AB 194: Limits on Pensions

AB 194 is part of a six-bill package of legislation in response to the salary scandal at the City of Bell. AB 194 would cap compensation that could be considered in calculating a public employee's pension at 125% of the Governor's current salary, which is $173,987.  (The Governor's salary was $212,179 but the Citizen's Compensation Commission voted on May 20, 2010 to reduce that salary by 18%, to $173,987, effective December 7, 2009.)  So the cap would be $217,483.75.  The cap would only apply to individuals joining a pension system on or after January 1, 2011 and the cap would be subject to an annual cost-of-living increase. 

This bill isn't all that radical as there is already a federal IRS rule that limits the amount of compensation that can be considered in calculating a public employee retirement benefit to $245,000.  (IRC section 401(a) (17).)  (There is apparently a special provision that allows some governmental plans to consider up to $360,000 of compensation provided certain requirement were met in 1993 - but I don't think that applies to any governmental plan in California).  But the federal rule doesn't apply to individuals who were part of the pension system prior to 1996.

AB 827: Limits on Local Employment Contracts

AB 827 is part of a six-bill package of legislation in response to the salary scandal at the City of Bell. AB 827 would prohibit any employment contract for a local, unrepresented employee from including: 1) an automatic renewal provision; 2) an automatic raise in excess of a cost-of-living adjustment; or 3) an automatic compensation increase, including any increase that is linked to a third-party contract. The bill itself is a “gut and amend” of a prior bill dealing with the archival of county records. Perhaps because the bill was so quickly written, the language – although extremely short – contains several ambiguities.

1. The bill would add to the MMBA the following language:

“3511.1. For the purposes of this chapter, "excluded employee" means any unrepresented individual who is or will be employed by, and report directly to, the legislative body of the local agency. "Excluded employee" includes any person contracted with the local agency as well as any person who is considered an at-will employee.”

The first question that arises is whether the second sentence modifies or adds to the first. Specifically, the first sentence says that an “excluded” employee is any unrepresented employee who reports directly to the legislative body. The second sentence says that “excluded employee” includes contract employees and at-will employees. Does that just clarify what is an “unrepresented” employee in the first sentence? In other words, unrepresented employees, whether contract or at-will, who report directly to the legislative body are covered.

You could read the second sentence as being in addition to the first. In other words, unrepresented employees who report directly to the legislative body are covered. And in addition, any contract or at-will employee is also covered, regardless of whether that employee reports directly to the legislative body. Given the history behind this bill, I don’t think the latter interpretation is correct. I believe the bill was only intended to apply to the few individuals who report directly to a legislative body. However, the language is certainly less than clear.

2. The bill also adds the following to the MMBA:

“3511.2. For any contract executed or renewed on or after January 1, 2011, an excluded employee's employment contract shall not include any clause that provides for any of the following: (a) An automatic renewal. (b) An automatic raise in excess of a cost-of-living adjustment. (c) An automatic compensation increase, including any increase that is linked to a third-party contract. (d) Notwithstanding Section 53260, a severance payment greater than 12 months' salary."

I’m not sure why you need (b) when you have (c). If you prohibit all automatic increases, why do you need to say that automatic increases above the cost-of-living are prohibited? It doesn’t make sense.

Other than that, the language of 3511.2 is clear. What I find confusing is why this language is being placed in the MMBA. Because excluded employees are not represented, this isn’t an issue related to collective bargaining. Perhaps because it deals with the terms and conditions of employment, the Legislature thought it made sense to include it in the MMBA. However, it seems to me that it would be better placed in the part of the Government Code dealing with local compensation.

3. Finally, the bill would add the following to the Government Code:

“54957.05. (a) For any unrepresented individual who is or will be employed by, and report directly to, the legislative body of the local agency, before implementing a raise in excess of a cost-of-living adjustment, the following requirements shall be met: (1) A performance review of that individual shall be completed. A completed summary of the performance review shall be discussed at open session. The performance review shall be publicly available upon request. (2) The vote to implement the raise in excess of a cost-of-living adjustment shall be conducted in an open session meeting. (b) For the purposes of this section, the board shall use the Bureau of Labor Statistics' Consumer Price Index to determine the cost-of-living adjustment each year.”

The big change here is the requirement that any performance review of an unrepresented employee who reports directly to a legislative body be conducted in open session of the legislative body. The issue that comes to mind is whether such individuals have privacy rights preventing a performance evaluation from being discussed in open session. In California, the right to privacy is constitutionally protected and could potentially trump any legislation. However, because this bill only applies to the very few individuals who report directly to a legislative body – people who are usually very high in the chain of command – I think this requirement is probably permissible. This is because the right to privacy must be balanced against the public’s right to information about its government. For the people at the very top, the courts have generally found that the public’s right to information generally outweighs any individual right to privacy. However, it’s certainly a balancing act. To the extent a performance evaluation touches on highly personal areas (for example, if a City Manager who is HIV positive has to take time off for medical treatment and that affects his attendance), I’m not sure that such issues should be aired in public. So even if this bill passes, there may be some areas related to an individual’s performance that are not properly subject to the provisions of this bill requiring a public hearing.

