining
agreement to reimburse criminal defense costs in such circumstances, and the proposed
reimbursement would be a mandatory subject of bargaining. Id. at 354.

Sincerely,

Donald C. Arnold
Chief Counsel
General Counsel Division

WFN:RSW:VLM:ALV/mwc/GEN61205.DOC

11/

ORS 30.285 provides, in relevant part:

(1) The governing body of any public body shall defend, save harmless and
indemnify any of its officers, employees and agents, whether elective or appointive, against
any tort claim or demand, whether groundless or otherwise, arising out of an alleged act or
omission occurring in the performance of duty.
(2) The provisions of subsection (1) of this section do not apply in case of
malfeasance in office or willful or wanton neglect of duty.
2/

The Public Employees' Benefit Board (PEBB) is part of the Department of Administrative Services
(DAS). ORS 243.061(1).
3/

The Risk Management Division is the subdivision of DAS that administers the state's Insurance
Fund, the state's activities under the OTCA and the state's general liability and casualty insurance and
self-insurance programs. Because the statutes discussed in this opinion name DAS as the responsible
state agency, we refer in this opinion to DAS, rather than the Risk Management Division.
4/

ORS 278.405(6) also authorizes DAS "[t]o adopt rules and policies governing the administration of
the state's insurance and risk management activities and to carry into full force and effect the provisions
of this chapter, ORS 30.260 to 30.290, 30.880 and 655.505 to 655.555." ORS 278.425(1) creates the
Insurance Fund, "which shall be used to provide insurance and self-insurance for the State of Oregon
under this chapter, and for participating local public bodies under ORS 30.282 and 278.125 to 278.215."
5/

We previously determined that ORS 278.405(2) authorizes DAS to establish and maintain programs
of self-insurance. Letter of Advice dated March 31, 1986, to Holly Miles, Manager, Job Training
Partnership Administration (OP-5924) at 2-5.
6/

We also have considered whether, in authorizing DAS to provide "all insurance coverages,
including coverage of related legal expenses," the legislature implicitly limited DAS's authority to
provide coverage for legal expenses unless those expenses are related to some other covered risk or

September 20, 2000
Page 14

liability. See ORS 278.405(1). We do not believe that this is a reasonable interpretation of the plain
language of this provision, which is a statement of inclusion, not a limitation on DAS's authority.
7/

Although the 1986 version of ORS 278.405 referred to the Department of General Services rather
than DAS, the language is otherwise identical to the present version.
8/

Although we conclude that DAS has authority under current statutes to provide such a
reimbursement program if it concludes that to do so would be “necessary or desirable for the efficient
operation of state government,” we recognize that such a program would likely be controversial. We
express no opinion on whether such a program would be “necessary or desirable”; that decision has been
committed by the legislature to DAS.
9/

We recognize that in a Letter of Advice dated April 12, 1995, to Rick Hill, Juvenile Corrections,
Children's Services Division (OP-1995-4), we stated that no statute authorized the use of the Insurance
Fund "to indemnify a state employee or agent for the costs of obtaining representation in a criminal
investigation or prosecution." Id. at 4. That letter, however, addressed only whether a physician under
contract with the state, and therefore arguably an agent of the state, could claim indemnification for those
expenses directly under existing statutes. The question answered by that letter did not present the issue
whether DAS was empowered to establish a new program to reimburse those costs. Standing alone, the
part of the OTCA that directly provides for the indemnification of employees and agents of the state
permits indemnification only against tort liability. This provision of the OTCA states:
The governing body of any public body shall defend, save harmless and indemnify
any of its officers, employees and agents, whether elective or appointive, against any tort
claim or demand, whether groundless or otherwise, arising out of an alleged act or omission
occurring in the performance of duty.
ORS 30.285(1) (emphasis added).
In 44 Op Atty Gen 416, 421 n 8 (1985), we recognized that leading legal commentators had
consistently tethered the concept of "tort" to the existence of a civil wrong, stating, "This qualification is
important because it distinguishes the concept of tort from criminal liability that may result from the
breach of a duty imposed by law." ORS 30.285(1) neither requires nor authorizes the state to indemnify
an officer, employee or agent against liability for, or expense incurred in defending against, criminal
charges. Thus, OP-1995-4 correctly answered the question to which that advice was limited.
10/

