(1) The policy of the city shall be to employ those persons best qualified to carry out the functions of the city. To this end, the council shall, by ordinance, establish a merit system providing for the appointment and promotion of city officers and employees solely on the basis of competence and fitness.
(2) All officers and employees shall be included in such merit system, except: Council members;
(3) Members of boards who are not city employees;
(4) The manager and the manager's secretary;
(5) Department heads; and
(6) Organizations and their employees and other persons who are engaged by the city on a contractual basis.