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CHICAGO (Reuters) - An appeals court potentially saved cash-strapped Illinois money on Thursday by upholding a lower court's dismissal of a public labor union's lawsuit challenging Governor Pat Quinn's elimination of pay raises in the current budget.

Quinn, a Democrat, canceled 2 percent raises worth $75 million for state unionized workers in July, contending the state's then-new $33 billion fiscal 2012 budget did not include an appropriation to pay for them.

The American Federation of State, County and Municipal Employees Council 31 filed a lawsuit claiming the action violated the contract and equal protection clauses of the U.S. Constitution. The union also sought a preliminary injunction ordering Illinois to pay to the wage increases.

The federal appeals court affirmed a U.S. district court judge's denial of the injunction and dismissal of the lawsuit.

Anders Lindall, an union spokesman, said the union disagrees with the ruling and continues to pursue another lawsuit it filed in Illinois court.

"The governor has a moral obligation, and under the union contract and an arbitrator's order a legal one, to rescind his illegal pay freeze and make employees whole," Lindall said. "It is regrettable that he has provoked litigation instead of complying with the contract and the law."

(Reporting by Karen Pierog; Editing by Kenneth Barry)

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