COUNTY OF ORANGE v. ASSOCIATION OF ORANGE COUNTY DEPUTY SHERIFFS








Filed 1/26/11




CERTIFIED FOR PUBLICATION


IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

COUNTY OF ORANGE, Plaintiff and Appellant, v. ASSOCIATION OF ORANGE COUNTY DEPUTY SHERIFFS et al., Defendants and Respondents.

B218660 (Los Angeles County Super. Ct. No. BC389758)

STORY CONTINUE FROM PART I….


II. The prohibition against extra compensation
Article XI, section 10, subdivision (a) of the California Constitution provides: “A local government body may not grant extra compensation or extra allowance to a public officer, public employee, or contractor after service has been rendered or a contract has been entered into and performed in whole or in part . . . .” The County alleged in its first amended complaint that the board of supervisors’ approval of the past service portion of the 3% at 50 benefit enhancement granted extra compensation to AOCDS members employed by the County on June 28, 2002 (the effective date of the resolution) for services they had already rendered to the County, and this violated Article XI, section 10.
“Early decisions interpreting the extra compensation clause demonstrate that its framers had a particular, narrow objective in mind . . . . The primary purpose of the prohibition . . . was to prevent the Legislature from enacting ‘private statutes’ in recognition of ‘individual claims.’. . . [T]he provision ‘denied to the Legislature the right to make direct appropriations to individuals from general considerations of charity or gratitude, or because of some supposed moral obligation . . . .’” (Jarvis v. Cory (1980) 28 Cal.3d 562, 577.) The prohibition on extra compensation does not apply to every grant of additional compensation for work already performed. In Jarvis v. Cory, a bill granting additional compensation to state employees for work performed during the fiscal year prior to the enactment of the statute did confer retroactive compensation. (Id. at p. 569.) Nevertheless, the Supreme Court concluded that “the extra compensation clause is not offended when state employees receive retroactive salary adjustments for periods during which they worked with justifiable uncertainty regarding their salary levels.” (Id. at p. 579.)^[1] The retroactive compensation served several public purposes, including the legislature’s finding that it was necessary “‘to ensure the continued recruitment and retention of qualified and competent state employees.’” (Id. at p. 578, fn. 10; Theroux v. State (1984) 152 Cal.App.3d 1, 6.)
Similarly, the Third Appellate District held that pay adjustments made retroactive to the start of a county’s fiscal year were not unconstitutional as a gift of public money^[2] or as extra compensation, where an employee association and the county met and conferred to establish salary levels after the date of expiration of a salary ordinance. (San Joaquin County Employees’ Association, Inc. v. County of San Joaquin (1974) 39 Cal.App.3d 83, 88 (San Joaquin).) “[I]n the area of employment, public agencies must compete, and if to so compete they grant benefits to employees for past services, they are not making a gift of public money but are taking self-serving steps to further the governmental agency’s self-interest in recruiting the most competent employees in a highly competitive market.” (Id. at pp. 87–88.)
Under very different circumstances, courts have found unconstitutional extra compensation taking a variety of forms: retroactive pay for overtime already worked (Longshore v. County of Ventura (1979) 25 Cal.3d 14, 27; Martin v. Henderson (1953) 40 Cal.2d 583, 590–591), lump sum payment for accumulated unused vacation not authorized when work was performed (Seymour v. Christiansen (1991) 235 Cal.App.3d 1168, 1178–1179), and retroactive payment for overtime or work on holidays (Jarvis v. Henderson (1953) 40 Cal.2d 600, 607). Courts have also invalidated pension benefits which did not vest because they were conferred by mistake. (Medina v. Board of Retirement (2003) 112 Cal.App.4th 864, 871–872 [no vested right to safety member pension when employees were erroneously classified as safety members]; Crumpler v. Board of Administration (1973) 32 Cal.App.3d 567, 585–586 [same; “correction of an erroneous classification cannot be equated to a modification or alteration of earned pension rights”].) No court, however, has found that changes to pension benefits awarded for past service to employees with already vested pension rights are unconstitutional extra compensation.
A. Vested pension rights
“A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity. [Citation.]” (Betts v. Board of Administration (1978) 21 Cal.3d 859, 863.) Before retirement, the employee does not have “any absolute right to fixed or specific benefits, but only to a ‘substantial or reasonable pension.’” (Ibid.)
