AFT Mich. v. State, Docket No. 148748.
| Decision Date | 08 April 2015 |
| Docket Number | Calendar No. 2.,Docket No. 148748. |
| Citation | 497 Mich. 197,866 N.W.2d 782 |
| Parties | AFT MICHIGAN v. STATE OF MICHIGAN. |
| Court | Michigan Supreme Court |
Mark H. Cousens, for AFT Michigan and others.
Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, and Frank J. Monticello, Larry F. Brya, Joshua O. Booth, and Patrick M. Fitzgerald, Assistant Attorneys General, for the state of Michigan.
White, Schneider, Young & Chiodini, P.C., Okemos (by James A. White, Kathleen Corkin Boyle, and Timothy J. Dlugos ), and Michael M. Shoudy, for the Michigan Education Association.
Jones Day (by James P. Cone ) for the Judicial Education Project.
We granted leave to appeal to address the constitutionality of 2012 PA 300, which modified the retirement benefits of current public school employees. Plaintiffs, which are various labor organizations representing such employees, raise three constitutional challenges: (1) whether the act violates the prohibitions of uncompensated takings in the Michigan and United States Constitutions, Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV; (2) whether the act impairs the obligation of contracts in violation of the Michigan and United States Constitutions, Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1 ; and (3) whether the act violates the guarantee of due process in the Michigan and United States Constitutions, Const. 1963, art. 1, § 17 and U.S. Const. Am. XIV, § 1. After considering each of these challenges, we hold that the act does not violate any provision of either the Michigan or the United States Constitution. For the reasons stated in this opinion, we affirm the judgment of the Court of Appeals.
Facing a budget shortfall in the state public school system in 2010, the Legislature enacted Public Act 75, which modified retirement benefits for current public school employees. The statute supplemented and altered the Public School Employees Retirement Act (Retirement Act), MCL 38.1301 et seq., which governs the Michigan Public School Employees' Retirement System (MPSERS). The most controversial provision of 2010 PA 75 was MCL 38.1343e, which required all current public school employees to contribute 3% of their salaries to the MPSERS to assist in funding retiree healthcare benefits for current and future public school retirees. Before the enactment of 2010 PA 75, public school employees had never been required to pay for these benefits. MCL 38.1343e directed school districts to withhold and remit this 3% amount to the state for deposit into a trust account from which current retirees' healthcare benefits would be paid.
Current public school employees, through their representative labor organizations, sued the state of Michigan and other state defendants in 2011, contending that MCL 38.1343e violated the aforementioned provisions of the Michigan and United States Constitutions. The Court of Claims held this provision unconstitutional as violative of the Takings Clauses of the Michigan and United States Constitutions, Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV, and the guarantees of due process in the Michigan and United States Constitutions, Const. 1963, art. 1, § 17 and U.S. Const. Am. XIV, § 1. The Court of Claims did not find any violation of the Contracts Clauses of the Michigan and United States Constitutions, Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1. The state appealed the Court of Claims' ruling, and in a split decision, the Court of Appeals affirmed in part. AFT Mich. v. Michigan, 297 Mich.App. 597, 616, 621, 627, 825 N.W.2d 595 (2012) ( AFT Mich. I ).
AFT Mich. I held that MCL 38.1343e effected a taking without just compensation because the state was forcibly taking possession of a portion of the school employees' salaries without affording them just compensation in return. The Court of Appeals focused on what it viewed as the confiscatory nature of the statute—requiring that current public school employees fund the healthcare benefits of current public school retirees absent any guarantee that the former would ever be eligible to receive healthcare benefits upon their own retirement. It concluded as a result that MCL 38.1343e violated the takings clauses of the Michigan and United States Constitutions. Id. at 621, 825 N.W.2d 595.
