Statutory Limit on Removed Municipal Administrator’s “Salary” Applies to “Severance”

Carelli v. Borough of Caldwell, ___ N.J. Super. ___ (App. Div. 2022). N.J.S.A. 40A:9-138 deals with the removal of a municipal administrator from office. The statute provides for a resolution of removal by the governing body that is to become effective three months after its adoption by that body. But there is a proviso: “provided, however, that the governing body shall cause to be paid to the administrator forthwith any unpaid balance of his salary and his salary for the next 3 calendar months following adoption of the resolution.”

Plaintiff Carelli, the municipal administrator of the Borough of Caldwell, entered into an agreement, drafted by Carelli, that contained a “Termination” provision. That provision stated that he “shall be paid a severance package equal to one month salary for each year of service” if terminated. After the Borough’s political administration changed, the Borough’s governing body adopted a resolution removing Carelli as administrator. A few weeks later, the Borough paid him three months’ salary, per the statute, but refused to pay more despite the contractual language.

Carelli sued, and the parties filed cross-motions for summary judgment, stipulating to the facts. The Law Division denied both motions and both sides sought and were granted leave to appeal. Today, in Judge Fisher’s first published opinion since returning to the Appellate Division from his temporary assignment to the Supreme Court, the Appellate Division ruled in favor of the Borough, based on the plain language of the statute.

Judge Fisher stated that the panel was “satisfied there is no ambiguity in N.J.S.A. 40A:9-138 and agree with Caldwell that the statute creates both a floor and a ceiling on the amount of severance available to a municipal administrator who has been terminated prior to the end of a contractual term. The statute clearly and plainly enacts the salutary intent of protecting an outgoing administrator from the immediate impact of unemployment while also protecting the municipality from the type of overreaching by an outgoing administration that this case exemplifies.”

Carelli argued that the statute did not apply to severance because the word “severance” does not appear in the statute. Judge Fisher disagreed. “This argument is disingenuous at best. The Supreme Court has recognized that severance pay is ‘in essence a form of compensation’ designed to address the impact of an early termination of the employment relationship, Adams v. Jersey Cent. Power & Light Co., 21N.J. 8, 13-14 (1956), that is ordinarily based on a formula tied to the employee’s salary. In short, ‘severance’ is a form of compensation based on the terminated person’s salary: future salary that would have been paid but for the premature termination. That is the subject N.J.S.A. 40A:9-138 was designed to cover notwithstanding its failure to use the word ‘severance.’”

Though the clarity and lack of ambiguity of the statute was dispositive, Judge Fisher went further. He noted that in 1996, 25 years after N.J.S.A. 40A:9-138 was enacted, the Legislature considered and rejected an amendment that would have entitled discharged administrators to any unpaid salary “and his salary for a minimum of the next 3 calendar months following adoption of the resolution” (emphasis by Judge Fisher). “[A]lthough the Legislature’s failure to pass an amending law is certainly not the most persuasive extrinsic evidence about legislative intent,” the failure of that amendment “suggests the Legislature had not previously intended the statute to be a mere suggestion about what a municipality could pay a dismissed administrator.” Accordingly, the panel remanded the matter to the trial court for entry of an order dismissing the case.