In response to a recent internal report which concluded the town had no legal authority to award special employment agreements and bonuses to several town employees in recent years, the Oak Bluffs board of selectmen on Tuesday unanimously voted to terminate all personal service contracts as of June 30.

With the vote, selectmen effectively ended a pattern in recent years of certain department heads receiving higher levels of fringe benefits, health coverage and financial incentives then all the other town employees.

The special meeting at town hall was marked by a spirit of collaboration and progress, as selectmen agreed steps should be taken not to harm the employees who are holding these contracts.

"We don't want to punch the employees in the face on this, because they are not the ones at fault," selectman Ron DiOrio said. "We're just sending a message that this practice of a certain few getting fringe benefits in excess of the rank and file employees is coming to an end."

There are sixteen employees who hold personal service contracts with the town, although state law allows only four positions to be covered by such agreements: town administrator, town accountant/finance director, police chief and fire chief.

A separate provision allows town librarians to receive a contract if the agreement is approved by the library board of trustees.

Last month, town attorney Ronald H. Rappaport and labor counsel Michael Gilman drafted a 12-page report which found that former town administrator Casey Sharpe, in her dual position as personnel administrator, had no legal authority to enter into personal service contracts with town employees. That power rests with either the selectmen or other boards with legal authority by statute, or by town meeting vote, the attorneys found.

The report found that only two of the contracts were reviewed and signed by a full quorum on the board of selectmen, and most of the contracts were not discussed in open session.

The report also concluded that Ms. Sharpe had no legal authority to award bonuses totalling over $22,000 in July 2006 to four department heads; nor did she have legal authority to pay the building inspector over $13,000 in lieu of his share of health premiums for fiscal year 2006.

The report also concludes the town cannot pay 100 per cent of employees health premiums as stipulated in several personal service contracts. State law prohibits the town from paying a greater share of an employee's health insurance premium than it does for other employees.

The legal opinion carries a stamp of approval from Kathleen Colleary, chief of the state bureau of municipal finance law for the Massachusetts Department of Revenue.

The report from Mr. Rappaport and Mr. Gilman recommends the town move to terminate five contracts because they are unauthorized under Massachusetts General Law and that those employees be paid in accordance with the town personnel bylaws.

But due to lingering legal questions about the other employment agreements, selectmen on Tuesday decided to take the recommendation one step further and terminate all personal service contracts by the end of the fiscal year on June 30. Going forward, the town will pay those employees in accordance with town personnel bylaws.

Selectmen agreed to ask the personnel board to recommend which town employees should receive contracts; and also to draft a standard contract for all employees.

The amount of salary awarded could differ for each employee, but other fringe benefits - like health coverage and vacation time - would be uniform for all contracts.

Although no specifics were discussed, selectmen suggested that employees who currently hold contracts would likely receive the same level of pay.

Selectmen agreed the first step to create a uniform policy for contracts will be to draft the contract for town administrator Michael Dutton, who replaced Ms. Sharpe last July. Once Mr. Dutton's contract is drafted, it could serve as a template for future agreements.

Selectmen agreed that in the future contracts should be fully vetted by selectmen in public and authorized by the entire board.

"We want to start fresh. Everything in the future will be right out in the open so everyone knows what is happening," selectman Kerry Scott said.