California Court of Appeal, First District, Fourth Division
CITY OF OAKLAND, Plaintiffs and Respondents.
OAKLAND POLICE AND FIRE RETIREMENT SYSTEM et al., Appellants and Respondents, Retired Oakland Police Officers Association et al., Appellants and Interveners.
[As Modified on Denial of Rehearing March 26, 2014.]
Trial Court: Alameda County, Superior Court Trial Judge: Hon. Evilio M. Grillo. (No. RG11580626).
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Counsel for Plaintiffs and Respondents: Nossaman LLP, Stephen N. Roberts, James H. Vorhis, San Francisco.
Counsel for Appellants: Olson Hagel & Fishburn, Sacramento, Richard C. Miadich.
Counsel for Intervenors: Davis, Cowell & Bowe, LLP, W. David Holsberry, Sarah Grossman-Swenson, San Francisco.
REARDON, ACTING P.J.
In this appeal, we revisit the provisions of the Oakland City Charter that determine how retirement benefits are calculated for members of the Oakland Police and Fire Retirement System (PFRS). The Retired Oakland Police Officers Association, along with several PFRS's members and beneficiaries (collectively, the " Association" ), appeal from a judgment granting a peremptory writ of mandate and declaratory relief in favor of the City of Oakland (City). In the trial court, the City successfully argued that the Oakland Police and Fire Retirement Board (Board) had impermissibly included certain holiday premium pay and shift differential pay in the calculation of PFRS retirement benefits. The Board was ordered to correct its calculations for all future payments and to implement a plan for recovering past overpayments made to retirees.
A. The Oakland Police and Fire Retirement System (PFRS)
PFRS was created in 1951 when separate police and fire retirement systems were merged pursuant to article XXVI of the Oakland City Charter (Charter). (Charter, art. XXVI, § 2600.) Only members of the Oakland Police Department (Department) or Oakland Fire Department hired prior to July 1, 1976, are eligible for coverage by PFRS. ( Id., §§ 2600, 2607.) Current members of the Department (except for one sergeant covered by PFRS who has not yet retired) are included in the state-created Public Employees' Retirement System (PERS). Thus, PFRS is essentially a closed system with a dwindling pool of retirees. As of January 31, 2012, PFRS had 619 retired police members and widows, with an average age of 73.
PFRS is funded through a combination of member contributions (reportedly between 5 and 13 percent of each member paycheck), investment returns and additional monies supplied by the City " as may be necessary." ( Id., §§ 2601, subd. (e), 2619.) Its governing Board consists of seven members, including representatives of the City, the Department, the Fire Department and the PFRS retirees, as well as a local life insurance executive, a banker and a community representative. ( Id., § 2601.) Pursuant to the terms of the Charter, PFRS is managed and administered by the Board, which has " exclusive control of the administration and investment" of all PFRS funds. ( Ibid. )
In a fixed pension system, benefits are paid to a retiree based on the compensation paid to that retiree for a defined period of time prior to retirement. ( Kreeft v. City of Oakland (1998) 68 Cal.App.4th 46, 48, fn. 1, 80 Cal.Rptr.2d 137 ( Kreeft ), citing Dunham v. City of Berkeley (1970) 7 Cal.App.3d 508, 511, fn. 1, 86 Cal.Rptr. 569 ( Dunham ).) PFRS, in contrast, is a " fluctuating" system under which pension benefits paid to retired members increase or decrease over time as the compensation paid to active members of the Department similarly rises or falls. ( Kreeft, supra, 68 Cal.App.4th at p. 48, 80 Cal.Rptr.2d 137;
see also Dunham, supra, 7 Cal.App.3d at p. 511, 86 Cal.Rptr. 569.) The primary purpose of a fluctuating pension plan such as PFRS " is to guarantee the pensioner a fairly constant standard of living despite inflation, and to maintain equality of position between the retired member and the person (or persons) currently holding the rank the pensioner attained before his retirement." ( Kreeft, supra, 68 Cal.App.4th at p. 54, 80 Cal.Rptr.2d 137.) Thus, a PFRS retiree receives benefits based on the compensation currently paid to active sworn personnel
who hold the rank that the member held prior to retirement. Stated in terms of the applicable Charter language, the retiree receives benefits based on the current compensation that is " attached to the average rank held" by that retiree in the three years prior to retirement. This appeal involves the inclusion of certain holiday premium pay and shift differential pay as " compensation attached to rank" for purposes of calculating PRFS retirement benefits.
