State v. PHOENIX UNION HIGH SCHOOL

• Decision Date: 19 August 2004
• Docket Number: No. 1 CA-CV 03-0518.,1 CA-CV 03-0518.
• Citation: 208 Ariz. 516,96 P.3d 220
• Parties: The STATE of Arizona ex rel. Terry GODDARD, the Attorney General, and The Civil Rights Division of the Arizona Department of Law, Plaintiff-Appellant/Cross Appellee, v. PHOENIX UNION HIGH SCHOOL DISTRICT NO. 210, Defendant-Appellee/Cross Appellant.
• Court: Arizona Court of Appeals

96 P.3d 220

208 Ariz. 516

The STATE of Arizona ex rel. Terry GODDARD, the Attorney General, and The Civil Rights Division of the Arizona Department of Law, Plaintiff-Appellant/Cross Appellee, v. PHOENIX UNION HIGH SCHOOL DISTRICT NO. 210, Defendant-Appellee/Cross Appellant.

No. -0518.

Court of Appeals of Arizona, Division 1, Department D.

August 19, 2004.

Terry Goddard, Attorney General, Phoenix, by Judy Drickey-Prohow, Assistant Attorney General, Tucson, Attorneys for Plaintiff-Appellant/Cross Appellee.

Littler Mendelson, by Charles L. Fine and Rebecca Burnside, Phoenix, Attorneys for Defendant-Appellee/Cross Appellant.

OPINION

EHRLICH, Judge.

¶ 1 Three teachers who had retired from the Phoenix Union High School District ("District") filed complaints of age discrimination by the District with the Arizona Civil Rights Division of the Arizona Department of Law ("State"). Two of the teachers had opted to take early retirement before age sixty-five, and one teacher had retired after age sixty-five. The State determined that there was reasonable cause and filed suit against the District pursuant to the Arizona Civil Rights Act ("ACRA"), Arizona Revised Statutes ("A.R.S.") § 41-1401 et seq., alleging that the District had discriminated against a class of older employees and denied those employees equal employment opportunities. It sought injunctive relief and damages for the three named teachers and "a class of employees who were paid a lower daily rate to substitute teach because of their age."

¶ 2 The case was tried by the Maricopa County Superior Court, which found that the District's retirement plans were discriminatory and not within any statutory exception. It awarded back pay to the members of the class identified by the State, and it enjoined the District from "continuing to discriminate in compensation."

¶ 3 The State appealed from the superior court's calculation of the back pay and from the court's failure to award back pay to other members of the class. The District cross-appealed from the court's finding that the District's retirement plans were discriminatory. For reasons that follow, we reverse the finding that the plans constituted unlawful age discrimination and therefore vacate the injunction and the awards of back pay.

¶ 4 The District in 1976 adopted a voluntary Early Retirement Program ("ERP") as a result of negotiations with its teachers. It has been available every school year since then. To enroll in the 1997-1998 school year, a teacher had to have ten consecutive years of service, be at least fifty years of age¹ and "opt[] to take retirement prior to age 65." A teacher could participate for a period not to exceed his/her years of full-time service with the District, but participation was "involuntarily terminated" by the District once the participant reached age sixty-five. The District paid the participant's health, major medical and life insurance premiums, and, in exchange, the participant agreed to be a substitute teacher a minimum of one day (to avoid concerns about the state gift statute) and a maximum of forty days in a school year at a premium rate of $112.50 per day. If the teacher worked twenty-one or more consecutive days but not more than forty, the pay increased retroactively to a "super-premium" rate of $200 per day. If the teacher worked more than forty days in a year, however, the pay was reduced to the standard or "regular substitute rate."

¶ 5 From 1998-2000, the standard pay for substitute teachers was $60 per day unless the teacher taught twenty consecutive days in the same assignment, in which case the pay was retroactively increased to $75 per day. Beginning with the 2000-2001 school year, the standard rate was increased to $65 per day for the first sixty days, and $70 per day for sixty-one or more days, but the twenty-consecutive-day rate remained the same.

¶ 6 The District also offered on three occasions a separate and distinct Voluntary Incentive Plan ("VIP") to all employees with ten total years of service, whether or not the ten years of service were consecutive and whether or not the employee was then eligible to collect a full pension from the State Retirement System. The three opportunities were in 1995 ("VIP 1"), 1999 ("VIP 2"), and 2000 ("VIP 3," known as the Early Severance Plan or "ESP")² (collectively "VIP"). In exchange for ending his/her employment with the District, the participant would receive an annuity equal to his/her final annual salary payable in monthly installments over a period of either ten or eight years depending on the VIP. In return, the participant agreed to substitute teach for at least ten or eight days in each year that (s)he received the annuity.

