NCAE v. State

IN THE SUPREME COURT OF NORTH CAROLINA

No. 228A15

Filed 15 April 2016
NORTH CAROLINA ASSOCIATION OF EDUCATORS, INC., RICHARD J.
NIXON, RHONDA HOLMES, BRIAN LINK, ANNETTE BEATTY, STEPHANIE
WALLACE, and JOHN DEVILLE
v.

THE STATE OF NORTH CAROLINA

Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel of

the Court of Appeals, ___ N.C. App. ___, 776 S.E.2d 1 (2015), affirming orders entered

on 6 June 2014 by Judge Robert H. Hobgood in Superior Court, Wake County. On 20

August 2015, the Supreme Court allowed defendant’s petition for discretionary

review of additional issues. Heard in the Supreme Court on 15 February 2016.

Patterson Harkavy LLP, by Burton Craige and Narendra K. Ghosh; and
National Education Association, by Philip Hostak, pro hac vice, for plaintiff-
appellees.

Roy Cooper, Attorney General, by John F. Maddrey, Solicitor General; Melissa
L. Trippe, Special Deputy Attorney General; and Elizabeth A. Fisher, Assistant
Solicitor General, for defendant-appellant.

Gray Layton Kersh Solomon Furr & Smith, PA, by Michael L. Carpenter, for
North Carolina Retired Governmental Employees’ Association, amicus curiae.

McGuinness Law Firm, by J. Michael McGuinness, for Southern States Police
Benevolent Association and North Carolina Police Benevolent Association,
amici curiae.

Blanchard, Miller, Lewis & Isley, P.A., by E. Hardy Lewis, for State Employees
Association of North Carolina, Inc., amicus curiae.

EDMUNDS, Justice.
 NCAE V. STATE

Opinion of the Court

The North Carolina Constitution provides that “[t]he people have a right to the

privilege of education, and it is the duty of the State to guard and maintain that

right.” N.C. Const. art. I, § 15. Until 2013, North Carolina public school teachers

were employed under a system usually described generically as the “Career Status

Law,” through which teachers could earn career status after successfully completing

a probationary period and receiving a favorable vote from their school board.

N.C.G.S. § 115C-325 (2012). That process changed with passage of the Current

Operations and Capital Improvements Appropriations Act of 2013, ch. 360, 2013 N.C.

Sess. Laws 995 (“the Act”). Details of the Act are described below, but most pertinent

to the case at bar, the Act retroactively revoked the career status of teachers who had

already earned that designation by repealing the Career Status Law (“Career Status

Repeal”), id., sec. 9.6(a), at 1091, and created a new system of employment for public

school teachers, id., secs. 9.6(b) to 9.7(y), at 1091-1116 (hereinafter sections 9.6 and

9.7).

Plaintiffs allege that sections 9.6 and 9.7 of the Act violate Article I, Section 10

of the United States Constitution (forbidding passage of any “Law impairing the

Obligation of Contracts”) and Article I, Section 19 of the North Carolina Constitution

(the Law of the Land Clause), as it applied to teachers who have previously earned

career status. We conclude that repeal of the Career Status Law unlawfully infringes

upon the contract rights of those teachers who had already achieved career status.

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Opinion of the Court

As a result, we hold that sections 9.6 and 9.7 are unconstitutional, though only to the

extent that the Act retroactively applies to teachers who had attained career status

as of 26 July 2013.

We begin our analysis with an overview of the evolution of state statutes that

have controlled career status of public school teachers. For over four decades, North

Carolina public schools have operated under what was commonly called the Career

Status Law, a statutory framework setting out a system for the employment,

retention, and dismissal of public school teachers. However, little in this framework

has remained static over the years.

Beginning in 1971, the General Assembly created a procedure through which

teachers who were employed for at least three consecutive years as probationers

would become “career teachers” if the school board voted to reemploy the teacher for

the upcoming school year. See Act of July 16, 1971, ch. 883, 1971 N.C. Sess. Laws

1396 (codified at N.C.G.S. § 115-142 (1971)). In addition, any teacher who had been

employed in the same public school system for four consecutive years or been

employed by the State as a teacher for five consecutive years would automatically

became a career teacher. N.C.G.S. § 115-142(c). These career teachers were no longer

subject to an annual appointment process, id. § 115-142(d), and could only be

dismissed for one of twelve grounds specified in the statute, id. § 115-142(e)(1). If a

teacher was to be dismissed, the act provided for notice and, if requested by the

teacher, a review of the recommendation of dismissal by a panel of the Professional

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Opinion of the Court

Review Committee prior to termination. Id. § 115-142(h). A local school board could

choose not to renew its contract with a probationary teacher for any reason that was

not “arbitrary, capricious, discriminatory or for personal or political reasons.” Id.

§ 115-142(m)(2).