In 42 Op Atty Gen 403 (1982), we concluded that a county court may, but is not required to, adopt
an ordinance authorizing the reimbursement of a county clerk for attorney fees incurred in successfully
defending against a criminal prosecution on charges relating to the clerk's alleged abuse of public office.
In that opinion, however, we provided the following caveat:
This opinion does not deal with payment of such defense costs for officers or
employees of state agencies. Payment in those cases would not be permissible unless the
legislature enacts a statute permitting it.
Id. at 407 n 4. This 1982 opinion contained no express analysis on this point and there is no indication
that we considered whether such reimbursement could be provided as a part of employee compensation.
After that 1982 opinion was issued, we concluded that the Executive Department's Personnel
Division had authority to provide legal service benefits to employees as part of the merit pay system.
Letter of Advice dated September 27, 1984, to Anita Leach, Administrator, Personnel Division, Executive

September 20, 2000
Page 15

Department (OP-5683). For the reasons discussed in OP-5683, we conclude that DAS's Personnel
Division does have authority to provide the reimbursement described in your question.
As discussed in Part 1.a. of this opinion, we also believe DAS has authority to provide an insurance
program to reimburse employees' criminal defense expenses under ORS 278.405, which was enacted after
the issuance of our 1982 opinion.
11/

Amounts contributed by an employer on behalf of an employee under prepaid group legal services
plans were previously excluded from taxation by the Internal Revenue Code. 26 USC § 120. The tax
exclusion for such plans expired for tax years beginning after June 30, 1992. See 26 USC § 120(e). Even
when the exclusion was available, the IRS took the position that it did not apply to legal services that
relate to an employee's trade or business. See 45 Fed Reg 28360 (1980) (to be codified at 26 CFR
§ 1.120-2(c)(1)(i)) (proposed April 29, 1980). Therefore, payments to an employee for legal expenses
incurred in defending against job-related criminal charges may not have received tax free treatment, a
condition that must exist for its inclusion in a flexible benefits plan provided by PEBB.
12/

ORS 243.221(2)(b) also lists "[o]ther insurance benefits as provided in ORS 243.275" as a
permissible flexible benefit plan benefit. For purposes of this analysis, it is immaterial whether the other
insurance benefits are included in a flexible benefit plan.
13/

The same language is used in defining "benefit plan" for purposes of the PEBB statutes.
ORS 243.105(1) provides:
"Benefit plan" includes, but is not limited to, contracts for insurance or other benefit
based on life; supplemental medical, supplemental dental, optical, accidental death or
disability insurance; group medical, surgical, hospital or any other remedial care recognized
by state law; and related services and supplies. * * *
14/

We find no guidance on this issue in the legislative history to the PEBB statutes or to the statutes
governing PEBB's predecessors, the State Employes' Benefit Board (SEBB) and the Bargaining Unit
Benefits Board (BUBB).
15/

It is important to recognize that our conclusion rests on a very narrow premise, i.e., that the
provision of insurance covering the defense of criminal charges arising from the performance of official
duties is not an “employee benefit insurance program” as provided in ORS chapter 243, but rather an
aspect of risk management administered by DAS. We express no opinion here as to whether PEBB has
authority to provide, as an employee benefit, general litigation insurance that is not restricted to the
performance of official duties.
Our conclusion that insurance to reimburse state employees for legal expenses incurred in defending
against criminal charges arising from the performance of official duties is not an “employee benefit
insurance program” does not mean, however, that either such insurance or general litigation insurance
unrestricted to performance of official duties would not be a term or condition of employment subject to
collective bargaining.
16/

Effective January 1, 1998, SEBB and the former Bargaining Unit Benefits Board were abolished
and their powers and responsibilities were transferred to the newly created PEBB. See Or Laws 1997,
ch 222.
17/

ERB's opinion in Association of Oregon Corrections Employees v. State of Oregon, Department
of Corrections was issued on November 10, 1993, after the effective date of the bill abolishing DGS and

September 20, 2000
Page 16

establishing DAS. The opinion, however, refers to DGS as the agency charged with managing the state's
insurance programs under ORS 278.405. Id. at 875. The opinion therefore appears to have been based on
the assumption that insurance management functions were still the exclusive province of DGS.