Lenon v. Public Employees Retirement Board

SCHUMAN, J.,

dissenting.

After a contested case hearing, the Public Employees Retirement Board (PERB) issued an order denying petitioner credit for unused sick leave that he had accumulated while he worked for a City of Salem agency but was not participating in the city’s retirement plan. Petitioner contends that PERB’s order cannot be reconciled with the contract that integrated the city’s retirement plan into the Public Employees Retirement System (PERS). Unlike the majority, I agree with petitioner. I would therefore reverse and remand.

Under former ORS 237.051(1)(b) (1989), petitioner’s benefits are defined by the contract between PERB and the Data Center. That statute provides that PERB “[m]ay upon such terms as are set forth in a contract between the board *33and the employer,” integrate a public employer’s non-PERS pension system into PERS. See also Stovall v. State of Oregon, 324 Or 92, 109-10, 922 P2d 646 (1996) (former ORS 237.051(1)(b) does not limit the terms to which the parties to an integration contract may agree). The integration contract, in turn, refers back to the PERS statutes. It provides, in part:

“(1) Effective January 1, 1991, the Data Center will begin participation in PERS for all eligible Data Center employees * * *. All employees of the Data Center who participated in the previously established retirement plan as of January 1, 1991, shall be covered by and begin participation in PERS and shall have all rights, benefits and obligations provided by ORS 237.001 through ORS 237.320[, the statutes then governing PERS].
* * * *
“(6) The Data Center extends the use of accumulated unused sick leave to increase benefits in accordance with ORS 237.153 for those persons receiving a benefit under ORS 237.001 through ORS 237.320, for all employees.”

Former ORS 237.153 (1989),1 in turn, provided in paragraph (l)(a) that a public employer may request that its employees receive increased retirement benefits based on their accumulated unused sick leave with pay2 and, in paragraph (l)(c), defined “accumulated unused sick leave” as follows:

“[A]ccumulated unused sick leave with pay includes unused sick leave with pay accumulated by an employee member of the system while in the service of any public employer participating in the system that has the request described in *34paragraph (a) of this subsection in effect at the time of the member’s separation from the service of the employer * *

Neither the contract nor the statute demonstrates, shall we say, exemplary drafting skills. Both need explication.

Because former ORS 237.051(1)(b) mandates that petitioner’s benefits are defined by the integration contract, I begin with that document, in particular with paragraph 6.1 decipher it as follows: The subject of the sentence is “The Data Center.” The verb is “extends.” The direct object phrase — that which is extended — is “the use of accumulated unused sick leave [in order] to increase benefits,” which, for convenience, I refer to hereafter as “sick leave benefits.” The indirect object phrase — that to which or for which the sick leave benefits are extended — is “all employees.” Thus, the grammatical core of the sentence is: The Data Center extends sick leave benefits to all employees. The remaining words, “in accordance with ORS 237.153 for those persons receiving a benefit under [the statutes governing PERS],” is an adverbial phrase modifying the verb “extends.” The phrase describes how, or under what circumstances, the benefits are to be extended: they are to be extended in the same way that former ORS 237.153 extends sick leave benefits to persons covered by PERS. Thus, to paraphrase, paragraph 6 of the contract between PERB and the Data Center provides: The Data Center will henceforth allow all of its employees to use their accumulated unused sick leave in order to increase their retirement benefits. They can do so on the same terms that apply to PERS-covered employees who increase their retirement benefits by using accumulated unused sick leave. Those terms are spelled out in former ORS 237.153.

PERB argues that, under paragraph 6, a Data Center employee is entitled to credit only for unused sick leave accumulated after integration. That is so, PERB maintains, because paragraph 6 incorporates former ORS 237.153, and the text of that statute clearly precludes petitioner from receiving the sick leave benefit. PERB points out that paragraph (1)(c) of that statute, in defining “accumulated unused sick leave,” limits the availability of the benefit in several respects. First, the unused sick leave must be accumulated by a “member of the system.” Second, *35the unused sick leave must be accumulated “while in the service of any public employer participating in the system.” Third, that employer, at the time of the employee’s retirement, must have made, and not withdrawn, a request to allow its employees to use their accumulated sick leave to increase benefits.