¶ 7 All teachers in the VIP, regardless of age, received the standard substitute pay in addition to the annuity, giving each VIP participant far more as a result than the ERP premium pay for substitute teaching. Additionally, if a person who had ten consecutive years of service enrolled in a VIP between age fifty and age sixty-five, the District automatically covered that person under the ERP unless (s)he chose not to participate in both plans. VIP participants who were younger than age fifty or older than age sixty-five or who did not have ten consecutive years of service were ineligible for the ERP, however, and therefore were paid the standard rate.

¶ 8 It was not uncommon for a person to participate in both the ERP and the VIP because the ERP paid for insurance and substitute teaching at a higher rate. Those who enrolled in both plans and who became age sixty-five during the annuity period were "involuntarily terminated" from the ERP by the District, but they continued in the VIP for the remainder of the ten- or eight-year term. They were paid the standard substitute rate upon commencement of the next school year after their birthdays.

¶ 9 Lori Dropney, the District's Assistant Superintendent for Business and Operations, testified that the VIP was "an incentive for employees to leave the District earlier than they might have originally planned to." VIP 1 was offered due to "severe budget problems" that would have required laying off approximately 350 employees had it not been successful. The plan was to "accrue budget savings" and allow employees to leave voluntarily rather than involuntarily. According to Dropney, offering the VIP was "primarily a financial decision."

¶ 10 Linda Goin, the District's Director of Human Resources when the VIPs were adopted, testified that VIP 1 had a tremendous impact. She added that, after it was put in effect, only a few people remained on the reduction-in-force list. The District then offered VIP 2 after a study showed further significant financial benefits for the District as well as a shortage of substitute teachers.

¶ 11 The resolutions adopting VIPs 1 and 2 stated that, to minimize lay-offs and to maintain high educational standards, the VIP would "substantially increase voluntary retirements or resignations in a manner which rewards these higher paid staff members and reduces salary costs." The VIP also would create a pool of experienced substitute teachers.

¶ 12 The superior court focused on the point that VIP retirees over age sixty-five were paid less for required substitute teaching than VIP retirees under age sixty-five, although it recognized that the members of the latter group also were enrolled in the ERP, that the ERP was voluntary, and that its members knew or should have known that the ERP ended when the member became age sixty-five. It concluded that the District's plans offered different rates of pay based on age and participation in the plans and, therefore, the plans on their face violated A.R.S. § 41-1463(B)(1) and (2), applying the principles of International Union v. Johnson Controls, Inc., 499 U.S. 187, 111 S.Ct. 1196, 113 L.Ed.2d 158 (1991). It concluded also that the plans were a hybrid of both pay and other employee benefits but that they were "not a subterfuge to evade the purposes of the statute." Nonetheless, the court found that, because the plans were a hybrid, they did not qualify for the "statutory safe harbor" of A.R.S. § 41-1463(G)(4) (2004),³ which permits an employer to have a bona fide employee benefit plan if it is not a "subterfuge" to evade the purposes of the ACRA. Ultimately the court decided that, while "there were some nondiscriminatory reasons for adopting the plan, the plan [was] unlawful because of its discriminatory effects."

¶ 13 In its cross-appeal, the District challenges the superior court's finding that the plans are unlawfully discriminatory. It contends that the plans are the sort of employee-benefit plans permitted by A.R.S. § 41-1463(G)(4). Our disposition of the cross-appeal favorable to the District makes moot the consideration of the issues raised in the appeal.

¶ 14 The ACRA makes it unlawful for an employer to discriminate against any person with regard to "compensation, terms, conditions or privileges of employment" because of the individual's age, A.R.S. § 41-1463(B)(1), or to "limit, segregate or classify employees" so as to "deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect the individual's status as an employee" because of the person's age. A.R.S. § 41-1463(B)(2). It is not unlawful, though, for an employer either to differentiate among individuals if "based on reasonable factors other than age" or to provide a "bona fide employee benefit plan" as long as it is not for the purpose of evading the prohibition against age discrimination. A.R.S. § 41-1463(G)(4)(a), (b).⁴ The statute does not define "bona fide employee benefit plan."

¶ 15 The ACRA provision addressing age discrimination was modeled after the original version of the federal Age Discrimination in Employment Act of 1967 ("ADEA"), Pub.L. No. 90-202, § 2, 81 Stat. 602 (codified as amended at 29 U.S.C. § 621 et seq. (1999 & Supp.2004)), to grant...