Supreme Court: “California Rule” Stands, But Weakened

Today, the California Supreme Court issued its decision in Alameda County Deputy Sheriff’s Association v Alameda County Employees’ Retirement Association et. al. The key issue in this case was whether some of the changes mandated by the Public Employees’ Pension Reform Act of
2013 (PEPRA) unlawfully infringed upon vested pension rights. Unfortunately for the plaintiffs, the media characterized this case as one of “pension spiking.” Given that tagline, it’s not surprising that the Court found that the Legislature’s efforts to combat pension spiking were lawful and rejected the plaintiffs’ arguments.

However, what everyone wanted to know was whether the Court would affirm the “California Rule.” Under the California Rule, pension benefits promised to employees can only be reduced if they are replaced with something of equal value. Prior to today’s case, many commentators described the California Rule as “iron-clad.”

Notably, in today’s decision the Court declined to reexamine the California Rule. Thus, the California Rule remains the law of California. However, what is noteworthy is that the Court described the California Rule in different terms than it has been commonly understood. According to the Court, the California Rule—as set forth in Allen v City of Long Beach (1955) 45 Cal.2d 128—provides that:

An employee’s vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. [Citations.] Such modifications must be reasonable . . . . To be sustained as reasonable, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.

To evaluate whether a modification of pension rights will be upheld against a contract clause challenge, the court must first determine whether the modification imposes disadvantages on affected employees, relative to the preexisting pension plan, and, if so, whether the disadvantages are accompanied by comparable new advantages. Assuming the disadvantages are not offset, the court must then determine whether the legislative body’s purpose in making the changes was sufficient, for constitutional purposes, to justify an impairment of pension rights.

Even if the modification is based on a legitimate purpose, a decision “to impose financial disadvantages on public employees without providing comparable advantages will be upheld under the contract clause only if providing comparable advantages would undermine, or would otherwise be inconsistent with, the modification’s constitutionally permissible purpose.” This last test is key. Under an “iron-clad” interpretation of the California Rule, there is no mechanism to impose pension changes that are disadvantageous without providing something advantageous. However, under today’s decision it is at least theoretically possible to impose purely disadvantageous pension changes if the changes are necessarily for a constitutionally permissible purpose.

So while the California Rule still stands, it’s been weakened …

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PERB Schedules Oral Argument on Interpretation of Gov Code 3550

AFSCME Local 3299 v Regents (Case No. SF-CE-1188-H); UPTE Local 9119 v Regents (SF-CE-1189-H); Teamsters Local 2010 v Regents (SF-CE-1192-H); Teamsters Local 2010 v Regents (SF-PE-5-H)

PERB has scheduled a virtual combined oral argument in these cases for July 23, 2020, at 1:30 p.m. Next week PERB will be releasing a link where the public may view the oral argument via a live stream on PERB’s YouTube channel.

The Board rarely grants oral argument in cases. This will be the first oral argument held by the Board under Governor Newsom. The last time PERB held oral argument was in 2014 in San Bernardino County Public Attorneys Association v. County of San Bernardino (PERB Case Nos. LA-CE-431-M; LA-CE-554-M). Before that, the Board held oral argument once in 2013 and once in 2002. So this will be only the fourth oral argument held by the Board in more than 20 years

As set forth in the notice of oral argument, the Board has requested that the parties address the following issues:

1. What statutory construction best describes the relationship (if any) between §3550 in the PEDD and §3571.3 in HEERA?

2. When interpreting the terms “deter” and “discourage,” what is the relevance (if any) of (a) the definition of “deter” in subdivision (a) of §16645; (b) the employer’s motive; (c) the truthfulness or misleading nature of the employer’s communication or conduct; (d) the specific context in which the communication or conduct occurred; and (e) any other potentially relevant circumstances.

Notably, in addition to the ALJ decision in these cases, PERB ALJs have issued three other proposed decisions (Alliance Schools, Orange County IHSS, Gridley USD) interpreting Gov. Code section 3550, each with a slightly different take on the meaning of the statutory language. PERB is also a defendant in a federal case alleging that Gov. Code section 3550 impermissibly chills the free speech rights of elected officials in California (Barke v Banks, C.D. Cal. Case No. 8:20-cv-00358-JLS-ADS).