PERB acknowledges that petitioner and his employer meet the third criterion, but argues that they do not meet the first two. “The system” in former ORS 237.153, PERB argues, refers to PERS, and petitioner was not a PERS member when he accumulated the disputed, preintegration sick leave, nor was the Data Center a “public employer participating in the system” at that time. Thus, according to PERB, paragraph 1 of the integration contract brought Data System employees who were members of its retirement plan into the PERS retirement plan, with all of the benefits provided by the PERS statutes. One of those statutes, former ORS 237.153, gave PERS employers the option of extending sick leave benefits. In paragraph 6, the Data Center exercised that option. By indicating that the sick leave benefit was extended “in accordance with ORS 237.153,” the parties necessarily intended that the extension apply only to unused sick leave accumulated going forward, that is, after the employees, by virtue of the integration contract, became “member[s] of” PERS working for an “employer participating in” PERS.

Petitioner suggests a different analysis of the relationship between the integration contract and former ORS 237.153(1)(c). According to petitioner, the phrase “in accordance with ORS 237.153 for those persons receiving a benefit under [the PERS statutes]” in paragraph 6 extends the sick leave benefit to all Data System employees on the same terms that are applicable to PERS members to whom the requirements of former ORS 237.153 apply. Thus, the question of petitioner’s eligibility to receive credit for unused sick leave accumulated while petitioner worked for the Data Center but did not participate in the city’s retirement plan would be treated as though it were the question whether a PERS member working for a PERS participating employer would receive credit for unused sick leave accumulated while *36the PERS member worked for a PERS participating employer, but did not contribute to PERS.

PERB’s interpretation of the statute in the context of the integration contract, although a cogent attempt to find order in chaos, presents several problems. First, if PERB is correct, then paragraph 6 of the integration contract is unnecessary. That paragraph declares, under PERB’s reading, that, as of January 1, 1991, the day the integration contract becomes effective, all Data Center employees will receive credit for sick leave they accumulate going forward, in accordance with the PERS statutes. But paragraph 1 declares, in more general terms, that, “Effective January 1, 1991, the Data Center will begin participation in PERS for all eligible Data Center employees.” Thus, according to PERB’s analysis, paragraph 6 adds nothing. PERB argues that paragraph 6 does add something: it indicates that the Data Center has formally requested sick leave benefits for its employees after integration, as required by former ORS 237.153(1)(a) (set out above at note 2). However, that reading cannot be reconciled with the actual words of paragraph 6; those words are the statement of a contract term, not notice that some request has already been made. The request to confer unused accumulated sick leave benefits is logically and legally prior to the contract, and must have occurred elsewhere. Thus, PERB’s interpretation adds nothing that is not already stated in paragraph 1, while petitioner’s interpretation adds a benefit that paragraph 1 does not: credit for preintegration sick leave.

A second problem with PERB’s interpretation of former ORS 237.153 is that, contrary to ORS 174.010, it adds words that the legislature omitted: “at the time the sick leave was accumulated.” Petitioner’s analysis, on the other hand, does not insert words — it merely applies a phrase already in the statute (“at the time of the member’s separation”) to words that are already there. To clarify, the statute defines “accumulated unused sick leave” as follows:

“[Alccumulated unused sick leave with pay includes unused sick leave with pay accumulated by an employee member of the system while in the service of any public employer participating in the system that has the request described in *37paragraph (a) [to compensate its employees for accumulated unused sick leave] in effect at the time of the member’s separation from the service of the employer * *

PERB’s interpretation would require the following paraphrase of the statute with added words in italics:

“[A]ccumulated unused sick leave with pay includes unused sick leave with pay accumulated by a person who, at the time of accumulation, was an employee member of the system while in the service of any public employer that, at the time of accumulation, was participating in the system that has the request described in paragraph (a) of this subsection in effect at the time of the member’s separation from the service of the employer * *

Petitioner’s paraphrase, on the other hand, reads as follows:

“[A]ccumulated unused sick leave with pay includes unused sick leave with pay accumulated by a person who at the time of separation from the service of the employer is an employee member of the system while in the service of any public employer that at the time of separation is participating in the system that has the request described in paragraph (a) of this subsection in effect at the time of the member’s separation from the service of the employer * *

Third, PERB’s interpretation appears for the first time on judicial review, and it is inconsistent with the theory that it presented below. Under PERB’s interpretation on appeal, petitioner should not have received credit for any sick leave that he accumulated before integration, because during that time he was not a PERS member and he was working for a non-PERS employer. That is not the position that PERB took when it audited petitioner’s account, when it presented its case before the ALJ, or in its final order. During the entire administrative process, PERB’s position was that petitioner was entitled to the hours that he accumulated, before integration, when he was contributing to the city’s plan. In its final order, PERB framed the issue, and resolved it, as follows:

“Appellant contends he was an ