Eagan v. Spellman

581 P.2d 1038, 90 Wash. 2d 248, 1978 Wash. LEXIS 1209

• Court: Washington Supreme Court
• Decided: June 29, 1978
• Docket: 44584
• Status: Published

Opinions

Dolliver, J.

Plaintiff applied for a writ of prohibition to restrain King County from terminating her employment solely for the reason she had reached her 65th birthday. The trial court dismissed the writ. The case comes to us on certification from the Court of Appeals.

In 1966, at the age of 56 years, Jane Eagan was hired by King County, having previously been employed by the county from 1938 to 1942. At the time of her 1966 employment, the mandatory age of retirement in King County for persons in her classification was 70 years. In 1968, a home rule charter was adopted by the voters of King County, establishing, among other things, a personnel system which provided for two categories of employees, career service and exempt personnel. In 1970, the King County Council enacted ordinance No. 422, King County Code § 3.12.060(j), which reduced the mandatory age of retirement from 70 to 65 years.

At the time of her 65th birthday on October 31, 1975, plaintiff was the confidential secretary to the director of rehabilitative services for King County. She was at this time an "exempt" employee. When she became an employee of King County in 1966, plaintiff became a member of the Washington Public Employees' Retirement System (PERS) and continued as a member until November 1, 1975, when, under the terms of King County ordinance No. 422, she was required to retire. The record shows the director of rehabilitative services wanted to retain her. There is no indication in the record that she was required to retire other than because of her age.

Plaintiff raises four issues relative to the King County mandatory retirement provision: (1) It does not apply to her because of her status as an exempt employee; (2) it violates RCW 49.60, the state law against discrimination; (3) it violates the equal protection and due process clauses of the federal and state constitutions; and (4) it violates her rights under PERS, RCW 41.40, particularly RCW 41.40.180(2). Because we hold King County ordinance No. 422 does violate the rights of plaintiff granted by RCW 41.40, we need not and do not consider her other contentions.

Under PERS (RCW 41.40) at the time Eagan became a member, she was entitled to a "retirement allowance" at the rate of 2 percent of her "average final compensation" for each year or fraction of a year of membership service (RCW 41.40.185(2)), but her total annual retirement allowance could not exceed 60 percent of her average final compensation; that is, in computing the total percentage of average final compensation, no more than 30 years would count. RCW 41.40.185(3). The age for mandatory retirement under PERS in 1966 was 70 and has continued to be 70 to the present time. RCW 41.40.180(2). Without considering the 1938-1942 employment on which the record is unclear and which is not relevant for purposes of this case, at the time plaintiff became a member of PERS in 1966, she had a potential retirement allowance at age 70 of 14 years at 2 percent per year of service or 28 percent of her average final compensation. Under the subsequently enacted 65-year mandatory retirement, her potential was reduced to 9 years at 2 percent per year, or 18 percent of her average final compensation. Thus, the same pension opportunities available to plaintiff at the time of her employment were' denied to her at the time of her termination.

A considerable list of authorities have been brought to our attention for the proposition that there can be a nondiscriminatory regulation of tenure, that this does not unconstitutionally interfere with preexisting pension rights, and that public employment is not a vested property right. Agreed. However, this analysis is relevant only if the matter before us is characterized as a matter of tenure rather than pension rights. But calling it tenure does not overcome the fact that we are really dealing with the pension rights and expectations of the plaintiff.

Two questions are presented: (1) Is the changing of the age of retirement by King County from 70 to 65 and the termination of plaintiff's employment at age 65 a matter of pension rights rather than a matter of tenure?, and (2) If the case concerns pension rights, is the reduction of the retirement age from 70 to 65 invalid as it affects the plaintiff? We answer both of these questions in the affirmative.

The time when members of PERS must retire is covered by the pension statute. RCW 41.40.180. On the other hand, the actual length of service to be credited to PERS for plaintiff or any member depends upon factors completely outside of PERS and which are unrelated to pension consideration, e.g., death, disability, voluntary quit, removal for cause, removal at pleasure of hiring authority (the situation with plaintiff and other exempt employees), elimination of the position by the employer, and reduction in force. These are truly matters of tenure and as such have no relationship to pension rights. See King County Charter, art. 5, § 510; King County Code, title 3.

Whether plaintiff actually receives 28 percent of her average final compensation is dependent upon her maintaining her employment, i.e., tenure. This is totally outside the purview of RCW 41.40.

But in addition to the actual length of service credited to PERS, which depends upon maintenance of employment, there is a potential length of service which is part of the pension system, is controlled by that system, and is part of that bundle of rights which is granted to each person who is a member of the system. See Washington Ass'n of County Officials v. Washington Pub. Employees' Retirement Sys. Bd., 89 Wn.2d 729, 575 P.2d 230 (1978).

At the time she became a member of PERS, Eagan acquired a vested right to a potential date of retirement and is entitled to have this right mature into a retirement allowance at age 70, subject, of course, to not being separated from employment by factors outside of PERS, i.e., factors truly relating to tenure. See Dorward v. ILWUPMA Pension Plan, 75 Wn.2d 478, 452 P.2d 258 (1969); Washington Ass'n of County Officials v. Washington Pub. Employees' Retirement Sys. Bd., supra.

