## Facts

- New Jersey’s public school laws authorized local boards of education to set employment terms and teacher salaries.
- A 1909 statute provided that after three years’ employment, teachers could not be dismissed or have salaries reduced except for specified causes and only after notice and a hearing.
- During the Great Depression, a 1933 statute authorized school boards (for a limited period) to fix salaries notwithstanding tenure protections, subject to minimum-salary limits and a requirement of no discrimination within classes of service.
- The West New York Board of Education adopted a salary-reduction plan for principals, teachers, and clerks using salary brackets and percentage cuts that increased with higher salaries.
- The New Jersey State Board of Education upheld the reductions; the New Jersey Supreme Court and the New Jersey Court of Errors and Appeals affirmed on review.
- Affected employees appealed, alleging (1) unconstitutional impairment of contract and deprivation of property without due process and (2) denial of equal protection due to alleged arbitrary effects of the bracketed reductions.

## Issues

1. Whether the 1909 tenure statute created contractual rights to continued salary levels, such that the 1933 statute and the board’s reductions impaired contracts or deprived employees of property without due process.
2. Whether graduated percentage salary reductions by salary group violated equal protection because the grouping could produce instances where a lower-end salary in a higher bracket fell below a higher-end salary in a lower bracket after cuts.

## Decision

- The Supreme Court affirmed the state court judgment upholding the salary reductions.
- The Court held the 1909 tenure statute did not create individual employment contracts; it functioned as a statutory limitation on school board authority.
- The stipulated record did not show any contracts guaranteeing employment or salary beyond the current year.
- The graduated reduction plan was not arbitrary discrimination under the Equal Protection Clause, despite occasional crossover results between adjacent salary brackets.

## Legal Principles

- A statutory tenure and salary-protection scheme for public employees does not create a contract protected by the Contracts Clause absent a clear legislative intent to bind the state by contract.
- Public employment terms set by statute remain subject to legislative change when not reduced to unmistakable contractual obligations.
- Equal protection permits rational classifications in compensation measures; a salary-reduction plan using salary ranges and increasing percentage cuts is constitutional even if it produces imperfect boundary outcomes in individual cases.

## Conclusion

The Court upheld temporary, legislatively authorized salary reductions for tenured school employees, concluding that the tenure statute created no contractual right to fixed salary levels and that the bracketed, graduated cuts were rational and not arbitrary discrimination under the Fourteenth Amendment.


Phelps v. Bd. of Educ., 300 U.S. 319 (1937)