Cal Fire Local 2881 v. Cal. Pub. Employees' Ret. Sys.

• Decision Date: 04 March 2019
• Docket Number: S239958
• Citation: 6 Cal.5th 965,435 P.3d 433,244 Cal.Rptr.3d 149
• Court: California Supreme Court
• Parties: CAL FIRE LOCAL 2881 et al., Plaintiffs and Appellants, v. CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, Defendant and Respondent; State of California, Intervener and Respondent.

6 Cal.5th 965

435 P.3d 433

244 Cal.Rptr.3d 149

CAL FIRE LOCAL 2881 et al., Plaintiffs and Appellants,

v. CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM, Defendant and Respondent;State of California, Intervener and Respondent.

S239958

Supreme Court of California.

March 4, 2019

Carroll, Burdick & McDonough, Messing Adam & Jasmine, Gary M. Messing, Gregg McLean Adam, Jason H. Jasmine and Yonatan L. Moskowitz for Plaintiffs and Appellants.

Olson, Hagel & Fishburn, Christopher W. Waddell, Lance H. Olson, Sacramento, Deborah B. Caplan and Richard C. Miadich for Californians for Retirement Security as Amicus Curiae on behalf of Plaintiffs and Appellants.

Silver, Hadden, Silver and Levine, Stephen H. Silver and Jacob A. Kalinski, Santa Monica, for Ventura County Professional Fire Fighters Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Mastagni Holstedt, David E. Mastagni, Sacramento, Isaac S. Sevens, Jeffrey R.A. Edwards and Erich A. Knorr for Lake County Correctional Officers’ Association, Mendocino County Deputy Sheriffs’ Association, Merced City Firefighters, International Association of Firefighters, Local 1479, AFL-CIO, Napa City Firefighters Association, International Association of Fire Fighters, Local 3124, AFL-CIO, Palo Alto Firefighters, International Association of Fire Fighters, Local 1319, AFL-CIO, Sacramento Area Firefighters, International Association of Firefighters, Local 522, AFL-CIO, Santa Clara County Correctional Officers Association, Deputy Sheriffs’ Association of Alameda County, El Dorado County Deputy Sheriff’s Association, Ontario Police Officers’ Association, Sacramento Police Officers Association and Sacramento County Deputy Sheriff’s Association as Amici Curiae on behalf of Plaintiffs and Appellants.

Leonard Carder, Peter W. Saltzman, Kate Hallward and Arthur Liou, Oakland, for Amalgamated Transit Union Local 1225, Amalgamated Transit Union Local 1555, International Brotherhood of Electrical Workers Local 1245, International Federation of Professional and Technical Engineers Local 21, Marin Association of Public Employees, Operating Engineers Local Union No. 3 and Physicians’ and Dentists’ Organization of Contra Costa as Amici Curiae on behalf of Plaintiffs and Appellants.

Rains Lucia Stern St. Phalle & Silver, Stephen H. Silver, Santa Monica, and Timothy K. Talbot for Los Angeles Police Protective League, Ventura County Deputy Sheriffs’ Association, California Association of Highway Patrol, Garden Grove Police Association, California Statewide Law Enforcement Association, Orange County Employees’ Association, Los Angeles County Professional Peace Officers’ Association, Association for Los Angeles Deputy Sheriffs, Deputy Sheriffs’ Association of Santa Clara, Fresno Deputy Sheriffs’ Association, Coalition of Santa Monica City Employees and Antioch Police Officers’ Association as Amici Curiae on behalf of Plaintiffs and Appellants.

Reich, Adell & Cvitan, Marianne Reinhold, Santa Ana, Laurence S. Zakson and Aaron G. Lawrence, Los Angeles, for Orange County Attorneys Association and Orange County Managers Association as Amici Curiae on behalf of Plaintiffs and Appellants.

Rothner, Segall & Greenstone and Glenn Rothner, Pasadena, for American Federation of State, County and Municipal Employees, American Federation of Teachers, National Education Association, Service Employees International Union, California Faculty Association, California Federation of Teachers and California Teachers Association as Amici Curiae on behalf of Plaintiffs and Appellants.

Matthew G. Jacobs, Sacramento, Wesley E. Kennedy and Preet Kaur for Defendant and Respondent.

Brian J. Bartow and Scott S. Brooks for California State Teachers’ Retirement System as Amicus Curiae on behalf of Defendant and Respondent.

Jonathan M. Coupal, Sacramento; Benbrook Law Group, Bradley A. Benbrook, Sacramento, and Stephen M. Duvernay for Howard Jarvis Taxpayers Association and Ventura County Taxpayers Association as Amici Curiae on behalf of Defendant and Respondent.

Kamala D. Harris and Xavier Becerra, Attorneys General, Douglas J. Woods and Thomas S. Patterson, Assistant Attorneys General, Tamar Pachter and Nelson Ryan Richards, Deputy Attorneys General; Peter A. Krause and Rei R. Onishi for Intervener and Respondent.

