Mantei v. MPSERS

• Decision Date: 29 May 2003
• Docket Number: Docket No. 228589.
• Citation: 256 Mich. App. 64,663 N.W.2d 486
• Parties: Robert J. MANTEI, Petitioner-Appellant, v. MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM and Michigan Public School Employees Retirement Board, Respondents-Appellees.
• Court: Court of Appeal of Michigan — District of US

663 N.W.2d 486

256 Mich. App. 64

Robert J. MANTEI, Petitioner-Appellant, v. MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM and Michigan Public School Employees Retirement Board, Respondents-Appellees.

Docket No. 228589.

Court of Appeals of Michigan.

Submitted January 15, 2003, at Lansing.

Decided April 1, 2003, at 9:00 a.m.

Released for Publication May 29, 2003.

Thrun, Maatsch and Nordberg, (by C. George Johnson), Lansing, for the plaintiff.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Stephen M. Rideout, Assistant Attorney General, for the defendants.

Brad A. Banasik, Lansing, for the Michigan School Business Officials and Michigan Association of School Boards.

Before: O'CONNELL, P.J., and RICHARD ALLEN GRIFFIN and MARKEY, JJ.

RICHARD ALLEN GRIFFIN, J.

In this appeal, we address an issue of first impression: whether a retired public-school principal acting as an administrator in a public elementary school pursuant to a contractual arrangement with a private-sector personnel-services company that furnishes qualified administrators and other needed personnel to Michigan schools "becomes employed by a reporting unit," i.e., the school district he serves, for purposes of § 61 of The Public School Employees Retirement Act of 1979 (retirement act), M.C.L. § 38.1361. If the retirant is deemed an employee of the school district, the retirant is subject to the retirement act's provision in § 61 limiting earnings and reducing the retirement allowance.

Petitioner Robert J. Mantei, the retirant in question, appeals by leave granted from an order of the circuit court affirming respondents Michigan Public School Employees Retirement System (MPSERS) and Michigan Public School Employees Retirement Board's (the retirement board) decision that petitioner was subject to the earnings limitation of § 61 of the retirement act, because he was "employed by a reporting unit" within the meaning of the retirement act. Pursuant to the court's order, petitioner was required to reimburse the MPSERS for that portion of his pension benefits that exceeded the statutory earnings limitation. We reverse and hold that under the economic-reality test, petitioner was not "employed by a reporting unit" for purposes of § 61 of the retirement act.

I

The following facts, as recited by the circuit court, are not in dispute:

Petitioner had been employed with the Essexville-Hampton Public Schools since August 25, 1967. During said employment, petitioner was promoted to the position of Principal of Hughes Elementary School effective July 1, 1994. Petitioner continued [as] the Principal of Hughes Elementary School until July 1, 1997 — i.e., the effective date of his retirement.

It should be noted that at the time of his promotion to the position of Principal of Hughes Elementary School, and in response to certain incentives offered to employees if notification of retirement was provided at least three (3) years in advance, petitioner informed former Superintendent Bob Winters in 1994 that he would be retiring in 1997. At that time, there were no discussions between petitioner and Superintendent Winters regarding any options for petitioner to continue providing services to the school district through any contracted-for service arrangement. Indeed, petitioner had not even considered such an option at that time.

However, in the winter of 1995 or the spring of 1996, petitioner attended a conference where he learned that some retired principals were being employed by private organizations to provide serves [sic] as principals in public schools.

In any event, within one week after retiring as Principal of Hughes Elementary School, petitioner returned to the school district as Principal of Hughes Elementary School under an employment contract with Thumb Educational Services, Inc. [hereinafter "Thumb"]. Apparently, prior to retiring from the school district, petitioner had discussions with Thumb, a Michigan corporation that places administrators and supervisory personnel in Michigan schools. The substance of those discussions related to petitioner's continued employment as a Principal.... At that same time, said school district was having discussions with Thumb regarding an experienced administrator to take petitioner's place as Principal of Hughes Elementary School.

... petitioner was hired by Thumb and the school district contracted with Thumb for an experienced administrator to become Principal of Hughes Elementary School. As a result, within one week of his retirement from the school district, petitioner once again returned to Hughes Elementary School in the capacity of Principal.

