Public Sector Case Notes

• Citation: Vol. 32 No. 3
• Publication year: 2018
• Author: By Scott Tiedemann and Dalisai Nisperos

Public Sector Case Notes

By Scott Tiedemann and Dalisai Nisperos

Scott Tiedemann is the Managing Partner of Liebert Cassidy Whitmore, California's largest public sector labor, employment and education law firm. He is the author of the CPER Pocket Guide to the Firefighters Procedural Bill of Rights, as well as a chapter on that topic in California Public Sector Employment Law. Dalisai Nisperos is an Associate in the San Francisco Office of Liebert Cassidy Whitmore. She represents and advises public sector agencies in all aspects of labor, employment, and education law. Ms. Nisperos earned her J.D. from the University of Pennsylvania Law School and her B.A. from the University of California, Berkeley.

Court of Appeal Injects Uncertainty as to Public Employee Pensions and "Vested Rights"

Alameda Cnty. Deputy Sheriff's Ass'n v. Alameda Cnty. Employees' Retirement Ass'n, 19 Cal. App. 5th 61 (2018)

This California Court of Appeal opinion is contrary to previous opinions regarding California pension benefits and public employee "vested rights." The decision addressed whether pension systems governed by the County Employees Retirement Law of 1937 (CERL) can change the definition of compensation earnable under the Public Employee Pension Reform Act of 2013 (PEPRA) for employees hired before PEPRA's January 1, 2013 effective date. In addition, the court addressed the limits of public employee "vested rights" to immutable pension benefits. The case is significant for CERL and CalPERS employers.

The case arose after California enacted PEPRA to address the significant statewide underfunding of public pension systems. Among other things, PEPRA amended the pension systems governed by CERL and expressly excluded several items from CERL's long-standing definition of "compensation earnable" for employees hired prior to PEPRA's effective date (Legacy Members).

In response to these changes, labor organizations representing members of CERL systems sued to challenge the exclusion of pay items that were previously included as compensation earnable. They also alleged that Legacy Members had a constitutionally protected "vested right" to pension benefits as those benefits existed prior to the enactment of PEPRA, and that PEPRA unconstitutionally interfered with, or "impaired" those vested rights. The trial court largely disagreed with the labor organizations and CERL members, and the multiple parties appealed.

On appeal, California's First District reviewed several questions, including whether retirement boards have discretion to include pay items in "compensation earnable" that are not listed in CERL's statutory categories, and whether PEPRA in fact unconstitutionally impaired Legacy Members' vested pension rights.

First, the court found that retirement boards do not possess discretion to include additional pay items in compensation earnable. An item of compensation is only includable in a member's pensionable compensation if it falls within one of CERL's statutory compensation categories.

Second, the court found that some of the provisions of PEPRA amounted to changes to compensation earnable, requiring a vested rights analysis to determine whether the statute unconstitutionally impaired vested pension rights. In considering this issue, the court declined to follow a previous decision of a different division of the First District Court of Appeal, Marin Ass'n of Public Employees v. Marin Cnty. Employee's Retirement Ass'n,¹ which held that public pension system members are not entitled to an immutable, unchanging pension benefit for the entirety of employment, but are entitled only to a "reasonable" pension.² The Marin opinion further held that detrimental pension modifications need not always be accompanied by comparable new advantages to pensioners, and ultimately concluded that PEPRA's modifications to the CERL definition of compensation earnable for Legacy Members was "reasonable" and did not impair their constitutionally protected vested rights.

The opinion in Alameda County rejected the reasoning in Marin and instead held that detrimental changes to the vested pension benefits of Legacy Members could only be justified by compelling evidence that the required changes manifested a material relation to the successful operation of the pension system. The court determined that this analysis must be done on an individualized basis and directed the trial court to conduct the required analysis for each of the retirement systems at issue. The court of appeal therefore remanded the cases back to the trial court.

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The California Supreme Court had previously granted review of...