The system originally set up in 1971 has been subject to continual tinkering

and revision by the General Assembly. In 1973, the General Assembly added a

thirteenth statutory ground for dismissal of a teacher, id. § 115-142(e)(1)m (1975),

and gave disappointed teachers the option of requesting either a review of a

superintendent’s dismissal recommendation by a panel of the Professional Review

Committee or a hearing before the school board, id. § 115-142(h)(3) (1975). See Act

of May 23, 1973, ch. 782, secs. 12, 20, 1973 N.C. Sess. Laws 1136, 1138, 1139 (codified

at N.C.G.S. § 115-142 (1975)). In 1979, a fourteenth statutory ground for dismissal

or demotion was added. See Act of June 8, 1979, ch. 864, sec. 2, 1979 N.C. Sess. Laws

1185, 1188 (codified at N.C.G.S. § 115-142(e)(1)n (1979)).

The next significant change came in the 1983 legislative session. The General

Assembly amended the 1979 law to provide that, after a teacher had taught for three,

four, or five consecutive years in a school system with more than 70,000 students, the

local school board had authority to grant the teacher career status, reappoint the

teacher to another probationary one-year contract, or decline to reappoint the

teacher. See Act of May 26, 1983, ch. 394, 1983 N.C. Sess. Laws 301 (codified at

N.C.G.S. § 115C-325(c)(1) (1985)). At the end of the probationary teacher’s sixth year,

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Opinion of the Court

the school board’s choices were limited to appointment to career teacher status or

nonrenewal of the appointment. N.C.G.S. § 115C-325(c)(1). However, the General

Assembly did not extend this program, so after 1 July 1985 the process through which

teachers received career status reverted to the 1981 system. See Ch. 394, sec. 6, 1983

N.C. Sess. Laws at 302. In 1992, a new statutory ground for dismissal was added,

along with an amendment allowing a teacher who was being considered for dismissal

to request a hearing either before the local school board or before a panel of the

Professional Review Committee (instead of the previously provided investigation of

the superintendent’s recommendation by the Professional Review Committee). See

Act of July 14, 1992, ch. 942, 1991 N.C. Sess. Laws (Reg. Sess. 1992) 730 (codified at

N.C.G.S. § 115C-325(e)-(j) (1992)). Under either option, the hearing procedure was

set out in subsection 115C-325(j). N.C.G.S. § 115C-325(e)(2), (h)(3), (i)(2) (1992).

In 1997, the General Assembly enacted a comprehensive set of statutes that

included measures aimed at improving student academic achievement, enhancing

teacher skills and knowledge, and implementing a system to review more rigorous

teacher preparation, professional development, and certification standards. See The

Excellent Schools Act, ch. 221, 1997 N.C. Sess. Laws 427. The new law enacted,

amended, or repealed many provisions related to education and included significant

changes to section 115C-325. For example, the act increased from three to four the

number of years of consecutive service a teacher had to complete before becoming

eligible for career status. See N.C.G.S. § 115C-325(c)(1) (1997). This act also

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Opinion of the Court

expanded the definition of “demote” to include some circumstances under which a

career teacher was suspended without pay and excluded circumstances where bonus

payments were reduced or eliminated. Id. § 115C-325(a)(4) (1997). The Professional

Review Committee system was eliminated and replaced with case managers who

were certified mediators specially trained by the State Board of Education. Id.

§ 115C-325(h)-(h1) (1997). Career employees being recommended for dismissal or

demotion had the option of choosing between a hearing in front of a case manager,

governed by subsection 115C-325(j), or a hearing in front of the school board,

conducted pursuant to subsection 115C-325(j2). Id. § 115C-325(h)(3) (1997). In 2009,

the legislature amended the statute to add procedural protections for probationary

teachers. See Act of July 13, 2009, ch. 326, 2009 N.C. Sess. Laws 528 (codified at

N.C.G.S. § 115C-325(m)(3)-(4) (2009)).

In 2011, the legislature eliminated case managers and replaced them with

hearing officers before whom career status teachers could request a hearing prior to

dismissal or demotion. See Act of June 17, 2011, ch. 348, sec. 1, 2011 N.C. Sess. Laws

1464, 1464 (codified at N.C.G.S. § 115C-325(a)(4c), (h)(3), (h1) (2011)). The act also

provided a definition for “inadequate performance,” one of the original statutory

grounds for dismissal or demotion of a career employee. N.C.G.S. § 115C-325(e)(3)

(2011).

The employment system in place at the time of the passage of the Act was

codified under N.C.G.S. § 115C-325 (2012) and established two classes of public school

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Opinion of the Court

teachers. Probationary teachers were defined in N.C.G.S. § 115C-325(a)(5), while

career teachers were defined in N.C.G.S. § 115C-325(a)(1c). Probationary teachers

were employed through annual contracts with the local board of education. Id. §

115C-325(m)(2). These contracts were subject to nonrenewal for any reason that was

not “arbitrary, capricious, discriminatory or for personal or political reasons.” Id.