“[P]ension laws are to be liberally construed to protect pensioners and their dependents from economic insecurity. [Citation.] Unlike other terms of public employment, which are wholly a matter of statute, pension rights are obligations protected by the contract clause of the federal and state Constitutions. [Citations.] . . . . [¶] As the Supreme Court notes, ‘upon acceptance of public employment [one] acquire[s] a vested right to a pension based on the system then in effect.’ [Citation.]” (United Firefighters of Los Angeles City v. City of Los Angeles (1989) 210 Cal.App.3d 1095, 1102, quoting Miller v. State of California (1977) 18 Cal.3d 808, 817 (Miller).) Nevertheless, “pension rights are not immutable.” (Miller, supra, 18 Cal.3d at p. 816.) A government entity may make “‘reasonable modifications and changes before the pension becomes payable. . . .’” (Ibid.) Any subsequent modification to vested pension rights must be reasonable based on the facts of each case, and “‘changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.’” (Ibid.) “The saving of public employer money is not an illicit purpose if changes in the pension program are accompanied by comparable new advantages to the employee.’” (Board of Administration v. Wilson (1997) 52 Cal.App.4th 1109, 1145.) Therefore, “[a]n employee’s contractual pension expectations are measured by benefits which are in effect not only when employment commences, but which are thereafter conferred during the employee’s subsequent tenure.” (Betts v. Board of Administration, supra, 21 Cal. 3d at p. 866; United Firefighters of Los Angeles City v. City of Los Angeles, supra, 210 Cal.App.3d at p. 1102, fn. 3; Thorning v. Hollister School Dist. (1992) 11 Cal.App.4th 1598, 1606.)
The County argues, however, that the general rule that current employees have a vested right to increases in pension benefits conferred during employment does not govern this case. Although 3% of 50 is an enhanced pension benefit conferred during the tenure of AOCDS employees working for the County on June 28, 2002, the County argues that the new benefit formula did not vest as to service before that date, because the past service portion of the enhanced benefit is prohibited extra compensation. Case law stands in the County’s way.
B. Extra compensation and pensions
1. Sweesy
In Sweesy v. L.A. etc. Retirement Board (1941) 17 Cal.2d 356 (Sweesy), the widow of a police officer who retired in 1935 and had died in 1939, applied for a widow’s pension that had been authorized by legislation in 1937, after her husband had retired but before he died. The legislation specifically provided “that its provisions shall be retroactive as to the past service of any member who shall be entitled to the benefits ‘contained herein.’” (Id. at p. 359.) The retirement board argued that the amendment should only apply prospectively, to surviving widows of pensioners who were in active service at the time of the adoption of the legislation, because otherwise it would be unconstitutional as a gift of public money.^[3] The board also argued that the retroactivity provision referred only to the past service of members on active duty at the time of the amendment, as distinguished from members who had already retired. (Ibid.)
The Supreme Court observed: “‘A pension is a gratuity only where it is granted for services previously rendered which at the time they were rendered gave rise to no legal obligation . . . . But where, as here, services are rendered under a pension statute, the pension provisions become a part of the contemplated compensation for those services and so in a sense a part of the contract of employment itself.’” (Id. at pp. 359–360.) The court concluded that it was “the settled law of this state that unless the contrary intention plainly appears persons having a pensionable status are entitled to receive any increase of benefits which may be provided.” (Id. at p. 360.) The police officer’s “pension rights vested at the time he was retired from service;”^[4] he “had a status as a pensioner at the time of the adoption of the amendment . . . [whose] provisions were made expressly retroactive so as to include past service of any member entitled to the benefits ‘contained herein.’ Unquestionably [he] was a member entitled to the benefits of the system. No distinction is made by the legislature between members in active duty on full pay and those on retirement, in so far as the retroactive provisions are concerned, and no distinction may here be drawn on that basis. Therefore, the provisions must be held to apply to members who had a vested as well as to those [such as the widow] who merely had an inchoate right to members’ pension benefits at the time of the adoption of the amendment.” (Id. at p. 361.)
The Supreme Court also rejected the contention that the retroactive benefit was additional compensation: “The problem cannot be solved merely by stating as a proposition that a provision will not be upheld which purports to grant a pension after the completion of the services for which the pension is contemplated as additional compensation. The law is well settled that additional benefits may constitutionally be provided for members of the system who have acquired a pensionable status. . . . There is some language in the decisions which refers to pension benefits as additional or increased compensation for services performed and to be performed. [Citations.] But that designation may not be strictly accurate in every case. As in this case, the members of the system make contributions to the pension fund, even though contributions may also come from public funds. Such systems are usually founded on actuarial calculations. Therefore, the question of what benefits would be warranted by either the individual or mass contributions to the fund is for the legislative body, and not for the pension board or the courts, whose respective functions in such cases are to administer and interpret the provisions of the law as written.” (Id. at pp. 361–362.) The court added that “the provision for pension to members’ widows benefits all members, whether on active or retired duty; but as to any prospective grantee of the pension it is an inchoate right which may be taken away at any time before it becomes vested in her [the widow].” (Id. at p. 362.) “[I]ncreased benefits to one already having a pensionable status are constitutional and economically appropriate.” (Id. at p. 363.)
