CALIFORNIA STATEWIDE LAW ENFORCEMENT ASSOCIATION v. CALIFORNIA DEPARTMENT OF PERSONNEL ADMINISTRATION









Filed 1/26/11





CERTIFIED FOR PUBLICATION



IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
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CALIFORNIA STATEWIDE LAW ENFORCEMENT ASSOCIATION, Plaintiff and Respondent, v. CALIFORNIA DEPARTMENT OF PERSONNEL ADMINISTRATION, Defendant and Appellant.

C061102 (Super. Ct. No. 3420080002231CUPAGDS)

APPEAL from a judgment of the Superior Court of Sacramento County, Shelleyanne W.L. Chang, Judge. Reversed in part and affirmed in part.

Gary M. Messing, Jason H. Jasmine, Carroll, Burdick & McDonough, LLP, for Defendant and Appellant.

K. William Curtis, Chief Counsel, Warren C. Stracener, Deputy Chief Counsel, Linda A. Mayhew, Assistant Chief Counsel, Kevin A. Geckeler and Will M. Yamada, for Plaintiff and Respondent.


Many millions of dollars are at stake in this case. At issue is the process by which a public employee labor union and the Governor negotiate benefits for state employees and then present their collective bargaining agreement to the Legislature for approval and funding. Such agreements, which have been under the public's radar in the past, are now coming to light due to the massive budget deficit the State is facing.
California’s collective bargaining system for state employees provides an enhanced pension benefit for what are known as “safety members.” The “common thread” that has made employees eligible for safety member retirement status is that their principal duties expose them “to potentially hazardous activity” (Glover v. Board of Retirement (1989) 214 Cal.App.3d 1327, 1333) and “‘the risk of injury from the necessity of being able to cope with potential dangers inherent in [the principal duties of the job].’ [Citations.]” (City of Huntington Beach v. Board of Administration (1992) 4 Cal.4th 462, 469; see also City of Oakland v. Public Employees’ Retirement System (2002) 95 Cal.App.4th 29, 63.) Hence, peace officers, firefighters, and correctional officers are safety members. (See, e.g., Gov. Code, §§ 20390, subd. (a) [“principal duties consist of active law enforcement service”], 20398, subd. (a)(10) [“principal duties consist of active firefighting/fire suppression”], 20403 [duties performed in prisons and by parole agents].)
Safety members receive a more generous retirement formula, and thus more generous pensions, than do other state employees who are known as “miscellaneous members.” Consequently, some state employee collective bargaining units have, over the years, sought safety member status for their members. This litigation involves one such successful effort.
The California Statewide Law Enforcement Association (CSLEA) represents State Bargaining Unit 7.^[1] The President of CSLEA described Unit 7 as follows: “It’s about half and half, half sworn [peace officers] and half regulatory. Obviously everyone knows what the sworn officers do. The regulatory folks are assigned to, you know, all the different departments [of state government]. [For example,] DMV has sworn investigators, and they have licensing reps that go out. And you know, those reps go out to all the different businesses that sell cars, and many of the times they’re in shady areas, things like that. [¶] You’ve got cosmetology people who go out and who work investigating the different hair salons for cleanliness those sorts of things. They issue citations. [¶] . . . DMV [has] licensing registration examiners, those folks . . . [who] do the licensing of the drive tests. [¶] [Also in Unit 7 are] criminalists . . . [who] have an extremely important and dangerous job by going out to the different crime labs and working with extremely volatile chemicals . . . .”
In March 2002, CSLEA reached agreement with the Department of Personnel Administration (DPA) to reclassify employees of Unit 7 from miscellaneous member retirement status to safety member status, thus increasing their pension benefits. A memorandum of understanding (MOU) was approved by the Legislature in Senate Bill No. 183 (SB 183), codified in part in Government Code section 19816.21, subdivision (a)(1). (Stats. 2002, ch. 56.)
An arbitrator found that DPA and CSLEA agreed to confer safety member status retroactively and thereby to include in that status all prior service of Unit 7 employees while they were in miscellaneous member status. Stated another way, even though their prior years of service were as miscellaneous members, those years would be converted into safety member status to provide Unit 7 employees with more generous retirement service credit for the years of service they worked as miscellaneous members.
Over DPA’s objection, a Sacramento County Superior Court judge confirmed the arbitration award.
On appeal, DPA contends the arbitrator’s decision must be vacated on the ground that the award violates the public policy embodied in the Ralph C. Dills Act (Dills Act) (Gov. Code, § 3512 et. seq.; further section references are to the Government Code unless otherwise specified) because the portion of the agreement conferring retroactive safety member retirement service credit was not presented to, and approved by, the Legislature. We agree.
As we will explain, we defer to the arbitrator’s decision, based on extrinsic evidence, that the agreement between DPA and CSLEA to move employees of Unit 7 into safety member retirement status included an agreement to apply the new status retroactively to encompass all prior service credit by members employed as of July 1, 2004. However, the MOU presented to the Legislature did not contain language that the change to safety member status would apply retroactively to convert prior miscellaneous member status to safety member status; SB 183 was “silent” as to whether the benefit would apply retroactively to prior service; and the Legislature was not provided with a fiscal analysis of retroactive application of the agreement. Because the part of the agreement giving Unit 7 employees retroactive safety service credit was never explicitly presented to the Legislature for approval, as required by section 3517.61 of the Dills Act, the arbitrator erred in concluding that SB 183 mandates retroactive safety member retirement benefits. Accordingly, we will reverse the judgment to that extent. The retroactive part of the agreement may be enforced only if it and its fiscal consequences are explicitly submitted to, and approved by vote of, the Legislature.
BACKGROUND
A
CSLEA is the exclusive bargaining representative for Unit 7, which is comprised of approximately 7,000 state employees.
In early 2002, the president of CSLEA, Alan Barcelona, met with Governor Gray Davis to discuss CSLEA’s third attempt to reclassify its members into safety member retirement status. Governor Davis told Barcelona that, if he sponsored legislation to move CSLEA’s members into safety member status, the Governor would sign it. The Governor then told DPA Director Marty Morgenstern to meet with CSLEA to implement a plan to reclassify the majority of CSLEA’s members.
In March 2002, DPA and CSLEA entered into a written agreement, providing that classifications within Unit 7 are related to public safety and that, “[o]n July 1, 2004, those classifications currently in the Miscellaneous Retirement category and not otherwise indicated shall be moved to the Safety Retirement category.”