The school board would vote on whether to grant career status to a probationary

teacher who had been employed by that school system for four consecutive years. Id.

§ 115C-325(c)(1). Probationary teachers eligible for such a vote had the right to notice

and a hearing before the board’s vote if the superintendent did not intend to

recommend the teacher for career status. Id. § 115C-325(m)(3)-(4). Upon a vote to

grant career status, probationary teachers would enter into a career contract with

their employing local board of education.

Career status teachers could only be dismissed, demoted, or relegated to part-

time status based on one or more of fifteen specified statutory grounds. Id. § 115C-

325(e)(1). Prior to making a recommendation for dismissal, demotion, or relegation

to part-time status of a career status teacher, the superintendent was required to give

written notice of the grounds on which he or she believed the action to be justified.

Id. § 115C-325(e)(2). Upon receipt of such written notice, a career teacher had a right

to request a hearing before a hearing officer to contest the superintendent’s

recommendation, at which the career teacher was entitled “to be present and to be

heard, to be represented by counsel and to present through witnesses any competent

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Opinion of the Court

testimony relevant to the issue of whether grounds for dismissal or demotion exist.”

Id. § 115C-325(j)(3). The decision of the hearing officer could be further appealed to

the full school board. Id. § 115C-325(j1)(1). The board could approve dismissal or

demotion of a career teacher after undertaking a whole record review to determine

whether the hearing officer’s findings of fact were supported by substantial evidence.

Id. § 115C-325(j2)(7).

This summary demonstrates that the General Assembly’s treatment of career

teacher status has changed significantly over the last forty years. Now the Career

Status Law, N.C.G.S. § 115C-325 (2012), is no more. The changes under review here

occurred in 2013, when the General Assembly passed the Act. Ch. 360, 2013 N.C.

Sess. Laws at 995. The Act revokes career status for all teachers as of 1 July 2018.

Id., sec. 9.6(i), at 1103. Under the new system, teacher contracts are not open-ended,

as was previously the case for career teachers, but instead extend “for a term of one,

two, or four school years.” N.C.G.S. § 115C-325.3(a) (2015). A decision not to renew

a teacher’s contract can be based on any reason not “arbitrary, capricious,

discriminatory, for personal or political reasons, or on any basis prohibited by State

or federal law.” Id. § 115C-325.3(e) (2015). The superintendent must give the teacher

written notice of a decision to recommend nonrenewal. Id. § 115C-325.3(d) (2015).

Within ten days of receiving such notice, the teacher can petition the local school

board for a hearing, but the school board has discretion whether to grant the request.

Id. § 115C-325.3(e). Dismissal, demotion, or a change to part-time status during the

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Opinion of the Court

term of the contract remains based on the fifteen statutory grounds and procedure

set forth previously in the Career Status Law. Id. § 115C-325.4(a) (2015). Any

teacher who had not achieved career status “prior to the 2013-2014 school year” is no

longer eligible to receive career status in the future and will instead be employed

primarily by one-year contracts, “except for qualifying teachers offered a four-year

contract as provided in subsection (g) of this section, until the 2018-2019 school year.”

Ch. 360, sec. 9.6(f), 2013 N.C. Sess. Laws at 1103.1

On 17 December 2013, the North Carolina Association of Educators, Inc.

(NCAE), five tenured public school teachers, and one probationary public school

teacher filed a complaint in Superior Court, Wake County, challenging the

constitutionality of the repeal of the Career Status Law under both the North

Carolina and United States Constitutions. In their first claim for relief, plaintiffs

alleged that the repeal constituted a “taking of property without just compensation

in violation of Article I, Section 19 of the North Carolina Constitution.” Plaintiffs

further contended the repeal was an “impairment of contracts in violation of Article

I, Section 10 of the United States Constitution.” Plaintiffs requested a declaration

1 Subsections 9.6(g) and (h), which never went into effect, would have required
superintendents to review the performance and evaluations of all teachers employed in their
schools for at least three consecutive years and recommend one-quarter of those teachers to
receive a four-year contract beginning in the 2014-15 school year. Ch. 360, sec. 9.6(f), 2013
N.C. Sess. Laws at 1103. The selected teachers would receive a five-hundred dollar annual
pay raise for each year of the four-year contract in exchange for the relinquishing of career
status. Id., sec. 9.6(g)-(h), at 1103.

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Opinion of the Court

that sections 9.6 and 9.7 of the Act are unconstitutional under both constitutions as

applied retroactively to revoke career status from teachers who had previously earned

that designation, and also as applied prospectively to probationary teachers who were

employed by the public schools before the repeal and had been on a track leading to

eligibility for career status. Plaintiffs also sought “a permanent injunction against

the implementation and enforcement” of both sections as to all tenured and

probationary teachers who were employed by public schools as of 26 July 2013.

