Kentucky Retirement Systems by and Through the Board of Trustees of The v. Western Kentucky University

CourtCourt of Appeals of Kentucky
DecidedAugust 19, 2021
Docket2020 CA 000793
StatusUnknown

This text of Kentucky Retirement Systems by and Through the Board of Trustees of The v. Western Kentucky University (Kentucky Retirement Systems by and Through the Board of Trustees of The v. Western Kentucky University) is published on Counsel Stack Legal Research, covering Court of Appeals of Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Kentucky Retirement Systems by and Through the Board of Trustees of The v. Western Kentucky University, (Ky. Ct. App. 2021).

Opinion

RENDERED: AUGUST 20, 2021; 10:00 A.M. TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals

NO. 2020-CA-0793-MR

KENTUCKY RETIREMENT SYSTEMS, BY AND THROUGH THE BOARD OF TRUSTEES OF KENTUCKY RETIREMENT SYSTEMS, AND ON BEHALF OF KENTUCKY EMPLOYEES RETIREMENT SYSTEM APPELLANT

APPEAL FROM FRANKLIN CIRCUIT COURT v. HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 16-CI-01228

WESTERN KENTUCKY UNIVERSITY APPELLEE

OPINION AFFIRMING

** ** ** ** **

BEFORE: CLAYTON, CHIEF JUDGE; DIXON AND MAZE, JUDGES.

CLAYTON, CHIEF JUDGE: Kentucky Retirement Systems, (“Retirement

Systems” or “Systems”), by and through its Board of Trustees and on behalf of

Kentucky Employees Retirement System, appeals from an opinion and order of the Franklin Circuit Court granting summary judgment to Western Kentucky

University (“WKU”). The issue is whether a group of former WKU maintenance

workers, who are now employed by a private company that manages WKU’s

facilities, are still employees of the university for purposes of participating in the

Kentucky Employees Retirement System (“KERS”), thus requiring WKU to

continue making pension contributions on their behalf. Retirement Systems argues

that the circuit court lacked subject matter jurisdiction to address the question

under the Declaratory Judgment Act, Kentucky Revised Statutes (“KRS”) 418.010

et seq., and usurped Retirement Systems’ exclusive statutory authority in making

this determination. Systems alleges multiple additional errors by the circuit court

relating to the scope of its review, discovery issues, statutory violations, and

evidentiary issues.

Background

WKU is a state university that participates in KERS. KERS is

administered by Retirement Systems and is governed by KRS 61.510 et seq.

Sodexo Management Inc. is a private corporation which provides management,

facilities, and food services to over five hundred universities throughout the United

States. Sodexo has provided management services in WKU’s Department for

Facilities Management since 1994.

-2- In March 2015, WKU solicited bids from outside contractors to

submit a five-year plan to recruit, hire, train, and retain maintenance workers.

Sodexo was the only company that submitted a bid, which the university did not

immediately accept. Then, in January 2016, WKU’s funding was reduced by

executive-branch budget cuts. WKU performed a cost-benefit analysis which

showed that accepting Sodexo’s offer would help to alleviate the university’s

budgetary shortfall and improve the performance of the maintenance workers.

Accordingly, on April 26, 2016, WKU entered into a Management Agreement

pursuant to which Sodexo would recruit, hire, and supervise employees to provide

facilities services to the university. The contract included a provision under which

Sodexo agreed to offer employment to the outgoing maintenance workers. This

provision was included in order to comply with KRS 45A.551(3)(e)2., which

provides that when a state agency terminates employees and outsources their work

to a private vendor, the agency must ask the vendor to hire the displaced

employees and provide them with comparable wages.

WKU thereafter notified the maintenance workers that their

employment with WKU would be terminated effective July 31, 2016. The workers

were also informed they would be considered for employment with Sodexo if they

met certain standards. WKU did not terminate the employment of eighteen

custodial and grounds-keeping employees who had more than 20 years of service

-3- to WKU and it continues to pay KERS contributions for these employees.

Ultimately, 148 of the 164 employees who were terminated transitioned to

employment with Sodexo.

On May 23, 2016, WKU notified Retirement Systems of the

agreement with Sodexo and solicited any concerns. More than two months later,

three days before the contract became effective, Retirement Systems sent a letter

notifying WKU that the transitioning employees were required to continue their

participation in KERS. As grounds, the letter stated that the employees would still

be “controlled to a significant degree by WKU” which indicated that “there

continues to be an actual employee/employer relationship between the . . .

employees and WKU[.]” The letter directed WKU to continue reporting the

employees in question to Retirement Systems.

Correspondence and discussions thereafter continued between WKU

and Systems but Systems did not alter its position, stating that the employees

remained “common law employees” of WKU and that WKU’s compliance with

KRS Chapter 45A did not alter this outcome. It advised that WKU remained

obligated to remit employer and employee contributions for these individuals, and

directed WKU to do so in order to avoid future penalty assessments under KRS

61.675(3)(b). It also notified the university that the employees would not be

-4- permitted to retire or take a refund of their KERS accounts while working for

Sodexo.

WKU thereafter filed a petition for declaratory judgment against

Retirement Systems in the Franklin Circuit Court. It sought a declaration that

WKU’s privatization of the services encompassed in the contract with Sodexo

complied with the law of Kentucky and that Systems could not unilaterally

determine that the privatization pursuant to KRS Chapter 45A was void; that the

employees transitioned to Sodexo ceased to be WKU employees; that WKU was

no longer obligated to remit employer or employee contributions to KERS; that

WKU and its former employees were not responsible for any penalties or interest;

and that the former employees had a break in service from WKU and could have

full access to their KERS retirement benefits. Systems sought to dismiss the

petition on multiple grounds. The motion was denied. Ultimately, Systems argued

that the circuit court lacked jurisdiction to address the petition because Systems

had been given the sole authority by KRS 61.510(5) to determine who is an

employee for purposes of participation in the KERS.

Ultimately, the Franklin Circuit Court granted summary judgment to

WKU, holding that it had jurisdiction to entertain the petition. It found that

Retirement Systems employed the wrong standard in evaluating the status of the

transitioned employees. Systems employed the 20 Factors Test of the Internal

-5- Revenue Service (“IRS”) in determining that the workers remained employees of

WKU. The circuit court held that the definition of “employer” found in KRS

61.510(6) was the controlling standard for making this determination and

superseded the 20 Factors Test. It determined that under KRS 61.510(6), WKU

was not the employer of the employees because WKU no longer had the power to

appoint or select these employees. This appeal by Retirement Systems followed.

Further facts will be set forth below as necessary.

Standard of Review

“[A]n action for declaratory relief commenced in the circuit court is

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