The contract called for a two-year wage freeze and would have required city employees to start contributing 2% of their pay toward their retirement plan, which is handled by the state's CalPERS retirement system.
The council said it would have Fialho and the union return to the bargaining table to develop a new contract.
The city has separate contracts with its police and firefighter units. The current contract with the police officers union expires in May and with the Livermore-Pleasanton Fire Department firefighters next November.
Speakers at Tuesday night's meeting, some with tears in their eyes, talked about their years of dedicated service as city employees working at the library, City Hall, the Police Department and other non-management jobs.
Several were openly critical of the City Council for what they called "reneging" on the contract that had been negotiated over a five-month period.
"I've never been so disappointed in your leadership," one 15-year employee told the council. "As a union, we worked together, negotiated in fairness, worked with leaders and there was a handshake. We gave up money to go with CalPERS changes in health care. My boss is the City Council and I have respect for you, but I can't say that anymore."
Another criticized the effort by some to impose a two-tier employment agreement in the PCEA's contract, asking what's to be gained by a two-tier system that would provide different -- presumably lesser -- benefits to new-hires when the city has frozen hiring for the foreseeable future.
"Many employees who work for Pleasanton have been impacted by no pay raises," she said. "We're already living paycheck to paycheck, have no chance for a pay raise and now are being asked to contribute 2% of our salary in the proposed new contract. I have three small children and already am using my vacation days to work in a co-op because I can't afford preschool."
A PCEA member in the Pleasanton Police Department said that when he was hired, there were 19 employees in his group. Now it's down to 10 with the likelihood it will drop to six or eight by July 1. In the meantime, he and the others are doing all the work that 19 once did.
"We are angry at the mockery that has been made of this collective bargaining process," he said. "It's not us that made the mistake, it was those in charge at the time, who earn six-figure salaries."
The "mistake" he referred to is a decision made by the City Council at the urging of then-Mayor Tom Pico in 2002 to ask all employees to forego a wage increase that year with the city agreeing to pick up their health and pension costs, which were nearly negligible at the time.
But over the years, as a citizens' coalition led by businessman Bart Hughes and former City Councilwoman Kay Ayala are now arguing, that benefit contribution has grown so that the city is faced with an unfunded pension liability of at least $171 million. Unless reduced, the city would find itself with an unsustainable public employee benefit obligation in the years to come.
Hughes, who spoke at Tuesday night's meeting, acknowledged the difficulties employees face financially, but said it's important now "to solve this huge issue for our community."
While many city employees criticized the City Council for failing to back the contract agreement their union had negotiated, a number of them also talked about their disappointment in comments being made publicly against their work.
Most of those comments, they said, had been posted as anonymous blogs on sites such as the Pleasanton Weekly's Town Square Forum. They cited statements calling city workers "greedy," and "undeserving of the salaries they earn," and suggesting that they "go find another job if you don't like it." They told the council that these comments had affected the once-high morale of city workers and were personally damaging when their children and others read them.
"I've been extremely disappointed to read these comments day after day, month after month, and to be criticized publicly for my work," one city workers told the council. "We're people who have been dedicated to working for the city and have made city employment our careers. The labor negotiating process has been part of this community for years and it's disappointing to see what's happening today."
A Police Department dispatcher said last year was the first time her salary broke the $60,000 mark. She commutes 100,000 miles a year to work here, not being able to afford a Pleasanton home.
"You in the council have made a mockery of the whole (negotiating) process we just completed," she said. "I've never been more disappointed with the way the process works than I am right now."
Mayor Jennifer Hosterman said the council has asked City Manager Fialho to schedule new negotiating sessions with the PCEA and to work with residents and the council in a "transparent" public process to develop new contract terms that will satisfy everyone.
The new contract, which the council was scheduled to vote on Tuesday night, would replace the one now set to expire and would cover the miscellaneous employees through 2013.
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