On 17 January 2014, the State filed its answer denying all of plaintiffs’

allegations. The State also filed a motion to dismiss under Rule 12(b)(6) of the North

Carolina Rules of Civil Procedure, arguing that plaintiffs failed to state a legal claim

upon which relief may be granted. On 10 March 2014, plaintiffs filed a motion for

summary judgment, along with supporting affidavits, and the State responded with

affidavits opposing plaintiffs’ motion. After a 12 May 2014 hearing, the trial court on

6 June 2014 entered an order granting in part plaintiffs’ motion as to the retroactive

revocation of career status from teachers who already held that status. As to the

claims brought on behalf of teachers who had not yet earned career status, the trial

court denied in part plaintiffs’ motion for summary judgment and granted summary

judgment in favor of the State. The trial court declared unconstitutional sections 9.6

and 9.7 of the Act as they apply to career status teachers as of 26 July 2013. The

court further enjoined the State from implementing and enforcing those provisions

as to teachers holding career status on 26 July 2013, and also denied the State’s oral

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Opinion of the Court

motion to stay the trial court’s permanent injunction. Plaintiffs and defendant filed

separate notices of appeal.

The Court of Appeals unanimously affirmed the trial court’s decision to grant

summary judgment in favor of the State as to plaintiffs’ claims on behalf of

probationary teachers. NCAE, ___ N.C. App. ___, ___, 776 S.E.2d 1, 23-24 (2015)

(majority); id. at ___, 776 S.E.2d at 24 (Dillon, J., concurring in part and dissenting

in part). That decision was not appealed to this Court and we do not address it

further. However, the Court of Appeals was divided as to career status teachers. The

majority rejected the State’s argument that the trial court erred as a matter of law

when it granted summary judgment in favor of plaintiffs on the issue of whether

retroactive application of the Career Status Repeal violated the Contract Clause of

the United States Constitution. Id. at ___, 776 S.E.2d at 9 (majority). The majority

acknowledged that in Bailey v. State, 348 N.C. 130, 500 S.E.2d 54 (1998), this Court

set out a three-part test for analyzing an alleged violation of the United States

Constitution’s Contract Clause. NCAE, ___ N.C. App. at ___, 776 S.E.2d at 9-10.

Under that test, the reviewing court considers “(1) whether a contractual obligation

is present, (2) whether the state’s actions impaired that contract, and (3) whether the

impairment was reasonable and necessary to serve an important public purpose.”

Bailey, 348 N.C. at 141, 500 S.E.2d at 60 (citing U.S. Tr. Co. of New York v. New

Jersey, 431 U.S. 1, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977)). Applying the Bailey test

and analyzing cases from this Court and the United States Supreme Court, the

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Opinion of the Court

majority found that, as to the existence of a contractual right, the Career Status Law

was a “statutory promise” and that, upon satisfying its requirements and achieving

career status, plaintiffs “earned a vested right to career status protections.” NCAE,

___ N.C. App. at ___, 776 S.E.2d at 12. In considering next whether those statutory

contractual rights were substantially impaired by the State’s actions, the majority

concluded that eliminating career contracts in favor of contracts for one, two, or four

years substantially impaired the rights promised to plaintiffs. Id. at ___, 776 S.E.2d

at 13. The majority also held that a school board’s discretionary ability to deny

renewal of a contract for a term of years without a hearing was a substantial change

from the previous law’s requirement of a hearing prior to imposition of termination,

demotion, or other discipline. Id. at ___, 776 S.E.2d at 13. Accordingly, the court had

“no trouble concluding that the trial court was correct in its determination that the

Career Status Repeal substantially impairs Plaintiffs’ vested contractual rights.” Id.

at ___, 776 S.E.2d at 13.

Finally, the Court of Appeals was unpersuaded by the State’s argument that

the General Assembly repealed the Career Status Law in order to improve the public

school systems by providing a method under which schools more easily could rid

themselves of ineffective teachers. Id. at ___, 776 S.E.2d at 14. The court found the

contention that these measures would improve the school system to be baseless and

unsupported by the affidavits submitted by both parties. Id. at ___, 776 S.E.2d at 14.

Even assuming the State’s purpose was an important one, the majority was

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Opinion of the Court

unconvinced that repealing the Career Status Law “was a reasonable and necessary

means to advance that purpose.” Id. at ___, 776 S.E.2d at 15. The majority found

that no evidence suggested that the approach embodied in the Act served the purpose

of removing incompetent teachers, particularly when less drastic alternatives exist

for the reform of public education. Id. at ___, 776 S.E.2d at 15-16. The majority

concluded that the trial court correctly found the repeal of the Career Status Law

violated the United States Constitution’s Contract Clause as to teachers who had

already earned career status at the time of repeal. Id. at ___, 776 S.E.2d at 16. Based

on this Contract Clause violation, the Court of Appeals further held that plaintiffs’

contract right was a property interest that was being unjustly taken away by the

repeal without compensation to plaintiffs, in violation of the Law of the Land Clause

of the North Carolina Constitution. Id. at ___, 776 S.E.2d at 16-18.

