By Christopher Lee
Washington Post Staff Writer
Monday, February 27, 2006; 2:36 PM

A federal judge today blocked the Department of Defense from implementing its new personnel system, handing the Bush administration a major setback in its attempts to streamline work rules and install pay for performance in the federal workplace.

In a 77-page decision, U.S. District Judge Emmet G. Sullivan said the National Security Personnel System fails to ensure collective bargaining rights, does not provide an independent third-party review of labor relations decisions and would leave employees without a fair way to appeal disciplinary actions.

The American Federation of Government Employees and several other labor unions who filed a lawsuit in November challenging the new system claimed victory after the ruling was handed down this morning.

"Judge Sullivan's ruling eviscerates the core of NSPS, leaving but a hollow shell of provisions that simply cannot stand on their own," said Joe Goldberg, the AFGE's assistant general counsel.

"This is an absolute victory," said Richard N. Brown, president of the National Federation of Federal Employees.

"We have said from the beginning that DOD had no right to eliminate collective bargaining rights, and Judge Sullivan's decision shows we were correct in that assertion."

Joyce Frank, director of legislative and public affairs for the National Security Personnel System, said, "Our attorneys are reviewing Judge Sullivan's decision at this stage to determine what our next steps will be."A similar lawsuit against the Department of Homeland Security has delayed the implementation of a new pay system there by as much as a year. In August, U.S. District Judge Rosemary M. Collyer faulted the new DHS system for undermining employees' rights to collective bargaining and blocked implementation of new rules governing labor relations and employee appeals.

DHS has appealed. It was unclear today whether the Defense Department would appeal, too.

The National Security Personnel System was designed to eventually cover 650,000 civilian employees. It would replace the familiar 15-grade General Schedule pay system with one in which raises are linked to annual performance evaluations.

The new work rules, originally scheduled to begin taking effect last year, would have curtailed the power of labor unions and made it easier to hire, promote and discipline employees -- all in the name of making the Defense Department more nimble in the struggle against terrorism.

The unions contended that the new rules would gut collective bargaining in violation of federal law. And they maintained that department officials did not live up to their obligation, spelled out in the 2003 law that paved the way for the changes, to consult with employees' representatives in developing a new labor management system.

Judge Sullivan found, however, that Defense officials did, in fact, live up to their obligation to collaborate with unions in the development of the new system. And he ruled that the Pentagon had followed the law in establishing a labor relations system apart from those that govern labor relations at other federal agencies.

Joseph W. LoBue, a lawyer for the Justice Department, told Sullivan in a hearing last month that the DOD personnel system was very different from that at Homeland Security.

"These agencies have explicit authority to do just what they did," LoBue argued.