B
Existing law permitted DPA to determine which classes of positions meet the criteria for safety member retirement status (§ 19816.20);^[2] to agree to provide safety member status by a memorandum of understanding reached pursuant to section 3517.5;^[3] and to notify the California Public Employees’ Retirement System of DPA’s determination (§ 20405.1).^[4]
But the law precluded DPA from approving safety member status for any class or position that did not meet criteria specified in subdivision (c) of section 19816.20 (fn. 2, ante). Since employees in Unit 7 did not meet those criteria, it was necessary to seek legislation permitting safety member status for Unit 7. (See also § 3517.6, subd. (b) [if any provision of a collective bargaining memorandum of understanding (MOU) requires the expenditure of funds or is not statutorily exempt from further legislative action, the MOU “may not become effective unless approved by the Legislature”].)
Legislative permission was obtained with the passage of SB 183, codified in section 19816.21, which provides in pertinent part: “(a) Notwithstanding Sections 18717 and 19816.20, effective July 1, 2004, the following officers and employees, who are in the following classifications or positions on or after July 1, 2004, shall be state safety members of the Public Employees’ Retirement System: [¶] (1) State employees in State Bargaining Unit 7 (Protective Services and Public Services) whose job classifications are subject to state miscellaneous membership in the Public Employees’ Retirement System, unless otherwise excluded by a memorandum of understanding. [¶] (2) State employees in managerial, supervisory, or confidential positions that are related to the job classifications described in paragraph (1) and that are subject to state miscellaneous membership in the Public Employees’ Retirement System, provided that [DPA] has approved their inclusion. [¶] (3) Officers and employees of the executive branch of state government who are not members of the civil service and who are in positions that are related to the job classifications described in paragraph (1) and that are subject to state miscellaneous membership in the Public Employees’ Retirement System, provided that [DPA] has approved their inclusion. [¶] (b) [DPA] shall notify the Public Employees’ Retirement System of the classes or positions that become subject to state safety membership under this section, as prescribed in Section 20405.1.” (Stats. 2002, ch. 56, § 1.)
The Legislature also made the following amendments (underscored) to section 20405.1: “Notwithstanding Section 20405, this section shall apply to state employees in state bargaining units that have agreed to these provisions in a memorandum of understanding between the state employer and the recognized employee organization, as defined in Section 3513, state employees who are excluded from the definition of ‘state employee’ by subdivision (c) of Section 3513, and officers or employees of the executive branch of state government who are not members of the civil service. [¶] (a) On and after the effective date of this section, state safety members shall also include officers and employees whose classifications or positions are found to meet the state safety criteria prescribed in Section 19816.20, provided [DPA] agrees to their inclusion, and officers and employees whose classifications or positions have been designated as subject to state safety membership pursuant to Section 19816.21. For employees covered by a collective bargaining agreement, the effective date of safety membership shall be the date on which [DPA] and the employees’ exclusive representative reach agreement by memorandum of understanding pursuant to Section 3517.5 or any later date specified in the memorandum of understanding. For employees not covered by a collective bargaining agreement, [DPA] shall determine the effective date of safety membership.” (Stats. 2002, ch. 56, § 3.)
The Legislature did not alter the language of subdivision (b) of section 20405.1, which stated: “[DPA] shall notify the [State Personnel Board] as new classes or positions become eligible for state safety membership, as specified in subdivision (a), and specify how service prior to the effective date shall be credited.”
C
Although the statutory scheme allowed DPA to specify how service prior to the effective date of the collective bargaining agreement shall be credited, the DPA/CSLEA agreement is silent on that matter. And the Legislature’s approval of the agreement does not clarify the question. Section 19816.21 simply directs DPA to notify the California Public Employees’ Retirement System (CalPERS) of new safety classes as prescribed in section 20405.1, which also directs DPA to notify CalPERS when new safety classes are added and to “specify how service prior to the effective date shall be credited.” (§§ 19816.21, subd. (b), 20405.1, subd. (b).)