The dissenting judge argued that the repeal is unconstitutional to the extent

that it allows career status teachers to be stripped of a protected property interest

without a hearing. Id. at ___, 776 S.E.2d at 25 (Dillon, J., concurring in part and

dissenting in part). Nevertheless, the dissenting judge would not hold that the Career

Status Law created any contractual rights, id. at ___, 776 S.E.2d at 28, and except

for the portion giving local boards the discretion whether to hold a hearing before

depriving a career teacher of his or her property interest in continued employment,

would find the repeal of that law constitutional on its face, id. at ___, 776 S.E.2d at

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29. The State appealed to this Court on the basis of the dissenting opinion and we

granted the State’s petition for discretionary review as to additional related issues.

This Court presumes that statutes passed by the General Assembly are

constitutional, State v. Packingham, 368 N.C. 380, 382-83, 777 S.E.2d 738, 742 (2015)

(citing Wayne Cty. Citizens Ass’n for Better Tax Control v. Wayne Cty. Bd. of Comm’rs,

328 N.C. 24, 29, 399 S.E.2d 311, 314-15 (1991)), and duly passed acts will not be

struck unless found unconstitutional beyond a reasonable doubt, Morris v.

Holshouser, 220 N.C. 293, 295, 17 S.E.2d 115, 117 (1941). Even so, we review de novo

any challenges to a statute’s constitutionality. Piedmont Triad Reg’l Water Auth. v.

Sumner Hills, Inc., 353 N.C. 343, 348, 543 S.E.2d 844, 848 (2001) (citations omitted).

Plaintiffs first allege that the Career Status Repeal violated Article I, Section

10 of the Constitution of the United States by impairing the contract rights of

teachers who had earned career status before the repeal. The Contract Clause, “one

of the few express limitations on state power” in the Constitution, U.S. Tr. Co., 431

U.S. at 14, 97 S. Ct. at 1514, 52 L. Ed. 2d at 104, provides that “[n]o State shall . . .

pass any . . . Law impairing the Obligation of Contracts,” U.S. Const. art. I, § 10. As

the Court of Appeals correctly recognized, this Court uses the three-factor test set out

in Bailey to determine whether a Contract Clause violation exists. Bailey, 348 N.C.

at 141, 500 S.E.2d at 60 (citing U.S. Tr. Co., 431 U.S. 1, 97 S. Ct. 1505, 52 L. Ed. 2d

92).

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Opinion of the Court

Accordingly, we first consider whether any contractual obligation arose from

the statute making up the now-repealed Career Status Law. The United States

Supreme Court has recognized a presumption that a state statute “is not intended to

create private contractual or vested rights but merely declares a policy to be pursued

until the legislature shall ordain otherwise.” Dodge v. Bd. of Educ., 302 U.S. 74, 79,

58 S. Ct. 98, 100, 82 L. Ed. 57, 62 (1937). This presumption is rooted in the long-

standing principle that the primary function of a legislature is to make policy rather

than contracts. Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 100, 58 S. Ct. 443,

446, 82 L. Ed. 685, 690 (1938). A party asserting that a legislature created a statutory

contractual right bears the burden of overcoming that presumption, Dodge, 302 U.S.

at 79, 58 S. Ct. at 100, 82 L. Ed. at 62, by demonstrating that the legislature

manifested a clear intention to be contractually bound, Nat’l R.R. Passenger Corp. v.

Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 466, 105 S. Ct. 1441, 1451, 84 L.

Ed. 2d 432, 446 (1985). Construing a statute to create contractual rights in the

absence of an expression of unequivocal intent would be at best ill-advised, binding

the hands of future sessions of the legislature and obstructing or preventing

subsequent revisions and repeals. See Kornegay v. City of Goldsboro, 180 N.C. 441,

451, 105 S.E. 187, 192 (1920). We are deeply reluctant to “limit drastically the

essential powers of a legislative body” by finding a contract created by statute without

compelling supporting evidence. Nat’l R.R., 470 U.S. at 466, 105 S. Ct. at 1451, 84 L.

Ed. 2d at 446; see also Mial v. Ellington, 134 N.C. 131, 153, 46 S.E. 961, 968 (1903)

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(“[M]any things done by the State may seem to hold out promises to individuals

which, after all, cannot be treated as contracts without hampering the legislative

power of the State in a manner that would soon leave it without the means of

performing its essential functions.”).

This requirement for explicit indications of legislative intent is shown in two

United States Supreme Court cases in which the use or omission of the word

“contract” in the statute was deemed critical. In Phelps v. Board of Education, 300

U.S. 319, 57 S. Ct. 483, 81 L. Ed. 674 (1937), that Court considered a New Jersey

employment system where, after completing three years of service, teachers were

hired for an ongoing open-ended period during which they could not be dismissed or

subjected to a reduction in salary without notice and a hearing. Id. at 320-21, 57 S.