Proposed Legislation in Response to City of Bell Scandal

The Legislature has unveiled a six-bill package of legislation in response to the salary scandal involving the City of Bell. The six bills are:

• AB 827: Prohibits any employment contract for a local, unrepresented employee from including an evergreen provision, severance payments greater than 12 months in salary, automatic compensation increases, and automatic raises that exceed the cost of living.
• AB 192: Requires cities to pay for any higher pension payments that stem from their luring a municipal employee away from another city by offering exorbitant pay. 
• AB 194: Establishes a cap on the total compensation that can be used to calculate a pension benefit. 
• AB 1955: Requires charter cities to be penalized by the state if they pay city council salaries higher than allowed in general-law cities. Councilmembers would be slapped with a 50% personal income tax on any ”excess” amounts and the city's redevelopment agency would be restricted from approving new plans or issuing new debt. 
• AB 2064: Requires the Legislature to post on its website the salaries of its elected members and employees. The bill also requires cities, counties, special districts, school districts and joint powers authorities to post the salaries of its elected officials and key employees.
• SB 501: Requires officials of cities, counties, special districts, school districts and joint powers agencies to file an annual statement that discloses their compensation to the public.

Comments:

I’m going to try to provide comments on these bills over the next couple of weeks. I’m going to start with AB 1955 because I think it’s the most interesting.

1.  This bill would slap a 50% tax on the amount of a Councilmember’s “excess” salary. According to the Senate analysis, taxing income based on source is “unusual” in California. However, the analysis notes that the tax is similar to the “AIG bonus tax” passed by Congress.

2.  Under this bill, a charter city would be deemed an “excess compensation city” if Councilmember pay exceeds the statutory limit for general law cities. What is the limit for general law cities? Under Government Code section 36516, how much a general law city may pay a Councilmember depends on the city’s population. Here is the chart:

Up to and including 35,000 residents = $300 a month
Over 35,000 and up to and including 50,000 = $400 a month
Over 50,000 and up to and including 75,000 = $500 a month
Over 75,000 and up to and including 150,000 = $600 a month
Over 150,000 and up to and including 250,000 = $800 a month
Over 250,000 residents = $1,000 a month

3.  However, it’s not as simple as just looking at the chart. The amounts in section 36516 have not changed since 1984. However, the statute allows a city to increase Councilmember salaries by ordinance up to 5% a year. (In addition, council salaries can be increased beyond these limits if submitted to and approved by the voters.) So what effect does that 5% annual increase have? If a general law city paid  a Councilmember $1000 a month in 1984, and increased that amount 5% every year, Councilmember pay would be approximately $3556 per month (or $42,672 annually) today. That amount would be the maximum amount a general law city could pay a Councilmember under section 36516 without submitting the issue to the voters.

4.  Now, here comes the big caveat. Under AB 1955, an “excess compensation city” by definition cannot be a charter city with a population over 285,000 individuals. In other words, any charter city with a population over 285,000 is exempt from this bill.  How many cities are there with more than 285,000 people?  There are 13 cities in California with populations over 285,000:  Los Angeles, San Diego, San Jose, San Francisco, Fresno, Long Beach, Sacramento, Oakland, Santa Ana, Anaheim, Bakersfield, Riverside, and Stockton.  All 13 of these cities are also charter cities.  Under AB 1955, all 13 would be exempt from this bill.

Dismissals Not Entitled to Preclusive Effect

Grossmont Union High School District (2010) PERB Decision No. 2126E (Issued on 8/13/10)

This case involved an employee who alleged that he received a negative performance evaluation and was demoted because of protected activities. Specifically, the employee alleged that the adverse actions were taken after he wrote a letter to the principal accusing the principal of violating the applicable collective bargaining agreement and because he requested union representation during a meeting with his manager. The Office of the General Counsel issued a complaint. After a formal hearing, the ALJ found no nexus between the adverse actions and the protected activities, and on that basis, dismissed the complaint.

Of interest was the fact that the employee had filed an unfair practice charge against his union for breach of the duty of fair representation (DFR) arising from the same set of facts. (See Service Employees International Union, Local 221 (Meredith) (2008) PERB Decision No. 1982.) In the DFR case, the Board found that the employee failed to state a prima facie case that his union caused or attempted to cause the District to reject him on probation. Relying on that decision, District in this case moved to dismiss the complaint.