Comments:

  1. Because I am counsel to the Regents in these cases and will be doing the oral argument I will not comment any further right now. I will just say I am looking forward to addressing PERB’s questions on the 23rd…

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AB 2850: Adds BART to PERB’s Jurisdiction

AB 2850 was introduced on February 21, 2020, by Assembly Member Low. Like most transit districts, the San Francisco Bay Area Rapid Transit District (BART) is governed by the Public Utilities Code (PUC) for its operations, including its labor relations. Initially, this bill would have placed BART under the Meyers-Milias-Brown Act, therefore making it subject to PERB’s jurisdiction. However, the bill was recently amended to keep BART under the PUC’s labor relations statutes but to place it under PERB’s jurisdiction for enforcement. If enacted, this bill would create yet another unique statutory scheme under PERB’s jurisdiction.

In 2018, Governor Brown vetoed AB 2886 which would have added the Orange County Transportation Authority (OCTA) and the San Joaquin Regional Transit District to PERB’s jurisdiction. In his veto message, Governor Brown noted that PERB’s jurisdiction has steadily increased over the years while its funding has not. According to Governor Brown, until PERB is able to handle its workload its jurisdiction should not be further expanded. Then, in 2019, Governor Newsom signed AB 355 which added the OCTA to PERB’s jurisdiction.

As of July 3, 2020, the Board’s docket of cases is down to 16, which is likely a modern day record low. So the concerns about workload expressed just a few years ago may not be a pressing today. The bill has passed the Assembly and is currently pending in the Senate Committee on Labor, Public Employment and Retirement.

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SB 1173: $50,000 Penalty for Violation of PECC

SB 1173 was introduced on February 20, 2020, by Senator Durazo. Currently, the Public Employee Communication Chapter (PECC) (Gov. Code, §3555 et. seq.) requires public employers to regularly provide a union with the “name, job title, department, work location, work, home, and personal cellular telephone numbers, personal email addresses on file with the employer, and home address …” of the union’s bargaining unit members. SB 1173 would give an employer 10 days to cure an allegation that it provided an inaccurate or incomplete list of employees to the union.

If the employer does not timely cure a violation, the union may file an unfair practice charge with PERB. If PERB finds a violation, it “shall” impose a penalty on the employer not to exceed $50,000. The penalty is paid to PERB upon appropriation by the Legislature. Further, PERB “shall” award attorneys’ fees and costs to the “prevailing charging party” bringing the unfair practice charge.

Comments

Not surprisingly, this bill is opposed by both the League of Cities and the California State Association of Counties, along with a host of other employer organizations. For starters, it’s not clear why such a radical bill is necessary as most employers are complying with the PECC and any problems appear to be isolated. I say this bill is radical because it introduces, for the first time, the notion of a “penalty” into California public sector labor law. Perhaps even more problematic, this bill gives PERB, for the first time, the statutory authority to award  attorneys’ fees, but only to a prevailing union. 

In terms of the language of the bill, my biggest objection is that it only allows an employer to “cure” a violation 3 times a year. This is fine if you’re an employer that provides information to the union every 120 days as allowed by the PECC. But many employers voluntarily provide information to the union more often than every 120 days. These employers are placed at a disadvantage compared to employers following the minimum time standards. It seems to me that if you are an employer providing information more often than necessary that you shouldn’t be penalized for that. Hopefully if this bill moves forward they will at least correct that flaw. But more important, I hope the attorneys’ fees provision is eliminated. As for the penalty, I think it should be tied to actual damages suffered by the union for the PECC violation. I am strongly opposed to PERB being allowed to impose penalties that are not tied to actual damages, especially when the damages appear likely to flow into PERB’s own coffers….

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PERB Docket at Lowest Level in Recent Memory

As of June 5, 2020, PERB’s Docket (the number of cases awaiting decision by the Board itself) stood at 22. Significantly, for the first time in recent memory the Board’s docket has no cases that have been at the Board level awaiting decision for longer than a year. As the Board notes, this is a tremendous improvement from only two years ago when the docket stood at 83 cases with 37 cases over a year old.

The Board attributes the decrease in the docket to increased productivity by the Board members in addition to structural changes such as the addition of a Board “bull pen” attorney who acts as an additional Legal Adviser to the Board. Either way, the Board’s ability to get its docket down to this level is truly impressive. I recall in the early 2000’s that the Board’s docket hovered around 150 cases with many older than a year, some older than 2 years, and even a few over 3 years. Hopefully the budget crisis facing the state won’t derail PERB’s continued efforts to keep its docket down.

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