Ct. at 484, 81 L. Ed. at 676. The Supreme Court found that this system did not set

up a contract but instead “established a legislative status for teachers,” id. at 322, 57

S. Ct. at 484, 81 L. Ed. at 676, and was a “regulation of the conduct of the board” that

created no binding obligation, id. at 323, 57 S. Ct. at 485, 81 L. Ed. at 677. However,

the Court shortly thereafter distinguished Phelps in Brand, 303 U.S. 95, 58 S. Ct.

443, 82 L. Ed. 685, when it held that Indiana’s “Teachers’ Tenure Act” created a

statutory contractual right between the teachers and a local school district. In Brand,

the Court looked specifically to the language of Indiana’s Act, noting that the word

“contract” was peppered throughout nearly every section of the statute. Id. at 105,

58 S. Ct. at 448, 82 L. Ed. at 693 (“The title of the Act is couched in terms of contract.

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It speaks of the making and cancelling of indefinite contracts. In the body the word

‘contract’ appears ten times in § 1, eleven times in § 2, and four times in § 4 . . . .”).

These cases indicate that courts must consider the language used by the

legislature to determine whether a statute “provides for the execution of a written

contract on behalf of the state.” Dodge, 302 U.S. at 78, 58 S. Ct. at 100, 82 L. Ed. at

61. North Carolina’s Career Status Law does not present the type of unmistakable

legislative intent found by the United States Supreme Court in the statute at issue

in Brand. Nowhere in the portion of section 115C-325 establishing the promotion of

a teacher to career status does the word “contract” appear. Compare N.C.G.S. § 115C-

325(c)(1) (2012), with Brand, 303 U.S. at 101 n.14, 58 S. Ct. at 446 n.14, 82 L. Ed. at

691 n.14 (discussing the Indiana statute’s frequent use of that term). The word

“contract,” as used in the remainder of our Career Status Law refers only to

individual contracts with the local school boards and relationships between teachers

and the local school system, with no mention of the State.

Turning next to cases from this Court, we considered an alleged Contract

Clause violation in the context of retirement benefits in Bailey, 348 N.C. 130, 500

S.E.2d 54, and in the context of disability retirement payments in Faulkenbury v.

Teachers’ & State Employees’ Retirement System of North Carolina, 345 N.C. 683, 483

S.E.2d 422 (1997). In both cases, this Court held that vested contractual rights were

created by the statutes at issue because, at the moment the plaintiffs fulfilled the

conditions set out in the two benefits programs, the plaintiffs earned those benefits.

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Though the benefits would be received at a later time, the plaintiffs’ right to receive

them accrued immediately, became vested, and a contract was formed between the

plaintiffs and the State. Bailey, 348 N.C. at 138, 500 S.E.2d at 58 (“After employment

for the set number of years, an employee is deemed to have ‘vested’ in the retirement

system.”); Faulkenbury, 345 N.C. at 692, 483 S.E.2d at 428 (stating that the plaintiffs

fulfilled their condition of working for five years and “[a]t that time, the plaintiffs’

rights to benefits in case they were disabled became vested”). In other words, neither

the retirement benefits in Bailey nor the disability payments in Faulkenbury were

based upon future actions by the plaintiffs. Instead, those benefits had been

presently earned and became vested as the plaintiffs performed, even though

payment of those benefits was deferred until a later time.

In contrast, a teacher has no vested career status rights at the end of the

probationary period. Instead, after successfully meeting all the requirements, a

teacher could enter a career contract with the school board. Thus, we see that the

Career Status Act is a regulation of conduct through which local school boards can

exercise their discretion to enter into contracts with teachers for whom they approve

career status. The Career Status Law contemplates the creation of individual

contracts between school boards and teachers but does not itself establish any benefit

provided to teachers by the State nor create any relationship between them. As a

result, plaintiffs have not overcome the strong presumption against finding a vested

right created by the Career Status Law.

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In addition, the oft-amended course of the Career Status Law over the decades

is evidence that the State did not intend to create a contract with teachers by the

terms of the statute. Each new version of the statute did not immediately create a

vested contract between the State and public school teachers. The amendments

instead altered details of career status while leaving the overall career status system

intact, thereby allowing the possibility of future modifications and amendments as

needs arose. Accordingly, we conclude the Career Status Law did not itself create

any vested contractual rights.

However, our analysis does not end here. “[L]aws which subsist at the time

and place of the making of a contract . . . enter into and form a part of it, as if they

were expressly referred to or incorporated in its terms.” Home Bldg. & Loan Ass’n v.

Blaisdell, 290 U.S. 398, 429-30, 54 S. Ct. 231, 237, 78 L. Ed. 413, 424 (1934) (quoting

Von Hoffman v. City of Quincy, 71 U.S. (4 Wall.) 535, 550, 18 L. Ed. 403, 408 (1866)).