B. The Disputed PFRS Payments
1. Holiday Premium Pay
Although the relevant provisions of the Charter with respect to the calculation of pension benefits based on " compensation attached to rank" have not changed over the years, the application of that Charter language in the context of holiday premium pay has not been similarly static. Indeed, there is a long and storied history to the holiday pay issue, involving multiple lawsuits, stipulated settlements, and numerous changes to the various memoranda of understanding (MOU's) governing the City's holiday compensation obligations with respect to active members of the Department. While the City attempts to limit the discussion in this case to the current MOU's provisions authorizing holiday pay, we find the history instructive and therefore summarize it here.
Before we begin, however, we note that discussion and analysis of the holiday pay issue has been clouded in the past by failure to define the terms " holiday pay" and " holiday premium pay" in a precise manner. For purposes of this opinion, we will use the two terms interchangeably to refer to that pay in excess of the regular or base pay to which a member of the Department may be entitled due to the occurrence of a holiday. Thus, holiday pay includes the extra compensation payable to a police officer who works on a holiday (over and above base pay), as well as the compensation due to an officer who has a regular day off or takes vacation on a holiday and therefore does not work.
The question of whether holiday pay is " compensation attached to rank" for purposes of calculating PFRS retirement benefits was first addressed by
Division Four of the First Appellate District in 1971 in the case of Buck v. City of Oakland (August 25, 1971, 1 Civ. 28402) [nonpub. opn.] ( Buck ). When Buck was decided, the compensation payable to active members of the Department was set by salary ordinance. (See Oakland Ord. No. 4817, amending section 1.19 of Oakland Ord. No. 4727 (the 1971 Ordinance).) With respect to holiday pay, the 1971 Ordinance provided in relevant part: " Time worked by any officer or member of the Police Department ... in excess of 40 hours during any one-week period shall be deemed overtime work; provided, however, that ... whenever any legal holiday, as herein designated, shall fall within any such one-week period, the said officer or member of the Police Department shall be credited with 8 hours of work in computing said 40 hours during said one-week period." ( Ibid. ) The 1971 Ordinance, which designated 11 holidays, maintained that " [s]uch extra compensation shall not be construed to increase pensions paid from the Police and Fire Retirement Fund, nor deductions for contributions thereto." ( Ibid. )
In Buck, active and retired members of the Department sought a writ of mandate to compel the City and the Board to include the value of certain fringe benefits paid to active members— including holiday pay— as " compensation attached to rank" for purposes of calculating PFRS retirement benefits. ( Buck, supra, 1 Civ. 28402 at pp. 1-3.) After reviewing the provisions of the Charter set forth above which define " compensation" and " compensation attached to the average rank held," the court first concluded that the express provision in the 1971 Ordinance attempting to exclude holiday pay from retirees' pensions was not controlling. ( Id. at pp. 2-5 [effectuating such a provision would permit the City to amend the Charter by ordinance which cannot be done].) The court went on to determine that remuneration for holiday work did not constitute overtime and therefore was not excluded from the Charter's definition of " compensation." ( Id. at pp. 11-12; see also Charter, art. XXVI, § 2607 [" ‘ compensation’ " defined as monthly remuneration excluding overtime].) Finally, the court opined that the eight hours credited to a police officer who worked on a holiday was most often paid to that officer in cash and was therefore " ‘ extra compensation’ [citation] for having worked on a ‘ legal holiday.’ [Citation.]" ( Buck, supra, 1 Civ. 28402 at p. 12.) As such, it was " compensation" for purposes of the Charter and " must be included in the computation of retirement allowances." ( Ibid. )
