Piccioli v. City of Phx.
Piccioli v. City of Phx.
Opinion of the Court
¶1 This opinion addresses the enforceability and constitutionality of an administrative regulation that partially ended a longstanding practice of including payouts for accrued sick leave when calculating an employee's pension benefits under the City of Phoenix Employees' Retirement Plan ("Plan"). Because Phoenix voters never took any affirmative act to authorize this practice, we hold the regulation does not violate common-law or constitutional protections applicable to public employee pensions.
BACKGROUND
¶2 Phoenix is a home rule city organized under Article 13, Section 2 of the Arizona Constitution through adoption of a city charter ("Charter") in 1913. Phoenix voters amended the Charter in 1953 to adopt the Plan and vested administrative, management, and operation authority for the Plan in a Retirement Board. Phoenix City Charter, ch. XXIV, art. II, §§ 3.1, 4.1. Except where noted, we refer to Phoenix, the Retirement Board, and the Plan collectively as "the City."
¶3 AFSCME Local 2384, AFSCME Local 2960, and ASPTEA ("Unions") represent three "units" of Phoenix employees and are joined in this litigation by 12 retired employees who began receiving pension benefits under the Plan after July 8, 2012 ("Retirees"), as well as four current Phoenix employees ("Current Employees"). Unless otherwise noted, we refer to the Unions, Retirees, and Current Employees collectively as "Members."
¶4 Under the Plan, an employee's pension benefit is calculated by multiplying three figures:
*833(1) "final average compensation," (2) credited service, and (3) a defined benefit rate. "Final average compensation" is calculated based on a member's average compensation paid over a three-year period of credited service. Phoenix City Charter, ch. XXIV, art. II, §§ 2.13, 2.14. As explained below, a member's "compensation" may either be monetary ("salary or wages") or non-monetary. See id. at § 2.13. Phoenix voters amended the Plan in 1973 to allow members to include additional credited service based on the amount of accrued sick leave they had remaining at retirement but never authorized the use of accrued sick leave as part of the pension calculation. Id. at § 14.4.
¶5 Consistent with collective bargaining agreements between Phoenix and the Unions, the city manager adopted Administrative Regulation ("A.R.") 2.441 in 1996, which allowed employees to convert a certain percentage of their accrued unused sick leave hours to a cash payout at retirement. A.R. 2.441 was silent as to whether the Charter required this payout to be treated as "compensation" for purposes of calculating pensions. As a matter of administrative practice, however, from 1996 to 2012 the Retirement Board counted these one-time payouts as part of the employee's "final average compensation," and the City repeatedly communicated this practice to employees.
¶6 The City created a pension reform task force to evaluate the health of the Plan. The task force recommended, among other things, that the City prospectively end the practice of including accrued sick leave payouts at retirement in the pension calculation. During negotiations with the Unions regarding the 2012-2014 collective bargaining agreements, Phoenix proposed a "sick leave snapshot" program that would have prospectively ended the practice but would still allow Plan members to include payouts for unused sick leave hours accrued as of July 1, 2012 in their "final average compensation." The Unions rejected the proposal and thus the 2012-2014 collective bargaining agreements did not explicitly address whether Plan members could include accrued sick leave payouts in their "final average compensation." The deputy city manager then amended A.R. 2.441 ("Revised A.R. 2.441"), essentially adopting the snapshot program by excluding payouts for sick leave accrued after July 1, 2012, from an employee's pensionable compensation.
¶7 Several days before this amendment, Current Employees and the Unions sued the City, seeking declaratory, injunctive, and mandamus relief based on the claim that Revised A.R. 2.441 would unlawfully reduce their pension benefits. After Retirees intervened the superior court conducted a bench trial on various issues, including whether Members had "a vested and contractual right" to include accrued sick leave payouts in the calculation of their "final average compensation."
¶8 The superior court ruled in favor of the Members, finding that (1) unused sick leave is non-monetary "compensation" under the Plan; (2) the city council fixed the value of that compensation through A.R. 2.441 and its repeated approval of the collective bargaining agreements; and (3) the parties to those agreements understood that accrued sick leave payouts were included as "final average compensation." The court explained that a public employee has a right to "the existing formula by which his benefits are calculated as of the time he began employment," Fields v. Elected Officials' Ret. Plan ,
¶9 After the parties submitted briefing on the scope of damages and potential equitable relief, the superior court enjoined the City from using Revised A.R. 2.441 to calculate Retirees' pension benefits, awarded Retirees a combined total of $5,482.04 in damages, and awarded Members $22,328.37 in taxable costs. The court declined to award attorneys' fees to either party. This timely appeal and cross-appeal followed.