Before receiving career status, plaintiffs entered individual contracts with the local

school boards. Implied as a part of each of these contracts was the Career Status

Law. As the State concedes in its brief, the “applicable statutory terms must be read

into the contracts” and the contracts “[i]ncorporat[ed] the statutory body of ‘school

law’ applicable to Plaintiffs as teachers.” The statutory system that was in the

background of the contract between the teacher and the board set out the mechanism

through which the teachers could obtain career status. A teacher’s career status

rights under the Career Status Law become vested only upon completing several

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consecutive years as a probationary teacher and then receiving approval from the

school board. Thus, vesting stems not from the Career Status Law, but from the

teacher’s entry into an individual contract with the local school system. At the time

the parties made the contract, the right to career status vested. At that point, the

General Assembly no longer could take away that vested right retroactively in a way

that would substantially impair it.

The record demonstrates the importance of those protections to the parties and

the teachers’ reliance upon those benefits in deciding to take employment as a public

school teacher. For instance, in his affidavit, Bruce W. Boyles, Cleveland County

Superintendent of Schools, stated that “[t]eachers rely upon their career status rights

in making employment decisions”; “[w]hen interviewing and hiring teachers, teachers

frequently ask about career status rights”; and such protections have value to

prospective teachers which “makes up for not having better monetary compensation.”

The affidavits of plaintiffs Annette Beatty, John deVille, Rhonda Holmes, Richard J.

Nixon, and Stephanie Wallace establish that they were promised career status

protections in exchange for meeting the requirements of the law, relied on this

promise in exchange for accepting their teacher positions and continuing their

employment with their school districts, and consider the benefits and protections of

career status to offset the low wages of public school teachers. Thus, we conclude

that, although the Career Status Law itself created no vested contractual rights, the

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Opinion of the Court

contracts between the local school boards and teachers with approved career status

included the Career Status Law as an implied term upon which teachers relied.

We next move to the second part of a Contract Clause analysis in which we

consider whether the vested rights found above were substantially impaired by the

Career Status Repeal. U.S. Tr. Co., 431 U.S. at 17, 97 S. Ct. at 1515, 52 L. Ed. 2d at

106. “Total destruction of contractual expectations is not necessary for a finding of

substantial impairment.” Energy Reserves Grp. v. Kan. Power & Light Co., 459 U.S.

400, 411, 103 S. Ct. 697, 704, 74 L. Ed. 2d 569, 580 (1983) (citing U.S. Tr. Co., 431

U.S. at 26-27, 97 S. Ct. at 1519-20, 52 L. Ed. 2d at 112). However, a showing that the

change in the law results in an outcome different from that “reasonably expected from

the contract” may be sufficient to show a substantial deprivation. Id. at 411, 103 S.

Ct. at 704, 74 L. Ed. 2d at 580. Plaintiffs contend that the repeal of the Career Status

Law and its protections substantially impairs the contractual rights for which they

bargained.

The benefits enjoyed by career teachers have been described above, most of

which boil down to enhanced job security. The Career Status Law establishing those

benefits was replaced by a new system that eliminates career status entirely,

allowing local school boards and teachers to enter into contracts in durations of only

one, two, or four years. N.C.G.S. § 115C-325.3(a) (2015). Nonrenewal of these

shortened contracts can be based on any reason not “arbitrary, capricious,

discriminatory, for personal or political reasons, or on any basis prohibited by State

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Opinion of the Court

or federal law.” Id. § 115C-325.3(e) (2015). If the superintendent recommends that

a teacher not be renewed, the teacher can petition for a hearing but the school board

has unrestricted discretion whether to grant or deny that request. Id.

We hold that these changes are a substantial impairment of the bargained-for

benefit promised to the teachers who have already achieved career status.

Retroactively revoking this status from those whose career status rights had already

vested deprives career teachers of the promise of continuing employment, as well as

the right to a hearing in circumstances in which their now-shortened contracts may

not be renewed. Plaintiffs’ affidavits indicate they relied both on the promise of

continued employment as a form of added compensation to supplement their lower

salaries and on the benefits of career status when deciding to continue teaching in

the public school systems. Elimination of these benefits substantially deprives

current career status teachers of the value of their vested contractual rights.

Under the third prong of the Bailey test, a substantial impairment of

contractual rights can still be upheld if the impairment was a reasonable and

necessary means of serving a legitimate public purpose. U.S. Tr. Co., 431 U.S. at 25,

97 S. Ct. at 1519, 52 L. Ed. 2d at 112. The Contract Clause is not meant to bind the

hands of the State absolutely. The Clause’s “prohibition must be accommodated to

the inherent police power of the State ‘to safeguard the vital interests of its people.’ ”

Energy Reserves Grp., 459 U.S. at 410, 103 S. Ct. at 704, 74 L. Ed. 2d at 580 (quoting

Blaisdell, 290 U.S. at 434, 54 S. Ct. at 239, 78 L. Ed. at 426). Courts weigh a state’s

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interest in exercising its police power against the impairment of individual

contractual rights when determining whether the impairment is sufficiently justified.