In Sweesy, supra, 17 Cal.2d 356, the Supreme Court approved the retroactive application of an increased pension benefit to the widow of a police officer who had retired before the amendment authorizing the additional benefit was enacted. Although the police officer had already retired, the legislature had not distinguished between retired and active members, and the court declined to draw any distinction between those active members on full pay and those in retirement.
2. Nelson
In Nelson v. City of Los Angeles (1971) 21 Cal.App.3d 916 (Nelson), the petitioners were a member of the police department who had retired in 1947 and the widow of a member who died while employed in 1948. Both were receiving pensions from the city in 1971, when the city adopted a charter amendment increasing the minimum pension payable and raising the annual cost of living increases from two to three percent. (Id. at p. 917.) The “narrow issue” was “is an increase in pension benefits payable to a city pensioner extra compensation or an extra allowance prohibited by article XI, section 10‌ We conclude that it is not.” (Id. at p. 918.)
“[A]n increase in benefits to persons occupying a pensionable status is not to be treated as the payment of ‘extra compensation or allowance,’ as those terms are used in the proscription of article XI, section 10.” (Nelson, supra, 21 Cal.App.3d at p. 918.) Quoting Sweesy, supra, 17 Cal.2d 356 for its holding that such an increase was not a gift of public funds and Jorgensen v. Cranston (1962) 211 Cal.App.2d 292, 295 (disapproved on other grounds in Olson v. Cory (1983) 35 Cal.3d 390, 406) for the rule that a similar increase was not extra compensation, the court concluded: “Uniform precedent thus leads us to the conclusion that the increases in pension benefits granted to persons in a pensionable status^[5] by the 1971 amendments to the Los Angeles City Charter are not proscribed by California Constitution, article XI, section 10.” (Nelson, supra, 21 Cal.App.3d at pp. 919–920.)
3. American River
In American River Fire Protection Dist. v. Brennan (1997) 58 Cal.App.4th 20 (American River), the district sued to recover payments it had made to firefighters upon retirement for portions of accrued but unused sick leave. Before November 1, 1988, the memorandum of understanding between the district and the firefighters’ union provided that upon retirement, accrued but unused sick leave would convert to additional service credit. Effective November 1, 1988, the memorandum provided that employees had the option to elect to receive pay for up to one-half of unused sick leave; the remainder would become service credit upon retirement. (Id. at p. 22.) After several firefighters retired and were paid by the district for sick leave accrued before November 1988, counsel for the district opined that the sick leave buy-out program was unconstitutional as applied to any sick leave accrued before the November 1, 1988 effective date of the program. Although the district conceded that the intent of the negotiators was that the sick-leave buyout be retroactive, the district asked the firefighters to repay the amounts paid for their accrued sick leave, and indicated that it would file a legal action if they did not comply. (Id. at pp. 22–23.) The district did file a complaint, and the trial court granted summary adjudication, finding that the payments for sick leave accrued before November 1, 1988 were unconstitutional. (Id. at p. 24.)
The court of appeal noted, “[e]arly decisions interpreting the extra compensation clause found its framers had a narrow intention to prohibit government appropriations motivated by charity or gratitude,” responding to legislative abuses in enacting private statutes to address individual claims. (American River, supra, 58 Cal.App.4th at p. 24 [citing Jarvis v. Cory, supra, 28 Cal.3d at p. 577].) In this case, the sick leave was a negotiated benefit, and public agencies had to compete with private employers who offered not only salaries but sick leave, vacations, and other benefits. (Id. at pp. 24–25 [citing and quoting San Joaquin, supra, 39 Cal.App.3d at pp. 87–88].) The court discussed the cases cited above regarding retroactive compensation for overtime and vacation time, which the district considered dispositive, and pointed out that although sick leave “as such” was a benefit that provided compensation during employment, “upon retirement unused sick leave became a component in calculating the employee’s pension benefit.” (Id. at p. 27.) “The sick leave buyout provision applied only to retiring firefighters. It continued the long-standing policy of granting additional benefits at retirement to firefighters with accrued sick leave. There was no right to a cash payment for unused sick leave simply upon separation from service. This limited application shows the sick leave buyout was not extra compensation; it added an alternative to established pension benefits and perhaps an incentive to retire.” (Ibid.)