DISCUSSION
¶10 The City argues that accrued sick leave payouts do not qualify as "compensation" under the Plan and thus Members have no common-law or constitutional right to compel the City to include such payouts in their "final average compensation." Members *834counter that accrued sick leave constitutes non-monetary "compensation," as defined by the Plan. Alternatively, Members argue the payout is monetary "compensation" because it is part of a member's "salary or wages."
¶11 Because Yeazell v. Copins ,
A. Common Meaning of Compensation Under the Charter
¶12 We apply principles of constitutional construction to home rule city charters. City of Phoenix v. Yates ,
¶13 Full-time Phoenix employees, unless otherwise excluded (such as those covered by other retirement plans), are eligible for membership in the Plan. Phoenix City Charter, ch. XXIV, art. II, §§ 2.5-2.6, 12.1-12.2, 31.1. As pertinent here, the Plan defines "final average compensation" as the "average of the highest annual compensations paid a member for a period of 3 consecutive ... years of his credited service."
¶14 We first disagree with the superior court's finding that one-time cash payouts at retirement represent non-monetary compensation under § 2.13.
¶15 We next consider whether such payouts are "compensation," meaning "salary or wages," under the Charter. The City argues those terms cover only fixed amounts of money paid on a regular basis, while the Members contend "compensation" includes any remuneration or money paid for an employee's services. In isolation, the terms "salary or wages" might reasonably be open to the conflicting definitions the parties assign to them. However, after considering their ordinary meaning and the Plan as a whole, we find only one reasonable interpretation. See Glazer ,
¶16 We begin by examining the meaning of "salary." See Wade , 241 Ariz. at 562, ¶ 14,
*835Cross v. Elected Officials Ret. Plan ,
¶17 Members argue that "deliberate use of the terms 'salary or wages' evinces a clear intent to capture all moneys paid directly to employees for services rendered, regardless of labels." Because the Charter separates "wages" from "salary" by the disjunctive "or," it might be that "wages" covers different payments. See State v. Pinto ,
¶18 We are not persuaded that "salary" and "wages" cannot share overlapping meanings. See Wade , 241 Ariz. at 562, ¶ 18,
¶19 On the contrary, if "compensation" includes irregular payments, it would render other provisions of the Plan unworkable. See Glazer ,
¶20 Furthermore, the Plan limits membership to "employees," Phoenix City Charter, ch. XXIV, art. II, §§ 12.1-12.2, defined as persons "in the employ of the City on a full time basis,"
*836¶21 Applying the ordinary meaning of "salary or wages," we hold that a one-time payout at retirement for accrued sick leave does not fall within the "final average compensation" multiplier of the Plan's pension formula. See Cross , 234 Ariz. at 604, ¶ 31,
¶22 Having concluded the Charter does not require accrued sick leave payouts to be included as "final average compensation" when the pension benefit is calculated, we now consider the legality of the City's decision to halt that practice.
B. Legality of Revised A.R. 2.441
¶23 Members assert the City violated the common-law and constitutional protections applicable to retirement benefits when it revised A.R. 2.441 because the City cannot eliminate their contractual and constitutional rights to the "pension benefit formulas as they were promised, administered and existed from commencement of employment or from beneficial modification of those benefits." To reiterate, Revised A.R. 2.441(5)(A) limits "[t]he amount of sick leave eligible for inclusion in the calculation of an employee's Final Average [Compensation] at the time of retirement ... to the number of hours in an employee's sick leave bank on July 1, 2012." Thus, the City ceased including sick leave payouts in the pension calculation for all employees hired after that date. For existing employees, if they otherwise meet eligibility requirements, the "snapshot program" reflected in the regulation allows them to use accrued sick leave payouts to increase their pension benefits, but only for hours that accrued no later than July 1, 2012.
¶24 Members rely on Yeazell , the Arizona Pension Clause, and the Contract Clauses of the Arizona and United States Constitutions to support their position. We review the constitutionality of a regulation de novo. See Hall , 241 Ariz. at 38, ¶ 14,
¶25 In Yeazell , our supreme court held that disputes over public employee pension rights should be settled according to the common law of contracts.
¶26 In 1998, Arizona voters amended our state constitution to include Article 29, commonly referred to as the Pension Clause. This clause protects two related but distinct interests. Ariz. Const. art. 29, § 1. Subsection C provides that "[m]embership in a public retirement system is a contractual relationship" subject to the protections of our state constitution's Contract Clause.
