PROVIDENCE –– Supreme Court Chief Justice Frank J. Williams has refused to allow Governor Carcieri to force new health-care costs on nearly 5,000 unionized state workers.

Instead, Williams yesterday ordered the Republican governor and the largest state employees union to resolve their high-profile contractual stalemate through mediation and arbitration, a process outlined in state law. The outcome has a substantial bearing on the state budget and the paychecks of more than one-third of state government’s work force.

“Chief Justice Williams firmly believes that mediation and negotiation can produce a far better resolution for the parties and for the citizens of the state than any court decision,” court spokesman Craig Berke said.

While Williams’ court order limits the mediation and arbitration process to three months, the final resolution of the high-profile labor dispute that jeopardizes $10 million in budgeted savings could span well into next year.

Decisions of mediators and arbitrators are nonbinding in cases involving wage disputes. That means either side could appeal the outcome to the Superior Court.

“You can be sure that after the [arbitrator’s] award is in, if it reaches that, there will be further litigation by one side or the other. That’s the American way,” said Gerard P. Cobleigh, the lead attorney for Council 94, the American Federation of State, County and Municipal Employees.

Cobleigh and the governor’s legal team agreed to yesterday’s order after meeting privately in Williams’ chambers for around an hour.

Williams declined to reverse Superior Court Judge Patricia Hurst’s decision blocking Carcieri from forcing new health-care costs on 4,842 state employees beginning with next week’s paychecks. Hurst had characterized the governor’s move as “precisely the kind of abuse of executive power that our system of government was designed to prevent.”

Cobleigh said he was pleased by Williams’ ruling.

“We’re where we want to be,” he said. “The idea behind this whole process was to reach a contract.”

Until yesterday, Carcieri had refused to try to broker a new deal with organized labor before acting unilaterally to impose new health-care costs. The governor’s position changed yesterday afternoon.

“We’re going to do our best efforts to negotiate and discuss this in good faith and get a resolution,” the governor’s chief legal counsel, Kernan F. King, said outside the courthouse. “And the chief justice is going to be watching carefully over this process. [He] has encouraged both sides to get together and to get a deal for the benefit of the people of Rhode Island.”

But Carcieri released a statement later in the day suggesting that he would not bend in offering labor unions a deal other than what Council 94 members and a handful of smaller unions rejected last month.

That tentative agreement would have increased health-care costs for most workers while offering no raises this year, and increases of 2.5 percent, 3 percent and 3 percent in the subsequent years. Thirteen smaller unions endorsed the four-year contract and are currently working under its terms.

That deal “represents the very best financial offer the state can afford in this economic climate,” Carcieri said. “While I am hopeful this expedited process will result in a ratified agreement, I continue to have an obligation to balance the budget. The longer we are without an agreement with Council 94 and the other unions, the only options I have to recoup the cost savings are more severe and impactful to employees than the co-share changes. Time is running out. I cannot delay much longer.”

The governor’s office refused to expand on the comments yesterday. Earlier in the week, Carcieri refused to rule out layoffs or forced unpaid work days in handling the situation. King yesterday wouldn’t rule out layoffs either, but said he didn’t expect immediate action as the mediation and arbitration processes play out in the coming months.

Cobleigh acknowledged that the governor could lay off state employees under existing law. But he doesn’t expect layoffs given the exodus of state workers expected in the coming weeks because of a change in retiree health-care benefits for those who retire after Sept. 30.

“You have to understand though that the state workforce is down to a level now that there aren’t enough people to do half the jobs that are out there,” Cobleigh said. “So layoffs aren’t really practical.”

Aside from Williams’ desire to have the processes settled in the next 60 to 90 days, there is no set timeline for how things will proceed.

Mediation begins with the selection of an independent mediator, which must be approved by both sides. The mediator has the discretion to shape the proceedings. Both parties are generally invited to make informal cases for their position.

And the mediator decides when the process is over –– when an agreement is reached or when both sides are at an impasse.

If no deal is reached after mediation, the parties would move to arbitration, in accordance with yesterday’s order, which skips the standard next step of conciliation.

An independent arbitrator would oversee a trial-like process in which both sides present witnesses and evidence. The arbitrator would ultimately issue an award outlining a resolution.

speoples@projo.com