In the wake of Buck, the City reportedly tried to avoid the inclusion of holiday pay in PFRS retirement benefits by altering the holiday pay structure for active members of the Department. Specifically, the Department began giving active officers compensatory time off in lieu of actual holiday pay. In response to this change, lawsuits were filed and eventually the City was permanently enjoined from enforcing any " ordinance, resolution or directive which decreases or attempts to decrease the holiday pay ... received by Oakland police officers or firemen as ‘ monthly compensation comprising
salary.’ " ( Doan v. City of Oakland (Super. Ct. Alameda County, 1972, No. 426926) ( Doan ).) In addition, the City was ordered to pay active members retroactively for any lost holiday pay and was directed " to pay the increased retirement allowances based thereon pursuant to the [ Buck ] decision." ( Ibid. )
The City and the Oakland Police Officer's Association (OPOA) adopted the first MOU setting Department compensation in 1973 after the Doan decision. As part of the 1973 MOU, the City agreed not to appeal the decision in Doan and to comply with the terms of the permanent injunction, including the " computation of retirement benefits under the Buck Decision" with respect to holiday pay. In 1974, a more comprehensive MOU was adopted which designated 11 holidays and indicated that premium pay for holidays was to be " computed at the regular hourly base rate of pay for an employee's classification, rather than at the [overtime] rate of time and one-half." Thus, as in Buck, members of the Department received eight hours of holiday premium pay. Similar language was carried over into the 1975 MOU. During this timeframe, the extra eight hours of compensation received by members of the Department as holiday premium pay was included in the calculation of PFRS retirement benefits.
In 1976, the City and OPOA adopted an MOU increasing holiday premium pay from the straight-time rate (8 hours) to a rate based on " time and one-half the regular base rate of pay for an employee's classification" (12 hours). The 1976 MOU, however, contained the following language impacting the calculation of PFRS retirement benefits: " City and [OPOA] agree that premium pay shall not be subject to retirement except for the straight time portion of holiday pay." Although the record does not contain MOU's covering the period from 1988 through 1994, it appears that similar limiting language continued from 1976 up through the 1995-1998 MOU. Based on the language of the MOU's, PFRS retirees only received credit for 8 hours of holiday premium pay in the calculation of their retirement benefits from 1976 through 1996. In contrast, active members of the Department received 12 hours of holiday pay during this same period. At some point between 1986 and 1995, the number of paid holidays increased from 11 to 12.
Holiday premium pay was again the subject of litigation in 1996. (See Oakland Police & Fire Retirement Assn. v. City of Oakland (Super. Ct. Alameda County, 1996, No. 763859) ( Arca II ).) Arca II was a class action lawsuit filed on behalf of PFRS retirees and their beneficiaries challenging the MOU language that excluded retirees from receiving credit for the additional four hours of holiday pay that was being paid to active members of the Department. In that case, the City did not contest the holding in Buck, but
argued that the additional four hours of holiday pay was " overtime" pay and therefore expressly excluded from the calculation of PFRS retirement benefits. (See Charter, art. XVI, § 2607 [" ‘ compensation’ " defined as monthly remuneration excluding overtime].) The trial court disagreed, granting a writ of mandate in favor of PFRS retirees with the following instructions: " Respondents are compelled in determining and computing the amount of the retirement allowances due to Petitioners and the class they seek to represent to take all actions necessary to include as ‘ compensation’ and ‘ compensation attached to the average rank held’ the full twelve hours holiday pay received by current Oakland Police Officers " (italics added). The City was further ordered to make three years of retroactive retirement allowance payments with interest. Subsequently, the parties entered into a settlement agreement in which the City agreed not to appeal Arca II, to follow the terms of the decision, and to make the required retroactive payments. In return, the City received a reduction in the interest otherwise payable to PFRS retirees pursuant to the decision.