¶27 Importantly, neither the Pension Clause, the Contract Clauses, nor the common law provide an independent source of substantive rights. See Cross , 234 Ariz. at 599, ¶ 9,
¶28 We explained this principle in Cross , where a pension plan paid benefits to a member on terms different than those provided for in the relevant statute. Instead of calculating the member's pension benefit on his base salary, the plan decided to include his "bonuses and payments for unused vacation and sick time."
¶29 The superior court reversed the plan's decision, but we affirmed the plan's decision on appeal.
¶30 We reaffirm the central holding in Cross that contract principles and the Pension Clause protect only those pension terms or benefits found in the codified retirement plan. Id. at ¶ 9. Here, the Plan is codified in the Charter, which does not include accrued sick leave payouts as "final average compensation" when calculating a member's pension. Because the City erroneously included such payouts, it was allowed to correct its error and harmonize Current Employees' and Retirees' pensions with the Plan, which itself contemplates such corrective action. See Phoenix City Charter, ch. XXIV, art. II, § 36.1 (directing the Retirement Board to correct errors when "any ... error in the records of the Retirement Plan results in any person receiving from the Plan more or less than he would have been entitled to receive had the records been correct").
¶31 Members argue nonetheless that the City's longstanding administrative practice of allowing the inclusion of accrued sick leave payouts to calculate "final average compensation" is now part of their pension contracts for purposes of Yeazell . But Members have not met their burden to show this is the case. Yeazell ,
¶32 Members also direct us to Norton v. Arizona Department of Public Safety Local Retirement Board ,
¶33 Nor are we persuaded by two decisions from Washington and New York, Bowles v. Washington Department of Retirement Systems ,
¶34 Any approach to interpretation of public employee pension contracts that is not firmly grounded in the language of the relevant codified enactment creates uncertainty and interferes with the parties' reasonable expectations. Public employees have a common-law and constitutional right to rely on the terms of the pension plan as it existed when they began employment. But the government (in this case, the voters) is also entitled to a reasonable degree of certainty in relying on the fixed terms of the plan. When the government knows the nature and extent of its obligations, it can perform appropriate functions needed to ensure the continuing viability of the plan. Allowing plan terms to be changed on an informal basis could undermine those functions and ultimately threaten the plan's integrity. These considerations find even more import in Arizona, where legally-authorized beneficial changes to a codified retirement plan automatically become part of the pension contract. Thurston , 179 Ariz. at 51,
¶35 Maintaining fidelity to the codified terms of the retirement plan is especially appropriate here, where that plan is part of a home rule city charter. These charters command a special democratic legitimacy because constitutional procedures require they be approved both by the city's qualified electors and the Governor. See Ariz. Const. art. 13, § 2 ; Paddock v. Brisbois ,
¶36 We therefore continue to adhere to a fundamental principle in Yeazell and its progeny-a pension term in a public employment contract must have a sound basis in the codified retirement plan. See, e.g. , Hall , 241 Ariz. at 36-37, 41, ¶¶ 4, 6, 8-9, 23,
¶37 In sum, we conclude that the City's adoption of Revised A.R. 2.441 to partially end the erroneous practice of including accrued sick leave payouts as "final average compensation" did not violate Yeazell , the Pension Clause, or the Contract Clauses of the Arizona and United States Constitutions. Given this conclusion, we do not address Members' remaining arguments, which ask us to consider issues not before us on appeal, such as the inclusion of other payouts (e.g., holiday and vacation pay) in a Plan member's compensation. Nor do we address Members' cross-appeal, which challenges the superior court's denial of a permanent injunction, class certification, and attorneys' fees. Moreover, the legality of the City's decision to continue the practice of including payouts for sick leave accrued before July 1, 2012 in pension calculations is not before us.
CONCLUSION
¶38 We hold that the Plan does not compel the City to include lump-sum, irregular cash payouts for accrued sick leave benefits at separation as pensionable "compensation," and the City did not violate common-law or constitutional principles by adopting Revised A.R. 2.441. We therefore reverse the superior court's judgment and remand for entry of judgment in favor of the City. Because Members have not prevailed on appeal, we deny their request for attorneys' fees and costs incurred on appeal. In our discretion, we deny the City's request for attorneys' fees but award taxable costs to the City upon its compliance with ARCAP 21.
Arizona courts have described city charters as equivalent to "a local constitution." State ex rel. Brnovich v. City of Tucson ,
We need not address Members' remaining arguments concerning the definition of "compensation," which assume the phrase "salary or wages" is ambiguous and use secondary tools of construction. See Jett ,
Reference
- Full Case Name
- Frank PICCIOLI, Plaintiffs/Intervenors/Appellees/Cross-Appellants v. CITY OF PHOENIX, Defendants/Appellants/Cross-Appellees
- Cited By
- 3 cases
- Status
- Published