Matsuo v. U.S.

Decision Date30 January 2008
Docket NumberCivil No. 05-00398 PMP-LEK.
Citation532 F.Supp.2d 1238
PartiesJoyce MATSUO; Sharon Warren; Ronald Franklin; Frank Hardt; Russell Holland; Roy Matsuo; Michael McCrary; Fred Nolke; Charles Roberts; Ronald ScherIer; Roman Buyson; Peter Newman; Thomas Warren; John J. Kato; and Michael C. Shearer, on behalf of themselves and others similarly situated, Plaintiffs, v. The UNITED STATES, and Linda M. Springer, Director, Office of Personnel Management, Defendants.
CourtU.S. District Court — District of Hawaii

Eric C. Hallstrom, Gregory. K. McGillvary, Woodley & McGillivary, Washington, DC, Margery S. Bronster, Rex Y. Fujichaku, Bronster Hoshibata, Attorneys at Law, A Law Corporation, Honolulu, HI, for Plaintiffs.

Harry Yee, Office of the United States Attorney, Honolulu, HI, J. Reed Clay, Jr., John W. Showalter, Kyle A. Forsyth, U.S. Department of Justice, Washington, DC, for Defendants.


PHILIP M. PRO,* District Judge.

This is a class action challenging the constitutionality of the Federal Employees Pay Comparability Act of 1990 ("FEPCA"), which provides locality-based comparability pay to federal employees to reduce pay disparities between public and private sector employees performing similar work. By its, terms, FEPCA applies only to federal employees within the contiguous United States and specifically excludes, federal employees in Hawaii and Alaska from receiving locality pay. Plaintiffs are former and current federal employees who work or have worked in Hawaii or Alaska and therefore did not receive locality pay, or federal employees who work in the contiguous United States and cannot move to Hawaii or Alaska without losing locality pay.

In the First Amended Complaint, Plaintiffs allege the locality pay exclusion for Hawaii and Alaska federal employees is based on state residence and therefore is an unconstitutional restriction on interstate travel in violation of the Equal Protection Clause of the Fifth Amendment to the United States Constitution (count 1). (First Am. Compl. [Doc. # 7] at ¶¶ 32-35.) Plaintiffs also allege federal employees have a property interest in their salary, and FEPCA's exclusion of Hawaii and Alaska federal employees from receiving locality pay violates substantive due process under the Fifth Amendment (count 2). (Id. ¶¶ 36-41.) Plaintiffs also asserted two claims regarding cost of living adjustments, but the Court previously dismissed those two claims (counts 3 and 4). Matsuo v. United States, 416 F.Supp.2d 982, 997-99 (D.Haw.2006).

Upon the parties' stipulation, the Court certified two classes. (Joint Stip. & Order Regarding Class Certification [Doc. # 61].) The first class includes all federal employees in the contiguous United States ("CNUS") who are entitled to locality pay under FEPCA who cannot reside in Alaska or Hawaii and work for the United States without losing locality pay. (Id.) The second class consists of current or former federal employees in Hawaii and Alaska who are or were not eligible for locality pay. (Id.) The parties now cross move for summary judgment.


By Executive Order in 1948, federal employees in Hawaii and Alaska became eligible to receive compensation in addition to their base pay due to living costs that were substantially higher than living costs in the District of Columbia. See Exec. Order No. 10,000, 13 Fed.Reg. 5453, 5455 (Sept. 18, 1948). Congress subsequently codified this cost of living allowance ("COLA") for federal employees in Hawaii, Alaska, and other non-foreign areas outside the continental United States. See Pub.L. 89-554, 80 Stat. 512, 513 (1966), 5 U.S.C. § 5941(a). As of September 2007, Hawaii and Alaska federal employees received COLAs ranging between 17% and 25% of their base pay, with most areas fit or near the statutory cap of 25% of base pay. See 5 C.F.R., Part 591, Subpart B, App. A; 5 U.S.C. § 5941(a). COLA payments are not considered part of base pay, and therefore these employees may not make retirement contributions based on COLA payments and the COLA payments are not included in calculating the employees' retirement annuities. 5 C.F.R. § 591.239(b). The COLA payments are not subject to federal income tax. 26 U.S.C. § 912(2).

