Phegley v. Indiana Dept. of Highways

Decision Date17 December 1990
Docket NumberNo. 63A01-9006-CV-232,63A01-9006-CV-232
Citation564 N.E.2d 291
PartiesRichard L. PHEGLEY, Appellant (Defendant Below), v. INDIANA DEPARTMENT OF HIGHWAYS, Appellee (Plaintiff Below).
CourtIndiana Appellate Court

Joe D. Black, Ramsey & Black, Vincennes, for appellant.

Linley E. Pearson, Atty. Gen., Brenda Franklin Rodeheffer, Deputy Atty. Gen., Indianapolis, for appellee.


Richard L. Phegley appeals the denial of his petition for judicial review by which he sought the reversal of the Indiana Department of Highways' (IDOH) decision to demote him from District Maintenance Engineer to Highway Engineer III, reinstatement and back pay.

We affirm.

Phegley served as Vincennes District Maintenance Engineer, classified as a Highway Engineer Supervisor IV, from January 1, 1970 until December 4, 1986 when he was demoted to Highway Engineer III, a position with no supervisory responsibilities. Prior to the demotion, on September 30, 1986, the IDOH reprimanded Phegley in writing for discussing personnel matters with persons outside the IDOH. Phegley received an employee appraisal report at the same time which indicated that his performance in employee relations was less than satisfactory. Phegley's immediate supervisor recommended that Phegley be demoted on November 24, 1986, after Phegley authored what was perceived by his supervisor to be an inflated performance appraisal of a subordinate.

Phegley received a pre-demotion hearing and a full review hearing following the demotion before an administrative law judge appointed by the then-director of IDOH. The ALJ recommended that Phegley be demoted. The IDOH adopted the ALJ's proposed findings of fact and conclusions of law. Phegley then sought judicial review. The reviewing court sent the matter back to the IDOH for a hearing on Phegley's petition to introduce newly discovered evidence. The IDOH concluded that the July 14, 1987, IDOH memorandum sought to be introduced by Phegley did not apply to Phegley and would not change the outcome of his administrative appeal. The Pike Circuit Court affirmed the IDOH's determinations.

Phegley maintained throughout the proceedings that as a civil servant he had a vested property interest in his employment protected by the due process clause of the Fourteenth Amendment which entitled him to a specific statement of the reasons for his demotion. He also claimed that, pursuant to state policy, he could not be demoted based upon his performance without an improvement plan, final warning, and a ninety-day period to show improvement, and that he was demoted for engaging in protected speech.

Phegley seeks review of the administrative rulings on each of these issues in this appeal. In addition, he argues that the IDOH's administrative law judge erred in precluding the discovery and admission of certain testimony and exhibits, and that the IDOH's findings of fact are inadequate to sustain its conclusions. 1 Much of Phegley's energy, however, is devoted toward the validity of the stated grounds for his demotion.

Judicial review of an administrative determination is limited to a determination of whether the agency possessed jurisdiction over the matter and whether the order was made in conformance with proper legal procedures. Mugg v. Stanton (1983), Ind.App., 454 N.E.2d 867, 869. If the determination was based upon substantial evidence and if it did not violate any constitutional, statutory, or legal principle, we will affirm the decision. Id. The burden of proving that the administrative order was arbitrary and capricious or an abuse of discretion falls upon the party attempting to upset the order. We will not attempt to substitute our judgment for that of the agency concerning matters within the scope of that agency's discretion and authority. Id.

The terms and conditions of an employment contract include all relevant statutory provisions as if such provisions were strictly set out in the contract. Bernhardt v. State (1985), Ind.App., 479 N.E.2d 1367. IND.CODE 8-9.5-4-4(a) (1980) (repealed by P.L. 112-1989, Sec. 6) authorizes the IDOH to establish the terms and conditions of employment within the department subject to the other subsections of this section. In relevant part, I.C. 8-9.5-4-4 provides:

(b) All employees of the department whose duties require specialized knowledge or skill, acquired by professional or technical education, training, and experience: ...

(3) may not ... be reduced, removed, or in any way ... discriminated against because of their political affiliation, race, religion, color, sex, national origin, or ancestry;

. . . . .

(8) shall be evaluated annually in writing by their immediate supervisor for the purpose of advising the director as to whether the employees should remain in their positions....

