State high court OKs Legislature rescinding employee benefit it once gave

The state Supreme Court ruled Monday that California's rollback of certain state employees' ability to purchase pension service time was constitutional, in a narrow decision that defers larger questions for later cases.

The Legislature introduced the benefit lying at the center of the dispute, "airtime," in 2003. It allowed certain public employees to purchase up to five years of extra pension time. The California Public Employees' Pension Reform Act eliminated it in 2013. Soon after, eligible employees sued, claiming airtime was a vested pension benefit protected by the state Constitution's contract clause.

In the opinion, Chief Justice Tani G. Cantil-Sakauye differentiated airtime from "core pension rights" and said the state had every right to eliminate it. Echoing the state's argument, she also noted an absence of legislative intent for creating a vested right in airtime.

"There is no indication in the statute conferring the opportunity to purchase [airtime] that the Legislature intended to create contractual rights," she wrote. "Further, unlike core pension rights, the opportunity to purchase [airtime] was not granted to public employees as deferred compensation for their work, and here we find no other basis for concluding that the opportunity to purchase [airtime] is protected by the contract clause."

Attorneys for the plaintiffs had argued that the contract creating a vested right was implied. Justice Leondra Kruger rejected that in her concurring opinion.

"The parties could not reasonably have understood that opportunity as an offer that could be accepted by employment in a participating California Public Employees' Retirement System agency," she wrote.

"We're disappointed by the result, we felt that the benefits we were arguing for were squarely in existing laws and constitutional protections," said Gregg McLean Adam of Messing Adam & Jasmine LLP, who argued for the main plaintiffs, state firefighters.

Adam also called the unanimous opinion "well thought out and well-crafted."

His partner who also represented the firefighters, Gary M. Messing, added that the court explicitly stated it did not intend for the decision to restrict pension benefits at large. Cal Fire Local 2881 et al. v. California Public Employess' retirement System et al., 2019 DJDAR 1819.

Rei Onishi of Gov. Gavin Newsom's office argued for the state. A spokesperson for the office said in an emailed statement, "Our office is looking closely at the decision and reviewing to better understand its full implications. This is a critical issue for state and local government's ability to deliver services and to ensure the retirement security of our hardworking public employees."

Attorneys said a broad ruling could have affected six decades of precedent beginning with Allen v. City of Long Beach in 1955, broadly stating that pension benefits promised at the outset of employment are vested and cannot be divested without an equivalent replacement.

Airtime's isolation by the court as outside "core pension benefits" allowed it to eliminate the practice without touching on the precedent, often called the "California Rule." That did not surprise attorneys, who expected a narrow ruling.

"I fully expected it. If there's a takeaway, it's that in public employment, all promises are not created equally," said Harvey L. Leiderman of Reed Smith LLP. "I think this was relatively easier for the court to decide without going into core vested rights law, which it's going to have to get into."

Leiderman represents two pension associations in a case that will force the Supreme Court to tangle with the "California Rule." That case, Alameda County Deputy Sheriff's Association v. Alameda County Employees' Retirement Assn., deals with changes to the calculation of pension compensation made by the same law that eliminated airtime.

Rei Onishi

That case is briefed and awaiting a date for oral arguments. The court elected to hear the airtime case first, though the Alameda County case was briefed earlier.

Alameda County, and the fate of the "California Rule," loom large as state employees and the government attempt to navigate changes to the pension system.

"Nobody who's in favor of further reform can come away from this case saying they have any authority to do anything at this point," said Steven M. Berliner of Liebert Cassidy Whitmore. "The court said right at the beginning, 'We're not even getting there.'"

"We're going to have to wait. The Alameda case will come up for oral arguments next," he added. Monday's opinion "is very narrowly drawn to address this particular type of benefit, airtime, and that is a different animal than what's at stake in the other case."

Berliner said that while he cannot predict the ultimate ruling, he expects the court to "uphold the California Rule."

Leiderman said the court gave some signals in its opinion.

"The court acknowledged that pension benefits are entitled to some special protections under California law, but that this particular benefit wasn't a pension benefit," he said. "The lesson here is that this court is going to be very careful with what it gives protected status to.

"Not all birds are protected by the Endangered Species Act," he added. "In this case, the court decided that airtime is a chicken rather than a spotted owl."