ORANGE COUNTY IN BANKRUPTCY : Judge Temporarily Bars Layoffs : Courts: He orders county to show that firings are legal and necessary. The matter is to be reconsidered Friday.

A federal judge barred Orange County from firing government workers Tuesday, ordering that officials must first show that the layoffs are legal and necessary because of the county’s financial crisis.

Elated union leaders said the ruling came just one day before 86 employees would have lost their jobs.

“This is really a great win for labor,” said David L. Hamilton, a representative of one of 10 labor groups that banded together to sue the county Tuesday.

U.S. Bankruptcy Court Judge John E. Ryan issued the temporary restraining order halting further layoffs. The judge ordered county officials to return to court Friday--and said they must show that the layoffs were necessary because of the county’s Dec. 6 bankruptcy filing.

Hamilton and other labor leaders concede that layoffs ultimately may be necessary. But they contend that county officials wrongly suspended labor contracts and allowed department heads broad discretion in firing more than 400 workers, while at the same time hiring dozens of outside employees for other positions.

“There is no emergency situation which would allow the county to act in violation of state law, the labor agreements and the Constitution,” said Marc A. Beilinson, another attorney for the coalition that represents nearly 16,000 of the county’s 18,000 employees. “They are laying off senior people who have served the county, some of them between 20 and 30 years.”

But the county’s attorneys say the Board of Supervisors was forced to act when it began issuing layoff notices last month as part of cutbacks aimed at saving an estimated $40 million by summer.

“This is a crisis and the county had to act,” said attorney Lee Bogdanoff. “The county believes that it acted in good faith under extremely difficult situations.”

Supervisor William G. Steiner said the judge’s order might force the county to consider even more layoffs if it does not receive the full savings from the original round of cuts. “Any delays in implementing these layoffs means that a larger number of people would be in jeopardy of being laid off,” Steiner said.

Regardless of the outcome Friday, county workers rejoiced that they had won a victory after weeks of setbacks.

“Oh my gosh! I don’t know what to think. I knew they were going to court, but I honestly didn’t think it was going to do any good,” said Diane Bouchard, 34, laid off from the real estate division of the General Services Administration after 14 years with the county.

“I’ve been killing myself trying to find another job,” she said. “I’ve been finding out there is no work out there in my profession.”

In other developments Tuesday:

* A real estate specialist said Orange County developers will build 1,000 fewer homes this year because of lingering uncertainty among buyers about the county’s bankruptcy. The bankruptcy could “throw cold water on a buyer’s mental willingness to change his or her financial situation and take on new debt,” according to a study prepared by Walter Hahn, a director with the Newport Beach office of Kenneth Leventhal & Co., an accounting firm.

* Supervisor Marian Bergeson said she will submit a proposal to the board today calling for an independent management audit of the county. The audit, which would be conducted by an outside firm, would examine the county’s supervisor-to-worker ratio and scrutinize performance and productivity with an eye toward restructuring, she said.

* Merrill Lynch and Orange County hammered out a negotiated agreement that will safeguard more than $250 million in disputed securities until a federal judge can determine which party owns them.

* About 130 people packed the Irvine City Council chambers expressing anger about the financial debacle’s toll on their city. A handful called for Irvine City Manager Paul O. Brady Jr. to resign.

Across town, another 100 residents filled the Irvine Unified School District’s meeting, where the board members painted a bleak picture of the school system’s financial future. Deputy Supt. Paul Reed said the district expects to have only enough money to operate through April.

* County Supervisor Jim Silva met with city leaders to discuss their differences over the release of county bankruptcy documents. Officials from cities and school districts with investments in the frozen county pool have criticized the county for delays in providing them with financial information. Silva plans to meet with leaders from all 31 cities over the next few days.

Tustin Mayor Thomas R. Saltarelli said the county’s failure to provide the records “continues to put us in an adversarial position.” He added that the county’s attorneys are trying to condition pool participants to accept losses from the pool. “We won’t accept that,” Saltarelli said.

In Santa Ana, employee unions sued the county Tuesday seeking to stop layoffs. Judge Ryan said he was issuing the temporary restraining order reluctantly, and needed more information from both sides before he could make a final decision. Because employees were set to be laid off so soon, a three-day delay was the only fair recourse, Ryan said.

Times correspondent Russ Loar contributed to this report.