The state Court of Appeals has agreed with the Federation and struck down three of the state's contracting out rules.
The court upheld the 2008 ruling made by a Thurston County Superior Court judge on the lawsuit against the rules filed by the Federation.
The rules came from the Department of General Administration.
But the appeals court said GA exceeded its authority when it wrote the restrictive rules about which employees could offer alternatives to contracting out or bid for projects.
The Legislature in 2002 said employees whose positions or work would be "displaced" would be allowed to offer alternatives. But the appeals court ruled those rules restricted the opportunity only to employees who lose their jobs or who would be reassigned.
The state may appeal to the state Supreme Court.
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