This portion of the inquiry involves a two-step process, first identifying the actual

harm the state seeks to cure, then considering whether the remedial measure adopted

by the state is both a reasonable and necessary means of addressing that purpose.

See id. at 412, 103 S. Ct. at 705, 74 L. Ed. 2d at 581.

Accordingly, we consider the interest the State argues is furthered by repealing

the Career Status Law. The burden is upon the State when it seeks to justify an

otherwise unconstitutional impairment of contract. U.S. Tr. Co., 431 U.S. at 31, 97

S. Ct. at 1522, 52 L. Ed. 2d at 115. Relying on Article I, Section 15 of our constitution,

which establishes the duty of the State to guard and maintain the people’s right to

the privilege of education, the State claims that improving public education is an

essential constitutional responsibility. Hoke Cty. Bd. of Educ. v. State, 358 N.C. 605,

614-15, 599 S.E.2d 365, 376 (2004) (“[T]he State and State Board of Education had

constitutional obligations to provide the state’s school children with an opportunity

for a sound basic education, and that the state’s school children had a fundamental

right to such an opportunity.” (citing Leandro v. State, 346 N.C. 336, 351, 488 S.E.2d

249, 257 (1997))). The State argues that “the goal of the Career Status Repeal was to

address ‘adequate’ but marginal teachers with career status” as part of a series of

reforms intended to improve the deficiencies in the State’s public school system.

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Opinion of the Court

We fully agree that maintaining the quality of the public school system is an

important purpose. Nevertheless, while alleviating difficulties in dismissing

ineffective teachers might be a legitimate end justifying changes to the Career Status

Law, no evidence indicates that such a problem existed. Instead, the record is replete

with affidavits from teachers and administrators who relate that the Career Status

Law did not impede their ability to dismiss teachers who failed to meet the academic

standards necessary properly to educate students in public schools. Instead, these

affiants indicate that the Career Status Law was an important incentive in recruiting

and retaining high-quality teachers. Inadequate teachers could be and were

dismissed under the Career Status Law on the statutory grounds laid out in N.C.G.S.

§ 115C-325(e)(1) (2012), including dismissal for “[i]nadequate performance,” defined

in the Career Status Law as “(i) the failure to perform at a proficient level on any

standard of the evaluation instrument or (ii) otherwise performing in a manner that

is below standard,” id. § 115C-325(e)(3) (2012). Accordingly, we fail to see a legitimate

public purpose for which it was necessary substantially to impair the vested

contractual rights of career status teachers.

Moreover, even if we conclude that a legitimate public purpose did exist

justifying such an impairment, the method adopted for alleviating that harm must

be necessary and reasonable. U.S. Tr. Co., 431 U.S. at 25, 97 S. Ct. at 1519, 52 L. Ed.

2d at 112. While we acknowledge that the retroactive repeal was motivated by the

General Assembly’s valid concern for flexibility in dismissing low-performing

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teachers, we do not see how repealing career status from those for whom that right

had already vested was necessary and reasonable. “[A] State is not free to impose a

drastic impairment [of contract] when an evident and more moderate course would

serve its purposes equally well.” Id. at 31, 97 S. Ct. at 1522, 52 L. Ed. 2d at 115. In

the record, plaintiffs suggest several alternatives to retroactive repeal of the Career

Status Law that would allow school boards more flexibility in dismissing low-quality

teachers. The legislature could add additional grounds for dismissal as it did in 1973,

see Ch. 782, sec. 12, 1973 N.C. Sess. Laws at 1138, in 1979, see Ch. 864, sec. 2, 1979

N.C. Sess. Laws at 1188, and in 1992, see Ch. 942, sec. 1, 1991 N.C. Sess. Laws (Reg.

Sess. 1992) at 730. Or the General Assembly could have refined the definition of

“inadequate performance” as it did in 2011. See Ch. 348, sec. 1, 2011 N.C. Sess. Laws

at 1464. Given the possibility of such less sweeping alternatives for improving

teacher quality, “the State has failed to demonstrate” why the retroactive repeal was

necessary and reasonable. U.S. Tr. Co., 431 U.S. at 31, 97 S. Ct. at 1522, 52 L. Ed.

2d at 115.

Because we hold the repeal is unconstitutional in its retroactive application

based on the Contract Clause of the United States Constitution, we need not address

plaintiffs’ alternative claim based on Article I, Section 19 of the North Carolina

Constitution. Accordingly, we conclude that the retroactive repeal of career status

from those teachers who had earned that designation prior to the Career Status

Repeal is unconstitutional. The vested contractual rights of those teachers were

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substantially impaired without adequate justification, in violation of the Contract

Clause of the United States Constitution.

MODIFIED AND AFFIRMED.

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