In accordance with Arca II and the related settlement agreement, the 1998-2001 MOU between the City and OPOA deleted the language limiting holiday pay for PFRS retirees, stating simply that premium pay for holidays would be " computed at time and one-half the regular base rate of pay for an employee's classification." Identical language appeared in the 2001-2006 MOU. In practice, however, the application of holiday premium pay to the various shifts worked by active members of the Department was becoming more complex. In 2000, the Department issued Departmental General Order 8 (DGO 8) interpreting the MOU provisions in light of these changes. Pursuant to DGO 8, a member that took holiday time off was paid at the straight-time rate of 8 or 10 hours, depending on the length of that member's usual shift. A member of the Department who worked on a holiday received regular base pay (of either 8 or 10 hours) plus 1.5 times that base pay in holiday premium pay. When a holiday fell on a member's regular day off, that member was allotted 12 hours of holiday pay, regardless of whether he/she usually worked an 8 or 10-hour shift. Finally, a member who was required to work on a holiday that was his/her regular day off was granted 12 hours in base pay, plus 1.5 times base pay in holiday premium pay. Thus, while all members were entitled to holiday pay for each holiday, the amount actually received on a particular holiday varied from 8 to 18 hours, depending on scheduling and length of shift. During this same time period, PFRS retirees continued to receive credit for 12 hours of holiday pay for each holiday in accordance with the terms of Arca II.
Upon expiration of the 2001-2006 MOU, the City and OPOA reached an impasse in negotiations and thus the terms of the successor MOU were determined through an arbitration process conducted by Arbitrator Barry Winograd. The resulting 2006-2010 MOU states expressly that it was entered
into pursuant to the terms of this arbitration decision and award, which is attached to the MOU and incorporated as Appendix A (Winograd Decision). With respect to holiday pay, the 2006-2010 MOU designated 12 holidays and one " floating" holiday and provided for base pay for any regularly scheduled shift worked on a designated holiday. In addition: " [I]f the holiday is worked, the employee shall be paid for all hours worked at the overtime rate of time and one-half (1.5). If the holiday is not worked because of a regular day off, or by employer request, employee will be paid holiday pay at the straight time rate." The Winograd Decision did not alter the holiday pay structure set forth in the body of the MOU and— with respect to the number of designated holidays— stated simply " [s]tatus quo."
As a result of additional negotiations between the City and OPOA, the 2006-2010 MOU was subsequently extended into 2013. This amended and extended MOU temporarily changed the structure of holiday pay for active members of the Department. Specifically, for the 2009, 2010, and 2011 fiscal years, only seven of the regular holidays were paid in accordance with the customary policy established by the MOU. For the other six holidays, active members received no holiday pay for holidays that were not worked and " straight time pay" for holidays that were worked. Currently, holiday pay for active members of the Department is governed by the 2006-2013 MOU, which has been extended a second time into 2015. No additional changes have been made with respect to the provisions governing holiday premium pay except that, for the 2012, 2013, and 2014 fiscal years, active members are not entitled to any holiday pay for Admission Day. Members who work on Admission Day will still receive their regular base pay for that shift.
2. Shift Differential Pay
In contrast to holiday premium pay, the inclusion of shift differential pay in the calculation of PFRS retirement benefits is of fairly recent origin. Prior to the 2001-2006 MOU, active members of the Department in the patrol division received a type of premium pay called " line-up pay," which was 30 minutes of extra compensation for the organizational meeting that occurred prior to the beginning of a shift. The 1974 MOU (and all subsequent MOU's contained in the record through 1998) states that " [c]ompensation for ... Patrol Division line-up time shall be computed at the regular hourly base rate of pay for an employee's classification...." The 1998-2001 MOU modified this arrangement for certain shifts, stating: " For members working the first and second watches, line-up shall be accomplished during the regular ten hour shift and such members shall not receive line-up pay. For ...