Nevertheless, in October 2002, after SB 183 was enacted, DPA’s retirement policy director prepared a question and answer sheet for CSLEA to distribute to its members regarding the new safety member benefit. It posed the question, “Is my past service going to be upgraded to State Safety retirement‌” The answer was, “All of your past State service in those positions recognized for reclassification that are subject to Bargaining Unit 7 will be changed to the State safety retirement classification if you continue employment in a position subject to reclassification as of July 1, 2004.”
However, prior to the July 1, 2004 implementation date of the agreement, DPA informed CSLEA that DPA would not be crediting prior service retroactively at the enhanced rate.
CSLEA filed a grievance, claiming the State had reneged on the March 11, 2002 agreement. CSLEA asked that the matter be resolved by arbitration.
DPA refused to arbitrate, asserting that the retroactive application of safety member retirement status was not an issue arising under the contract.
The Court of Appeal, First Appellate District, rejected DPA’s assertion, found that the grievance presented a contract dispute, and referred the matter to arbitration.
D
The arbitrator, Bonnie Bogue, stated the issue before her was whether DPA and CSLEA reached an agreement requiring the State to purchase all previous service credit in the reclassified positions for those employees who received safety retirement as of July 1, 2004, and, if so, whether the agreement was enforceable under the collective bargaining agreement’s grievance arbitration procedure.
At the arbitration hearing, the legislative history of SB 183 and other extrinsic evidence was presented because the enabling bill was silent on whether the benefit was intended to apply retroactively to cover an employee’s previous service in a classification that was being reclassified from miscellaneous member to safety member status. The legislative history does not include an express statement about whether the bill, or the contract that the bill was facilitating, was intended to apply the new safety member status retroactively or only prospectively.
According to the arbitrator, the analyses in the legislative history were based on a prospective application of the safety member agreement, without an analysis of the cost for retroactive coverage of previous service. Indeed, the bill analyses and reports used figures taken from an actuarial analysis prepared by CalPERS that assumed the transfer from the miscellaneous to safety retirement category would be prospective--an assumption that was based on information CalPERS received from DPA. The CalPERS analysis shows that the new retirement status for Unit 7 will cost the State an additional $17.1 million each year--which the Department of Finance calculated as a “present value cost of at least” $148.4 million.
The arbitrator observed that the $17.1 million figure appeared in a May 31, 2002 draft report for consideration of the Benefits and Program Administration Committee, which specifically stated the calculation was based on CalPERS advice that the “reclassification shall only apply prospectively to service performed by members on or after July 1, 2004. Thus no past service in the state miscellaneous member category for the affected Unit 7 members will be reclassified as state safety service.”
The arbitrator also noted a “Department of Finance Bill Analysis dated May 21, 2002, stated, ‘to the extent prior State miscellaneous
service is transferred to State safety service, the cost of this bill would increase significantly.’” Furthermore, two retirement analyses of the costs of the new safety benefit were prepared at the request of DPA’s retirement policy director. One analysis was based on an assumption that the benefit would be prospective only, and the second on the assumption that the benefit would be retrospective. According to the retirement policy director, he would not have requested the second analysis if DPA administration had not been directed him to do so.
E
The arbitrator ruled that DPA and CSLEA “reached an enforceable agreement that required the State to purchase all previous service credit, in the Miscellaneous Unit 7 positions reclassified to the State Safety category for those employees who received State Safety retirement as of July 1, 2004.” She observed that the sole testimony showing any belief that the benefit was prospective only did not come from anyone who had participated in the contract negotiations, but from a CalPERS analyst charged with drafting the bill analysis for SB 183. The analyst admittedly had not received any formal notice that the benefit would be prospective only; the assumption was based on an e-mail the analyst had received from DPA’s retirement policy director, stating that the benefit would be prospective only. The retirement policy director admitted he may have said this and initially assumed the benefit would be prospective only. Later, he had a retrospective evaluation prepared at the request of DPA executive staff.
