California Supreme Court Hears Cal Fire Oral Argument

Last Wednesday, the California Supreme Court held oral arguments for Cal Fire Local 2881 v. CALPERS.  This case, along with three others, addresses the “California Rule,” which provides that employees are forever entitled to the pension benefits that were promised to them on the first day they began their service. The California Rule has been known to pose problems for fiscally limited agencies because the rule essentially prohibits decreases of an employee’s pension benefit.  This case, however, might show that the California Rule is not so inflexible.

Cal Fire Local 2881 v. CALPERS:

 This case surrounds Governor Brown’s 2013 legislation titled the Public Employees’ Pension Reform Act of 2013 (PEPRA).  The Governor pioneered this legislation to gain some control over underfunded state liabilities for public employee pensions.  In turn, PEPRA made significant changes to the airtime rule, which the legislature first offered to employees in 2003.  Under the 2003 airtime legislation (“Section 20909”), public employees could acquire five years of airtime so long as they did the following: (1) provide at least five years of service for a public agency, and (2) pay for both the employee and the employer share of the full present cost of the pension benefit.  Regarding airtime, PEPRA did the following: (1) eliminated the offer for airtime for any new employee hired after January 1, 2013; and (2) also eliminated the offer for airtime for previously hired employees but granted them a 12 week grace period to purchase airtime if they chose.  Employees who had already purchased airtime or did so within the grace period were not affected.

 In December 2012, Union representatives for firefighters sued CALPERS and the State of California for eliminating the airtime option, and the case has now reached the California Supreme Court.  The Union argues that the offer to purchase airtime was a vested pension right, which would mean that it was unconstitutional for the state legislature to rescind the airtime offer.  On the other hand, CALPERS and the State of California, who are represented by Governor Brown’s office, argue that the offer to purchase airtime was not a vested pension benefit because there was never a valid contract.  They emphasized that there was no contract because the legislature never intended to create one and that a contract cannot exist if employees never exercise the option.  They also pointed out that public agency unfunded liability is currently a severe crisis, which made the elimination of the airtime option necessary.

 December 5th California Supreme Court Oral Arguments re Cal Fire:

 During Wednesday’s oral argument, six of the seven justices asked pointed questions to Cal Fire’s attorney.  Their line of questioning suggested that the justices disagreed with the Union’s argument that the option to purchase airtime was indeed a valid contract and, therefore, a vested right.  The union argued that the option to purchase airtime became a valid contract once the employees began their service with the public agency.  Some of the justices, however, pointed out that Section 20909 required not only the employee’s service but also that the public employee pay the present cost of the employee and employer share of the pension benefit.  When questioning the union, the justices wondered how there could be a contract if public employees only fulfilled one of two requirements.

 Furthermore, the Court expressed a concern—at least twice—that the rule the union is asking for could create a contractual right for every state-promised benefit, including healthcare, vacation, travel reimbursements, and others.  The Court used this problem to highlight that Cal Fire did not have a reasonable, articulable rule. 

 The justices also had a tough back and forth with the Governor’s Office, but their questions tended to be clarifying questions rather than critiques.  One key point of discussion during this segment of oral argument was whether the option for airtime should have been considered “deferred compensation,” which would have made the option a vested pension right.  While this discussion was not notably contentious, the Governor’s Office was persuasive in arguing that an unexercised choice to simply enhance one’s pension is only a general term or condition of civil service employment, and as such, subject to legislative modification.

 Our Prediction:

 Based on the line of questioning, we believe it is likely that the California Supreme Court will issue a ruling in favor of CALPERS and the State of California.  However, we anticipate that the Court’s ruling will be limited and that the Court will wait to fully address issues like the California Rule until it decides the three remaining cases.  Nevertheless, a ruling in Cal Fire Local 2881 v. CALPERS in favor of CALPERS and the State of California will be significant because it will be the first time in decades where the Court has allowed any benefit in an employee’s pension to be rescinded.  We should expect a ruling within the next 90 days.  

Tags: CalPERS

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