From the 1997-98 school year to present, petitioner has been the Principal of Hughes Elementary School under an at-will employment contract with Thumb. Pursuant to said contract, petitioner is compensated solely by Thumb and does not receive any monetary compensation, reimbursements or benefits from the school district. However, in his capacity as Principal of Hughes Elementary School, petitioner oversees the day-to-day operations of the school just as he did before retiring. Indeed, petitioner sits in the same office and has the same job responsibilities as before his retirement. Furthermore, petitioner is subject to the policies, rules and procedures of the school district in the performance of his duties as Principal of Hughes Elementary School.

After petitioner retired from the school district and while he held the position of Principal of Hughes Elementary School under his employment contract with Thumb, the school district was contacted by staff personnel from [defendant] the Michigan Public School Employees Retirement System [hereinafter "MPSERS"] regarding petitioner's employment status. The school district informed MPSERS that petitioner was working as the Principal of Hughes Elementary School under contract with Thumb.

Upon receipt of this information and after a review of MPSERS records showing that petitioner was a retiree working in the exact same capacity as he had prior to his retirement, MPSERS made a determination that petitioner was acting as an employee of the school district. This determination was based upon a 20-point control test contained in the Operations Manual produced by MPSERS and given to all school districts in the state. It is the same test used by the Internal Revenue Service [IRS] to make determinations as to whether individuals are employees or independent contractors.

Based upon the determination that petitioner was acting as an employee of the school district, Retiree Services Analyst Ben McIntire sent a letter to petitioner dated December 7, 1998 which stated, in relevant part, as follows:

"All retirees who return to public school employment are subject to postretirement earnings limitations....

"Your earnings [limit] in 1997 was $10,718.50. Your actual wages, as reported by the school system(s) you were employed by, were $30,816.00. You have exceeded your statutory limit by $20,097.50. Your pension in 1997 was $15,750.48. You must return to the Michigan Public School Employees Retirement System (MPSERS) the portion of your pension (up to the entire pension) that exceeded your limit: $15,750.48."

* * *

This same scenario applied in 1998 and 1999 as petitioner had exceeded the earnings limitation for those years also.

Petitioner did not return to MPSERS the pension monies he had received; rather, he requested an administrative hearing [before the Michigan Public School Employees' Retirement Board].

At the administrative hearing, petitioner maintained that the statutory limitation on earnings did not apply to him because he did not return to the school district as an employee. On September 14, 1999, the hearing referee issued her Proposal for Decision (PFD), recommending that petitioner's appeal be denied. Specifically, the PFD stated, in pertinent part:

Respondent utilizes a 20-point control test used by the Internal Revenue Service (Revenue Ruling 87-41) for determining the true nature of an employment relationship....

* * *

... the 20-point test is instructive, and is applied in the following analysis.

Because Petitioner has served as principal for many years prior to his retirement, he requires very little direction and can be trusted to carry out his functions proficiently. Indeed, it was because of a concern about continuity in the face of several retirements that the system engaged the services of Thumb and Petitioner. Nevertheless, he is required to follow school policies and procedures. The position of school principal is integral to and merged into the functioning of the school system. In other words, Petitioner's position is under the direction and control of the school superintendent and school board.

Petitioner's work hours are largely controlled by the official school year; i.e., work hours are set by the school system/employer. As a practical matter, Petitioner devotes his full time to the activities of school principal. Moreover, the employer provides him with an office, furniture, telephone and administrative support services, all on the employer's premises. Essentially, the only differences between Petitioner's current position and his former one are that he does not undergo a regular performance review, and he is not required to report each time he leaves the school building.

I concluded that, under the IRS 20point test, Petitioner is an employee of the Essexville-Hampton Public Schools, and is therefore subject to the earnings limitations of the Act.

Petitioner filed exceptions to the PFD; however, following further review, respondent retirement board adopted the hearing referee's PFD in its entirety and, on November 29, 1999, issued an order denying petitioner's appeal. Petitioner appealed by right to the circuit court, which affirmed the retirement board's order. The court, relying on Brouwer v Michigan Pub. School Employee Retirement Sys., unpublished opinion per curiam...