The arbitrator declined to address DPA’s argument that the agreement violated public policy because, before it passed SB 183, the Legislature was not told the contract would be retroactive. In her view, this was not a matter of contract interpretation and, thus, not an issue within her jurisdiction--her authority under article 6 of the MOU was limited to interpreting and enforcing the terms of the collective bargaining agreement and did not extend to making public policy determinations about legislative enactments, such as whether they were based on adequate or complete information.
The arbitrator rejected DPA’s contention that, regardless of whether DPA and CSLEA had agreed that the safety member retirement benefits would be retroactive, DPA should prevail on the basis of statutory supersession because the contract required implementing legislation under the Dills Act. The arbitrator found that a report by the Department of Finance “expressly noted the possibility that the measure could be applied to cover previous service, in which case ‘the cost of this bill would increase significantly.’ That language shows that the possibility of retroactive application was made known to the [L]egislature when this bill was under consideration. [¶] The [L]egislature’s purpose in enacting S.B. 183 was solely to codify the terms of the agreement DPA had reached. DPA entered that agreement in the exercise of its statutory authority under § 20405.1(b) to determine whether previous service in a classification that is transferred to State Safety category is subject to the enhanced benefit. There is nothing in the legislative history to show the [L]egislature intended to modify the agreement in any way. The bill was drafted to mirror the language of DPA’s agreement with [CSLEA]. The fact that CalPERS provided actuarial analyses that failed to reflect accurately the Agreement DPA had negotiated cannot have the effect of modifying DPA’s agreement with [CSLEA].”
F
DPA filed in the Sacramento County Superior Court a petition to vacate the arbitrator’s award on the ground it violated public policy mandating full disclosure to the Legislature of the terms of the safety member retirement benefit agreement submitted for legislative approval. According to DPA, the “arbitrator violated that policy because her award gives effect to an alleged oral agreement made between CSLEA and certain DPA employees that was never disclosed to the Legislature.” Emphasizing that the MOU “is silent on the critical fiscal issue of retroactive application of the enhanced retirement benefit, i.e., whether or not the affected [Unit] 7 employees’ previous service in the Miscellaneous category would be reclassified at the State Safety ‘2.5% at 55’ formula under the State Safety retirement plan,” DPA asserted that the legislative history of SB 183 reflects just a “prospective actuarial valuation”; the “only mention of SB 183’s retrospective application occurred after the Legislature passed SB 183.” Thus, the arbitrator in effect modified the MOU that was presented to the Legislature by making it retroactive even though (1) when enacting section 19816.21 to approve the MOU, the Legislature was not told that the agreement would be retroactive, and (2) section 19816.21 or section 20405.1 cannot be construed as authorizing DPA to unilaterally bestow retroactive safety retirement credit without legislative approval.
CSLEA countered by filing a petition to confirm the award. CSLEA acknowledged that, in referring the matter to arbitration, the Court of Appeal, First Appellate District, said that, if the arbitrator interpreted the agreement as requiring DPA to award prior service credit to Unit 7 employees, then DPA could challenge the award in superior court based on DPA’s claim of statutory supersession. According to CSLEA, this statement was dicta and incorrect. Thus, CSLEA urged the superior court to confirm the arbitrator’s award because it “complied with the authority granted to [the arbitrator] by the parties’ contract” to “‘decide the merits of the grievance.’”
The superior court denied DPA’s petition to vacate, and granted CSLEA’s petition to confirm, the arbitrator’s award. The court held that the fact the Legislature was presented with a specific cost analysis of prospective reclassification only was not dispositive because, by modifying subdivision (b) of section 20405.1 so that DPA could “specify how service prior to the effective date shall be credited,” the Legislature must have known the reclassification of Unit 7 employees to safety member retirement status could be applied retroactively. In the court’s view, to construe the statute in a manner that would not allow DPA to apply the reclassification retroactively would render subdivision (b) surplusage, contrary to rules of statutory construction.
In sum, the superior court held “SB 183 authorized DPA to credit prior service,” and “[t]he arbitrator found that DPA and CSLEA agreed [prior service] would be included [in the reclassification]”; thus, the arbitrator did not exceed the authority given to her because she did not reform the parties’ agreement in a manner that changed the provisions approved by the Legislature. Accordingly, the court entered judgment confirming the arbitrator’s award. DPA appeals.



TO BE CONTINUED AS PART II….


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