In 1990, Congress enacted FEPCA, under which federal employees would receive comparability payments, or "locality pay," designed to reduce and eventually eliminate pay disparities between federal and non-federal employees performing similar work. 5 U.S.C. § 5301, § 5304. FEPCA directs the President of the United States to designate an agent to prepare annual reports comparing pay rates for federal employees under the General Schedule with pay rates for non-federal workers for the same work within a pay locality based on surveys prepared by the Bureau of Labor Statistics. 5 U.S.C. § 5304(d)(1). Based on the surveys, the designated agent must identify those localities in which a pay disparity greater than five percent exists, and make recommendations for comparability payments. Id. § 5304(a)(1), § 5304(d)(1)(B)-(C). The procedures include participation by the Federal Salary Council, which may`submit its collective or individual members' views and recommendations. Id. § 5304(d)(1)(D), § 5304(e). The Executive Branch then must provide for or adjust comparability pay in conformity with the findings and transmit a report to Congress. identifying each pay locality, specifying which pay localities have a pay disparity greater than five percent, and indicating the locality pay for the applicable calendar year. Id. § 5304(d)(2)-(3).

Currently, thirty-two locality payment areas have been identified and locality pay percentages set based primarily on the pay disparity between federal and non-federal employees performing similar work in a given locality. 5 U.S.C. § 5301(3), § 5302(6), § 5304(a), (d), & (f); 5 C.F.R. §§ 531.603 & 531.604. For 2007, locality payments ranged from a low of 12.64% of base pay for the locality designated as the "Rest of U.S.," to a high of 30.33% for "San Jose-San Francisco-Oakland, California." Exec. Order No. 13,420, 71 Fed. Reg. 77,571, 77,580 (Dec. 26, 2006). Locality pay constitutes part of an employee's base pay and is included in calculating retirement contributions and annuities. 5 U.S.C. § 5304(c)(2). Retirement benefits under the Federal Employees Retirement System are calculated in large part based on the average of an employee's highest three`consecutive years of base pay. 5 U.S.C. § 8331(4), § 8339. The provision exempting the COLA from federal income tax does not apply to locality pay and locality pay therefore is' subject to federal income tax. 26 U.S.C. § 912.

All federal employees employed within the continental United States are entitled to receive locality pay. 5 U.S.C. § 5304(f)(1)(a). However, FEPCA specifically excludes federal employees in Hawaii and Alaska from receiving locality pay. See 5 U.S.C. § 5304(f)(1)(A); 5 U.S.C. § 5701(6). The legislative history is silent as to why Congress chose to exclude Hawaii and Alaska employees from receiving locality pay.

As a result of locality pay, but not COLA, being included in calculating retirement contributions and annuities, FECA's exclusion of Hawaii and Alaska employees means these employees' are not able to contribute as much to their retirement as similarly situated CONUS employees. Additionally, Hawaii and Alaska employees' base pay for determining their highest three years for calculating their retirement annuities is less than similarly situated CONUS employees who receive locality pay. However, Hawaii and Alaska employees' COLA is exempt from federal income tax while CONUS employees' locality pay is subject to federal income tax.

Since FEPCA's enactment, FEPCA's exclusion of Hawaii and Alaska federal employees has influenced federal employees' decisions about whether to move from these states to CONUS to receive locality pay. As reflected in Plaintiffs' affidavits, federal employees in Hawaii or Alaska consider moving or in fact have moved to federal positions in. CONUS to receive locality pay, particularly as they near retirement. (Pls.' Mot. for Summ. J. [Doc. # 82], Decls. of Charles H. Roberts, Frank A. Hardt, Fred Nolke, John J. Kato, Joyce K. Matsuo, Michael R. McCrary, Roman J. Buyson, Roy T. Matsuo ("Roy Matsuo Decl."), Russell F. Holland, Thomas C. Warren, Michael C. Shearer, Peter M, Newman, and Sharon E. Warren; see also Pls.' Opp'n to Defs.' Mot. for Summ. J., Decl. of Ronald W. Scherler.)

For example, Plaintiff Roy Matsuo ("Matsuo") began working as a GS-5 Office Automation Assistant in Hawaii in 2000. (Roy Matsuo Decl. at 1.) By 2005, he was a GS-12 Contract Specialist. (Id. at 2.) Matsuo decided that to improve his retirement benefits, he would transfer to a position in CONUS to increase his highest three consecutive years of base pay by taking a position that included locality pay in his base pay. (Id. at 2.) Matsuo therefore transferred to San Diego, California, where he received locality pay of approximately 16%. (Id.) To make this transfer, Matsuo had to leave behind his elderly parents who required a great deal of care and his wife who cared for Matsuo's parents in Hawaii during his absence. (Id.) The separation strained Matsuo's relationships with his wife and his parents, and after seventeen months, Matsuo returned to Hawaii. (Id. at 2-3.) Matsuo avers that he would like to retire within the next five years, but because he lives in Hawaii and does not receive locality pay, his retirement benefits will be significantly less than those of a comparably situated GS-12 Contract Specialist in CONUS who receives locality pay. (Id. at 3-4; see also other employee affidavits for similar averments regarding plans to move to CONUS to receive locality pay, particularly as employees near retirement.)

FEPCA's impact on federal employees and their decision making has not gone unnoticed by Defendant Office of...

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