(f) All employees of the department are subject to IC 4-13-1, and the rules that implement it.

(g) Subject to the other subsections in this section:

(1) all employees of the department are subject to demotion, discipline dismissal, or transfer at the discretion of the director and

(2) cause for demotion, dismissal, discipline, or transfer may include but is not limited to failure to satisfactorily effectuate the department's transportation plan and work programs.

Hence, while employees of the IDOH may be demoted at the discretion of the director, that discretion may be restricted by the provisions of I.C. 4-13-1 and the rules that implement it. 2 All IDOH employees are nonmerit employees for purposes of demotion or dismissal. 3 I.C. 4-15-2-3(a); I.C. 4-15-2-4; I.C. 4-15-2.5-1.1.

Pursuant to I.C. 4-15-1.8-8, the state personnel department is required to "develop personnel policies, methods, procedures, and standards for all state agencies." I.C. 4-15-1.8-7(a)(1). At the time of Phegley's demotion, the state department of personnel had promulgated but a single rule governing the demotion of a nonmerit employee. It reads:

An appointing authority or his designee may demote an employee by filing a statement of reasons with the Director and the employee concerned.

31 IAC 1-10-1.

The record shows that the terms and conditions of Phegley's employment are also contained in an employee's handbook. The handbook specifies certain work rules the violation of which may result in disciplinary action. The manual does not address the circumstances under which an employee may be demoted, but does contain a means of appeal for professional or technical employees who have been demoted or dismissed. This procedure apparently has been created by the IDOH director in his discretion and is promulgated at 120 IAC 1-3-1. While the procedure does authorize judicial review pursuant to I.C. 4-22-1-14, and requires the facts upon which the recommendation of demotion is based be supported by substantial and relevant evidence, it does not contain a standard for demotion, such as cause, or guarantee employment security. At most, it bestows upon Phegley the right to have his demotion reviewed.

Thus, it would appear that a professional engineer like Phegley is an employee at will, demotable for any reason or no reason whatsoever. See Speckman v. City of Indianapolis (1989), Ind., 540 N.E.2d 1189, 1192. Indeed, we have so held in the past. Indiana Department of Highways v. Pigg (1989), Ind.App., 533 N.E.2d 184; Indiana Department of Highways v. Dixon (1987), Ind.App., 512 N.E.2d 1113, reversed on first amendment grounds, 541 N.E.2d 877. As a general rule, an employee at will has no property interest in further employment. Pigg, 533 N.E.2d 184; Ind. Alcoholic Beverage Commission v. Gault (1980), Ind.App., 405 N.E.2d 585, trans. denied.

Phegley cites Cleveland Board of Education v. Loudermill (1985), 470 U.S. 532, 105 S.Ct. 1487, 84 L.Ed.2d 494 as authority for his asserted property right. But Loudermill does not hold that every civil servant has a property interest in continued employment. Accord Speckman, 540 N.E.2d at 1193. Loudermill holds only that a public employee who can be discharged only for cause has such a legitimate claim of entitlement to his position. 470 U.S. at 536, 539-40, 105 S.Ct. at 1490, 1491-92.

Property interests "are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law...." Loudermill, id. at 538, 105 S.Ct. at 1491 (citing Board of Regents v. Roth (1972), 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548). Though state law may have in the past entitled professional engineers in the highway department to certain procedural due process protections upon demotion, State ex rel. Indiana State Employee's Association v. Boehning (1979), 182 Ind.App. 684, 396 N.E.2d 422, trans. denied, the statutes which were the source of that entitlement have since been repealed. The legislature may elect not to confer a property interest in public employment. Loudermill, 470 U.S. at 542, 105 S.Ct. at 1493. 4

Phegley cites as the factual basis for his claim he was demoted for engaging in protected speech certain conversations he had after hours with two county chairpersons of the Republican Party. Phegley concedes that the conversations concerned personnel problems within the Vincennes District. (B. 50) Phegley was upset with the status quo and sought political assistance in alleviating internal tensions.

Statements by public officials on matters of public concern must be accorded First Amendment protection despite the fact that the statements are directed at nominal superiors. Pickering v. Board of Education (1968), 391 U.S. 563, 574, 88 S.Ct. 1731, 1737, 20 L.Ed.2d 811. However, "[t]he First Amendment does not...

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