In a paragraph with direct application to this case, the court stated: “The District acknowledges that the extra compensation clause does not apply to pension benefits. ‘If this creates an anomaly in the law, it is one sanctioned by the California Supreme Court.’ (United Firefighters of Los Angeles City v. City of Los Angeles (1989) 210 Cal.App.3d 1095, 1105 [259 Cal.Rptr. 65].) The right to pension benefits vests upon the acceptance of employment. (Miller, supra, 18 Cal.3d at p. 815.) An increase in pension benefits even after retirement is not extra compensation as that term is used in article XI, section 10 of the California Constitution. (Nelson v. City of Los Angeles (1971) 21 Cal.App.3d 916, 918 [98 Cal.Rptr. 892].)” (American River, supra, 58 Cal.App.4th at pp. 27–28.) After describing the facts in Nelson, the court quoted the opinion: “‘[A]n increase in pension benefits payable to a retired public employee or his widow on pensionable status is paid as the result of rights incident to that status and not as a matter of increased compensation or allowance.’ [Citation.] [¶] Here, rather than increasing the pension benefit, the buyout program provided an alternative that would result in increased benefits upon retirement for some firefighters. This increased benefit is payable due to their status at retirement, not as extra compensation for work already performed.” (Id. at p. 28.)
The American River court rejected the district’s argument that permitting the retroactive buyout would “eviscerate” the prohibition against extra compensation and “lead to rampant abuses in pension programs.” (American River, supra, 58 Cal.App.4th at p. 28.) The firefighters always received some benefit (increased service credit) from unused sick leave upon retirement, and therefore there was a prior authorization for this type of benefit, which resulted in increased benefits upon retirement for some employees. “[T]he extra compensation clause retains its vitality to preclude granting new benefits retroactively for services previously rendered.” (Ibid.) The enhanced sick leave policy “merely substituted a cash benefit at retirement for an increased pension, [and] did not result in extra compensation prohibited by article XI, section 10, subdivision (a) of the California Constitution.” (Ibid.)
4. Application to this case
We describe the preceding cases in detail because they show the progression of the law in this area. We continue the progression, and conclude that the past service portion of the 3% at 50 enhanced pension benefit formula for AOCDS members is not unconstitutional extra compensation.
The pension rights of AOCDS members employed on June 28, 2002 vested when they accepted public employment. (Miller, supra, 18 Cal.3d at p. 817.) The vested rights are not immutable. (Id. at p. 816.) The County may make reasonable changes to a pension plan before the pension becomes payable, so long as any disadvantages to the employees are accompanied by comparable new advantages. (Ibid.) The AOCDS members’ contractual pension expectations include not only those benefits in effect when they accepted employment, but also those conferred during their tenure. (Betts v. Board of Administration, supra, 21 Cal.3d at p. 866.) Therefore, when the County Board of Supervisors approved the increase to 3% at 50 to take effect on June 28, 2002, the vested rights of AOCDS members employed on that date included the enhanced pension benefit formula, which was conferred during their employment.
The resolution adopting 3% at 50 specifically provided that the enhancement applied to all years of service, including years worked before June 28, 2002. This retroactive application also became part of the contract of employment of all AOCDS members. (Sweesy, supra, 17 Cal.2d at pp. 359–360.) The increased benefits were not extra compensation. (Id. at p. 363; Nelson, supra, 21 Cal.App.3d at p. 918.) The 3% at 50 enhancement did not provide AOCDS members with additional compensation while they worked for the County. Rather, it would become part of the calculation of the employees’ pension benefits upon retirement. (American River, supra, 58 Cal.App.4th at p. 27.) The 3% at 50 resulted in increased benefits upon retirement, but was not additional compensation. (Id. at p. 28.) Instead, it altered the prior pension benefits and perhaps provided an incentive to retire. (Id. at p. 27.)
The County argues that Sweesy and Nelson are not applicable because those cases involved retroactive benefits awarded to already retired employees rather than active employees. (Under section 31678.2, subdivision (c), the past service portion of the enhanced benefit formula in issue in this case did not apply to AOCDS members who had already retired.) Although the County argues that there is a “clear distinction between retirees and current employees,” that distinction is one the Supreme Court in Sweesy declined to draw. The retirement board argued that the new widow’s pension benefit applied not to retirees but only to current employees, but the court noted that the legislation did not draw a distinction between members in active duty and retired members, “and no distinction may here be drawn on that basis.” (Sweesy, supra, 17 Cal.2d at p. 361.) Given that the right to pension benefits vests at the time of employment, the current employees in this case are in a similar situation to the retired employees in Sweesy and Nelson. In Nelson, the petitioners were retired employees, but the city argued that the charter amendment increasing pension benefits applied only to those persons not yet retired on the date of the amendment. (Nelson, supra, 21 Cal.App.3d at p. 918.) Although the County argues that article XI, section 10 only mentions “public employees,” not retirees, Nelson did not hesitate to apply that section to retired public employees.^[6]