In Bakenhus v. Seattle, 48 Wn.2d 695, 700, 296 P.2d 536 (1956), we stated:

There are cases which hold that, since the right to receive a pension does not arise until all the conditions are fulfilled, the employee's rights must depend upon the law as it exists at that time. This view is insupportable. Unless the services are rendered in reliance on an offer, they are consideration for nothing, and any pension received thereafter can only be a gratuity. The promise on which the employee relies is that which is made at the time he enters employment; and the obligation of the employer is based upon this promise.

See also Vallet v. Seattle, 11 Wn.2d 12, 459 P.2d 407 (1969); Leonard v. Seattle, 81 Wn.2d 479, 503 P.2d 741 (1972).

• In 1966, plaintiff was promised by King County that if she entered into employment she became entitled to certain benefits under the Washington Public Employees' Retirement System. Among these benefits was the opportunity, unless otherwise separated from county employment, to continue to work until age 70. Plaintiff accepted employment in reliance upon this obligation and promise of King County. It is conceded plaintiff was separated from employment not because of any of the usual reasons which determine length of service, but solely because of her age. This was in violation - of the agreement made with her by King County. The county cannot now by the back-door device of early retirement under the personnel ordinances fail to follow its promises made under the pension statutes.

It would be anomalous at best for King County to promise an employee that she may receive a pension of a certain amount when prescribed conditions have been satisfied and then in effect amend the language of the pension statutes so that the conditions could never be fulfilled.

An additional reason to question the validity of this back-door amendment of RCW 41.40 is that the amendment of a state statute is not being accomplished through normal legislative channels but rather is being done by a political subdivision, King County, which has been admitted to PERS. See RCW 41.40.010(4). Even if it were assumed for the sake of argument that the State had the power to change the age of retirement in PERS so as to affect present members, such a power to amend state law should hardly rest in a constituent member.

A number of cases in support of the position of defendants have been brought to our attention: Kingston v. McLaughlin, 359 F. Supp. 25 (D. Mass. 1972); Miller v. State, 18 Cal. 3d 808, 557 P.2d 970, 135 Cal. Rptr. 386 (1977); Coopersmith v. Denver, 156 Colo. 469, 399 P.2d 943 (1965); Peters v. Springfield, 57 Ill. 2d 142, 311 N.E.2d 107 (1974); McCarthy v. Sheriff of Suffolk County, 366 Mass. 779, 322 N.E.2d 758 (1975); Humbeutel v. New York, 308 N.Y. 904, 126 N.E.2d 569 (1955); Boyle v. Philadelphia, 338 Pa. 129, 12 A.2d 43 (1940); Gardner v. Nation, 522 P.2d 1281 (Wyo. 1974). Although the factual situation varies in each of these cases, in none of them does the court hold a government employee had a cause of action when forced to retire upon the lowering of the age of retirement.

It should be noted that the Coopersmith and Kingston cases involved only the bare right to continue employment and were, in effect, tenure cases. In each case, even though there was early retirement, the court specifically found there was no showing of reduced pension or the loss or forfeiture of any pension rights. This is in complete contrast to this case where early retirement will significantly affect plaintiff's pension rights.

The strongest case for defendants' position is Miller v. State, supra, which is directly in point and is from a state whose statutes and case law have been very similar to ours.

However, the court in Miller, as in the other cases cited, makes the fundamental error of classifying, without question or analysis, the age of retirement for an employee under a public pension system as a matter of tenure rather than pension rights. The Miller court states, at page 817, "[Plaintiff's] right to receive such [pension] benefits was subject to conditions and contingencies; specifically, that he remain in state employment until age 70", and "Although he was entitled to earn increased pension benefits so long as he remained in state employment, as we explained above, plaintiff had no vested contractual right to continue working for any specified period of time."

The same faulty analysis was made in McCarthy v. Sheriff of Suffolk County, supra, where the court stated, at page 784:

We cannot say that the plaintiffs, in accepting employment with the Commonwealth and in joining the retirement plan, could have had a reasonable expectation that they would be guaranteed employment as court officers until age seventy, considering the extensive power of the Legislature to change, or in fact to do away with, their positions.

. . . Accordingly, we hold that § 25(5) [forbidding alterations depriving employees of pension rights or benefits] was intended to create pension security, not job security, and that the plaintiffs have no vested contractual rights to continuation in office.

The whole discussion of a vested contractual right pertaining to continued state employment simply demolishes a straw man. No contention was made in Miller nor is any contention made here that plaintiff might not properly be separated from service by factors not related to the pension system. But when the termination of employment is only for a reason specifically covered in PERS, the matter no longer concerns tenure but goes directly to pension rights guaranteed by Bakenhus and its successors.