Atkinson, Andelson, Loya Ruud & Romo, Anthony P. De Marco, Irvine, and Joshua E. Morrison, Cerritos, for Association of California School Administrators as Amicus Curiae on behalf of Intervener and Respondent.

Jones Day, Beth Heifetz, G. Ryan Snyder and Karen P. Hewitt, San Diego, for California Business Roundtable as Amicus Curiae on behalf of Intervener and Respondent.

Renne Sloan Holtzman Sakai, Jonathan Holtzman and Linda M. Ross, San Francisco, for League of California Cities as Amicus Curiae on behalf of Intervener and Respondent.

Bruce D. Goldstein, County Counsel (Sonoma), Debbie F. Latham, Chief Deputy County Counsel; and Dennis Bunting, County Counsel (Solano) for County of Sonoma and County of Solano as Amici Curiae on behalf of Intervener and Respondent.

Lounsbery Ferguson Altona & Peak, Kenneth H. Lounsbery, James P. Lough and Alena Shamos, Escondido, for City of Pacific Grove as Amicus Curiae on behalf of Intervener and Respondent.

Gibson, Dunn & Crutcher, Daniel M. Kolkey, San Francisco, Perlette Michèle Jura, Theodore M. Kider and Samuel D. Eisenberg, Los Angeles, for Pacific Research Institute as Amicus Curiae on behalf of Intervener and Respondent.

Greines, Martin, Stein & Richland and Timothy T. Coates, Los Angeles, for Los Angeles County Employees Retirement Association as Amicus Curiae.

CANTIL-SAKAUYE, C. J.

In late 2012, our Legislature enacted the California Public Employees’ Pension Reform Act of 2013 (PEPRA, Stats. 2012, ch. 296, § 15; see Gov. Code, §§ 7222 et seq. ), substantially revising the laws governing public employee pensions.¹ This decision addresses the constitutionality of one of the changes effected by PEPRA, the elimination of the opportunity for public employees to purchase additional retirement service credit.

The amount of a public employee’s pension benefit is typically calculated as a fraction of the employee’s annual compensation near the end of his or her career. The size of the fraction is generally determined by the employee’s years of public employment, known as "service credit," and his or her age at retirement. The greater the service credit of an employee and the greater his or her age at retirement, the larger the fraction.

Beginning in 2003, many public employees were granted the opportunity to purchase up to five years of service credit by making appropriate payments to their pension fund. This purchased credit, known as additional retirement service (ARS) credit, is treated like ordinary service credit upon an employee’s retirement. Participating employees could therefore receive pension benefits calculated on the basis of up to five years’ more public employment than they actually worked. PEPRA effectively repealed the statute granting public employees the opportunity to purchase ARS credit, although it did not alter the rights of employees who had already purchased such credit.

The parties present two issues for decision. The first is whether the opportunity to purchase ARS credit was a "vested right" — that is, a right protected by the constitutional contract clause. The terms and conditions of public employment are ordinarily considered to be statutory rather than contractual, and they are subject to modification at the discretion of the governing legislative body. Constitutional protection can arise, however, (1) when the statute or ordinance establishing a benefit of employment and the circumstances of its enactment clearly evince an intent by the relevant legislative body to create contractual rights or, (2) when, even in the absence of a manifest legislative intent to create such rights, contractual rights are implied as a result of the nature of the employment benefit, as is the case with pension rights. The second issue, which arises only if we conclude that the opportunity to purchase ARS credit is entitled to constitutional protection, is whether the Legislature’s elimination of that benefit in PEPRA constituted an unconstitutional impairment of public employees’ vested rights.

We conclude that the opportunity to purchase ARS credit was not a right protected by the contract clause. There is no indication in the statute conferring the opportunity to purchase ARS credit that the Legislature intended to create contractual rights. Further, unlike core pension rights, the opportunity to purchase ARS credit was not granted to public employees as deferred compensation for their work, and here we find no other basis for concluding that the opportunity to purchase ARS credit is protected by the contract clause. In the absence of constitutional protection, the opportunity to purchase ARS credit could be altered or eliminated at the discretion of the Legislature. We therefore affirm the decisions of the trial court and the Court of Appeal, which concluded that PEPRA’s elimination of the opportunity to purchase ARS credit did not violate the Constitution.

Because we reach this conclusion, we have no occasion to address the second issue raised by the parties: whether the elimination of the opportunity to purchase ARS credit was an unconstitutional impairment of public employees’ vested rights. The scope of constitutional protection afforded public pension rights by our prior decisions, beginning with Allen v. City of Long Beach (1955) 45 Cal.2d 128, 287 P.2d 765 ( Allen ), has come to be referred to as the "California Rule," in part because its breadth has not been widely adopted by other jurisdictions. (See, e.g., Monahan, Statutes as Contracts? The "California Rule" and Its Impact on Public Pension Reform (2012) 97 Iowa L.Rev. 1029, 1032, 1071-1074 (Monahan) [referring to our doctrine as the "so-called California Rule" and noting that, of the twelve states to adopt the...