The County further argues that the statement in American River, supra, 58 Cal.App.4th at p. 27 that “the extra compensation clause does not apply to pension benefits” is dictum. We do not depend upon that general statement, however, but upon a careful analysis of the facts and law in Sweesy, Nelson, and American River. That analysis leads us to the conclusion that the first amended complaint in this case does not state a claim that the past service portion of the 3% at 50 formula violates the extra compensation clause. We affirm the trial court’s grant of judgment on the pleadings on the extra compensation cause of action in the first amended complaint.
C. Section 31678.2
Section 31678.2, subdivision (a) of CERL, the County Employees Retirement Law, specifically authorizes past service pension benefit increases, providing “a board of supervisors . . . may, by resolution adopted by majority vote, make any section of this chapter prescribing a formula for calculation of benefits applicable to service credit earned on and after the date specified in the resolution, which date may be earlier than the date the resolution is offered.” Subdivision (c) provides that such a benefit for past service “shall only be applicable to members who retire on or after the effective date of the resolution described in subdivision (a).” “Before 2000, the Legislature expressly prohibited a county from providing increased pension benefits on a retroactive basis. (§ 31678.) However, in 2000, the Legislature adopted a broad exception to this rule, specifically providing counties with the option of applying an improved benefit formula in a retroactive manner.” (San Diego County Employees Retirement Assn. v. County of San Diego (2007) 151 Cal.App.4th 1163, 1175.) “The statute does, however, contain an express limitation that counties may not offer the retroactive benefit to employees who retired before the effective date of the resolution.” (Id. at p. 1176.)
The County Board of Supervisors adopted Resolution No. 01-410 in December 2001, authorizing the 3% at 50 formula for “all years of service” by AOCDS members employed by the County on June 28, 2002. The resolution complies with the statute: a majority (unanimous) vote of the board of supervisors made the enhanced formula applicable to all years of service, as authorized by section 31678.2, subdivision (a) (“the date specified in the resolution . . . may be earlier than the date the resolution is adopted.” The limitation of the enhanced benefit formula to employees who had not retired before June 28, 2002, was in compliance with section 31678.2, subdivision (c), which provides: “This section shall only be applicable to members who retire on or after the effective date of the resolution described in subdivision (a).” The County Board of Supervisors in 2001 did precisely what section 31678.2 authorizes.
The County’s present argument—that applying increases in pension benefits for current employees to their past service violates the extra compensation clause—necessarily also contemplates that section 31678.2 authorizes unconstitutional actions by a board of supervisors or governing body. The County ignores the obvious implications of its extra compensation argument, neglecting to address the constitutionality of section 31678.2 in its reply brief, although the brief by respondent OCERS discusses the section at length. The County continues its silence on the issue in its response to the amicus brief from the California Public Employees’ Retirement System (CALPERS), which points out that the County fails to acknowledge the implications of its arguments for statutes which allow increased pension benefits for state employees to be applied to prior years of service.^[7]
Our conclusion that applying the 3% at 50 formula to past service does not violate article XI, section 10’s prohibition of extra compensation makes it unnecessary for us to address the constitutionality of section 31678.2, or the other, wider implications of the County’s argument. Nevertheless, we note that this case involved the collective bargaining process, in which AOCDS bargained with the County for the past service application of the 3% at 50 formula. “The legislative history underlying section 31678.2 . . . show[s] that the supporters of this legislation were seeking to provide counties with ‘“maximum local control”’ in determining the appropriate retirement formula and to require the counties to engage in collective bargaining on the retroactive benefit issue. [Citations.] These objectives are consistent with a conclusion that the Legislature intended to provide the counties with broad discretion in deciding the manner in which to apply this optional retroactive benefit.” (San Diego County Employees Retirement Assn. v. County of San Diego, supra, 151 Cal.App.4th at p. 1176.) The County exercised its discretion, as authorized by the statute, when after collective bargaining the board of supervisors approved the resolution authorizing 3% at 50 for all years of service for AOCDS members employed on June 28, 2002.
DISPOSITION
The judgment is affirmed. Respondents are awarded their costs on appeal.
CERTIFIED FOR PUBLICATION.

JOHNSON, J.

We concur:

MALLANO, P. J.

CHANEY, J.


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