While this court should have great respect for the California courts and for other jurisdictions which have considered similar cases, we are not bound by their views. We need not question the ability of public employers to terminate their employees nor the tenure rights of such employees. These matters are dealt with under other statutes and have been and possibly will be considered again by this court in other cases. Here we need to avoid confusing rights of tenure with pension rights, and when the latter are involved, as here, to make certain a public employee receives the rights guaranteed by this court.

While it distinguishes but does not overrule Humbeutel v. New York, supra, the New York Court of Appeals in Donner v. New York City Employees' Retirement Sys., 33 N.Y.2d 413, 308 N.E.2d 896, 353 N.Y.S.2d 428 (1974), adopted an analysis which is analogous to our views and is helpful in illustrating the difference between pension rights and tenure. In Donner, petitioner retired from employment with the City of New York in 1955 when the pension system provided that a member who had retired and had been receiving a retirement allowance had the right to again become a member of the retirement system if he were reemployed by the City of New York. Prior to petitioner's reemployment by the City (he was 67 when reemployed), the administrative.code of the City was changed, reducing the age at which a person could reenter the retirement system from 70 to 65. In holding the change impermissible, the Court of Appeals said, at page 416:

We find no merit in the Retirement System's argument that the amendment in question affected no protected benefit of Donner's since he had no right requiring the city to re-employ him. Prior to the passage of the complained of amendment, Donner could have rejoined the Retirement System if he were rehired by the city. This opportunity to re-enter the Retirement System, while conditional upon being rehired by the city, was nevertheless a retirement benefit. The city was not obliged to reemploy Donner, but having done so, the conditional aspect of the benefit was satisfied and Donner had a right to be re-enrolled as a member . . .

. . . [This] analysis is anchored by [the] fundamental principle that a benefit may be conditional and still be constitutionally protected . . .

(Citations omitted.)

Since this case concerns pensions — not tenure — we turn to the interpretation given in our previous decisions to the question of pension rights for public employees.

We have held that a public employee who comes under a pension system contracts for certain rights and expectations which cannot be lessened by the governmental authority absent the occurrence of specific circumstances.

In Bakenhus v. Seattle, 48 Wn.2d 695, 701, 296 P.2d 536 (1956), we stated:

Under . . . the rule which we adopt here, the employee who accepts a job to which a pension plan is applicable contracts for a substantial pension and is entitled to receive the same when he has fulfilled the prescribed conditions. His pension rights may be modified prior to retirement, but only for the purpose of keeping the pension system flexible and maintaining its integrity.

Two years later, in Eisenbacher v. Tacoma, 53 Wn.2d 280, 283-84, 333 P.2d 642 (1958), we addressed the same question and said:

An employee who accepts a job to which a pension and relief plan or system is applicable contracts for a pension and relief plan or system substantially in accord with the then existing legislation governing the same; modifications of a pension plan or system cannot be imposed on the employee unless the changes are equitable to the employee.

Accord, Letterman v. Tacoma, 53 Wn.2d 294, 333 P.2d 650 (1958) .

In Tembruell v. Seattle, 64 Wn.2d 503, 506, 392 P.2d 453 (1964), we held:

Pension rights thus vesting from the inception become a property right and may not be divested except for reasons of the most compelling force.

What are these "reasons of the most compelling force"? They must be (1) for the purpose of keeping the pension system flexible (Bakenhus v. Seattle, supra); and (2) for the maintenance of the integrity of the system. Bakenhus v. Seattle, supra. We have further held that any change must be equitable to the employee or, put another way, any change which results in a disadvantage to the employee must be accompanied by comparable new advantages. See Bakenhus v. Seattle, supra, and Eisenbacher v. Tacoma, supra.

In Dailey v. Seattle, 54 Wn.2d 733, 738, 344 P.2d 718 (1959) , we held that members of a public pension system "will be presumed to have acquiesced in legislative modifications that do not unreasonably reduce or impair existing pension rights; or, stated positively, if the modifications are reasonable and equitable." We further stated in Dailey, at pages 738-39:

That an act of the legislature, making a change in pension rights, will be weighed against pre-existing rights in each individual case to determine whether it is reasonable and equitable. If the over-all result is reasonable and equitable, the employees (prospective pensioners) will be presumed to have acquiesced in the modifications; if the over-all result is not reasonable and equitable, there will be no such presumption.

Here there is no contention by King County nor was any evidence offered that the lowering of the age of retirement from 70 to 65 was necessary to maintain the integrity of the system or to make the system more flexible. See Bakenhus v. Seattle, supra at 702. Standing alone, the reduction of the pension potential promised to plaintiff from 28 percent to 18 percent of average final compensation is hardly reasonable or equitable and' there are no comparable new advantages to plaintiff. The lowering of the age of retirement from 70 to 65 is in fact a reduction of plaintiff's pension rights prior to her retirement, and this reduction does not meet the tests previously enunciated by this court.

Beginning with Bakenhus, we have protected the pension rights of public employees from unwarranted administrative and legislative tampering. We continue this protection and refuse the invitation to confuse pension with tenure. The trial court is reversed and the writ is granted.

Wright, C.J., and Rosellini, Hamilton, Stafford, Brachtenbach, and Hicks, JJ., concur.