Section 7. (a) Any municipality which creates a decentralized personnel system will be required to establish a local merit appeals board. The board shall consist of three members, of which one member shall be appointed by the local chief executive officer, as defined in section two, to represent management, one member shall be elected by the employees within the community and the third member shall be selected by the other two members. The neutral member shall be an impartial chairman who shall have expertise in personnel administration and labor relations. The members of the board shall serve for three-year terms and shall be reimbursed by the municipality for the necessary expenses incurred in the performance of their official duties; provided, however, that the chairman may be further compensated for services provided to the board. The primary role of the board shall be as an oversight and appellate board on merit principle issues.

(b) The authority of the board shall include but shall not be limited to:

(1) hearing appeals in cases of suspensions, demotions or dismissals;

(2) hearing appeals in cases of lay-offs and transfers, from one department to another; provided, however, that such board may only issue an order if the employee can show bad faith on the part of the municipal employer;

(3) hearing appeals on selections, promotions, and any other personnel actions as the municipality may provide for in the personnel ordinance or by-laws; provided, however, that no punishment duty shall be imposed on any police officer or firefighter subject to the provisions of this chapter unless said police officer or firefighter assents thereto; and

(4) upon the request of the personnel director, to advise on any personnel matters.

(c) Employees subject to a local merit system established pursuant to this chapter may be suspended, demoted, or dismissed for just cause. If the board, by a preponderance of the evidence, determines that there was just cause for an action taken against such employee it shall affirm the action of the appointing authority, otherwise it shall reverse such action and the employee shall be returned to his position without loss of compensation or other rights provided that if the employee establishes by a preponderance of the evidence that the said action was based upon harmful error in the application of the appointing authority's procedure or upon an error of law or upon any factor or conduct on the part of the employee not reasonably related to the fitness of the employee to perform in his position the said abolition, disciplinary action or discharge or evaluation shall not be sustained and the person shall be returned to his position without loss of compensation or other rights and in the case of an appeal from a performance evaluation, the matter shall be remanded to the appointing authority for action not inconsistent with the findings of the board. The board may also modify any penalty imposed by the appointing authority. Except in the case of an employee subject to the provisions of section eight, the decision of the board shall be final and binding on parties, subject to judicial review.

(d) The organization, operating procedures, staffing, compensation, and removal procedures of the board shall be determined by the municipality in its personnel ordinance or by-law.