In its decision, the Board declined to give preclusive effect to the prior DFR decision. Here’s what the Board held:

“In City of Porterville (2007) PERB Decision No. 1905-M, the Board, citing the "doctrines of res judicata and collateral estoppel," gave preclusive effect to a Board agent’s dismissal of identical allegations in a separate unfair practice charge. However, a Board agent’s review of a charge to determine whether it establishes a prima facie case of an unfair practice does not meet the "actually litigated" requirement for collateral estoppel. To be "actually litigated" for purposes of collateral estoppel, an issue must have been decided based on the presentation of evidence at a hearing. (Groves v. Peterson (2002) 100 Cal.App.4th 659, 668.) The Board has consistently held that the function of a Board agent’s investigation is not to resolve the merits of the case because such resolution is reserved for PERB ’ s hearing process. (Golden Plains Unified School District (2002) PERB Decision No. 1489; Eastside Union School District (1984) PERB Decision No. 466.) We therefore overrule City of Porterville, supra, to the extent it granted preclusive effect to a dismissal of an unfair practice charge based solely on a Board agent’s charge investigation.”

Thus, the Board has overruled City of Porterville and will no longer give preclusive effect to a dismissal. This issue doesn’t arise very often but practitioners should take note of this change in law.

PERB: School Noon-Duty Aides Not Covered by EERA

Castaic Union School District (2010) PERB Decision No. A384E (Issued on 8/09/10)

In an unexpected decision, PERB has held that school district employees in part-time playground positions, also referred to as "noon-duty aides," who do not otherwise hold a position in the classified service, are not covered by the Educational Employment Relations Act (EERA). This decision overturns the Board’s holding in Pittsburg Unified School District (1976) EERB Decision No. 3 (“Pittsburg”). What is significant is that the Pittsburg decision has been binding precedent for over 30 years; indeed it was the third decision ever issued by PERB (then known as EERB).

The Board based its decision on the language of Education Code section 45103, subdivision (b)(4), which states:

Part-time playground positions shall not be a part of the classified service, where the employee is not otherwise employed in a classified position. Part-time playground positions shall be considered a part of the classified service when the employee in the position also works in the same school district in a classified position.

Then Board then compared Education Code section 45103 with Government Code section 3540.1, subdivision (e), which states:

“Exclusive representative means the employee organization recognized or certified as the exclusive negotiating representative of certificated or classified employees in an appropriate unit of a public school employer.”

The Board interpreted the “plain language of the statute to mean that an exclusive representative may only represent a bargaining unit of certificated or classified employees and, therefore, cannot represent employees who do not fall into one of those two categories.”  According to the Board, the definition of "exclusive representative" limits the definition of "public school employee" to certificated or classified employees.  Thus, part-time playground employees are not considered “employees” for purposes of EERA.

As a result of the Board’s holding, the petition in this case to add part-time playground positions to an existing unit was dismissed. However, in the interesting move, PERB stated that it would only apply the holding in this case prospectively. Specifically, the Board stated that:

“We recognize that classified bargaining units may currently exist which include parttime playground positions. Because of the potential disruption to stable employer-employee relations that would result from application of this decision to such units, PERB will only apply this decision prospectively. (Palo Alto Unified School District, et al. (1979) PERB Decision No. 84; Peralta Community College District (197 8) PERB Decision No. 77.) Consequently, this decision does not affect existing units that include part-time playground positions.”

Member Wesley dissented from the Board’s decision that EERA does not cover part-time playground positions. Member Wesley argued that the definition of “employee” under EERA does not limit it to classified or certificated employees. Further, Member Wesley asserted that being excluded from the classified service has little bearing on whether an employee should be covered by EERA, as the purposes of the two statutory sections are different.

Comments:

1. It is fairly rare for the Board to overturn one of its prior decisions. It probably occurs once a year on average; perhaps a little more when there is a change of Governor. However, I can’t remember the Board ever overturning a decision as old as Pittsburg. As mentioned above, Pittsburg has been around for over 30 years and it was only the third decision ever issued by the Board. In terms of the merits of the decision, I think both sides have valid points. But given how long Pittsburgh has been around, I’m sure CSEA will appeal this case. It will be interesting to see how the Court rules.
2. For me, the really interesting portion of this case was the Board’s guidance on how this decision will be applied in the future. The Board acknowledged that many districts have part-time playground positions in bargaining units and that this decision could cause substantial disruption to those districts and employees. Therefore, the Board stated that it would only apply this decision prospectively. However, can the Board do that? I personally think it’s questionable. Here, the Board said that the plain language of the statute required that it hold that part-time playground employees are not covered by EERA. However, PERB cited to a couple of prior cases where it declined to apply a statutory interpretation retrospectively where such an application would “cause disruption and instability.” I think those prior decisions are distinguishable. But in its basic form, the legal question is this: Can an administrative agency charged with enforcing a statute decide not to enforce the plain language of the statute because it would cause disruption and instability?  I believe the answer is no; such a decision is one for the Legislature. My view is that if PERB says that under the plain language of EERA that these positions are not covered, it has no choice but to enforce that interpretation. Any “disruption or instability” in this situation is caused by the language of the statute, which is something for the Legislature to address.  I certainly understand why PERB only wants to apply this holding prospectively, I just don't know that it can do that when it says that the language of the statute is plain and clear.