The Court of Appeals also held that MCL 38.1343e unconstitutionally impaired employment contracts between public school employees and employer school districts, notwithstanding the Court of Claims' conclusion to the contrary, because MCL 38.1343e effectively required the school districts to pay the employees less than their agreed-upon salaries. Although asserting that a contractual impairment does not always rise to the level of a constitutional violation, the Court concluded nonetheless that the state here had failed to demonstrate that the impairment was necessary to further its purpose in enacting the statute, which was to ensure the fiscal stability of the MPSERS retiree healthcare program. The Court reasoned that the state could have pursued alternative means to correct the funding problem that would not have involved a diminution, or “impairment,” of the salaries of current employees. Because the state had not attempted to achieve its goals through those alternatives, the Court ruled that 2010 PA 75 also violated the Contracts Clauses of the Michigan and United States Constitutions. Id. at 616, 825 N.W.2d 595.
Finally, the Court of Appeals held that MCL 38.1343e violated the employees' right to “substantive” due process. It concluded that the law arbitrarily forced one discrete group of individuals—current public school employees—to fund the retiree healthcare of a separate discrete group—current public school retirees. The Court recognized that, although the accrued pension benefits of public employees are expressly protected by Const. 1963, art. 9, § 24 as contractual obligations that can be neither diminished nor impaired, future healthcare benefits are not. Nonetheless, because the state did not prefund retiree healthcare benefits, current employees were contributing 3% of their salaries absent any guarantee that they themselves would ever receive healthcare benefits upon retirement. The Legislature could simply alter the law again and modify or even eliminate the retiree healthcare program before current employees retired. The state was thus requiring current employees to cover the state's own financial obligations, while merely undertaking an essentially empty promise that current employees would receive similar benefits when they retired. The Court believed that this scheme was unreasonable, arbitrary, and capricious, and that it violated the “substantive” due process guaranteed by the Michigan and United States Constitutions. Id. at 627, 825 N.W.2d 595.
Judge Saad, who authored an opinion concurring in part and dissenting in part, would have reversed the judgment of the Court of Claims and held 2010 PA 75 constitutional. He began by noting that “legislative enactments are presumed to be constitutional absent a clear showing to the contrary,” and then argued that an obligation merely to pay money cannot constitute a taking requiring just compensation, that 2010 PA 75 created an obligation between public school employees and the state that did not affect the employment contracts between the employees and their school district employers, and that the Court of Claims should not have granted relief on plaintiffs' “substantive” due process claim because it was a mislabeled claim essentially alleging an uncompensated taking, an argument that plaintiffs had separately raised. AFT Mich. I, 297 Mich.App. at 630–640, 825 N.W.2d 595 (Saad, J., concurring in part and dissenting in part).
The state sought leave to appeal the Court of Appeals' ruling in AFT Mich. I. That application is currently pending before this Court and has been held in abeyance for the resolution of the instant case. AFT Mich. v. Michigan, –––Mich. ––––, ––––, 846 N.W.2d 57, 58 (2014).
The instant case arises from legislation enacted in response to the Court of Appeals' decision in AFT Mich. I. On September 4, 2012, the Governor signed into law 2012 PA 300, which further modified the Retirement Act. Current public school employees, once again through their representative labor organizations, have challenged provisions of this statute. In doing so, they raise many of the same constitutional challenges that were asserted with regard to 2010 PA 75 in AFT Mich. I.
The legal challenges to 2012 PA 300 focus on two principal aspects of the new law—the changes it makes to the retiree healthcare plan and the changes it makes to the pension benefit plans provided by the MPSERS. Regarding retiree healthcare, 2012 PA 300 maintains in place MCL 38.1343e, the statute struck down by the Court of Appeals in AFT Mich. I. However, the Legislature added two new provisions. MCL 38.1391a(5) enables current public school employees to opt out of retiree healthcare and thereby to avoid paying the 3% retiree healthcare contributions under MCL 38.1343e.
And MCL 38.1391a(8) provides a separate retirement allowance for public school employees who elect to pay the 3% contributions but who then subsequently fail to qualify for retiree healthcare benefits. The allowance is equal to the amount that the employee contributed to the healthcare plan with the addition of certain interest and is payable in 60 equal monthly installments after the employee reaches the age of 60.
Concerning the pension benefits offered by the MPSERS, 2012 PA 300 alters the manner in which public school employees accrue these benefits. Before 2012 PA 300, public school employees generally fell into one of two groups. Those hired before January 1, 1990 belonged to what was commonly called the “Basic Plan.” These employees historically made no contributions to assist in funding their...
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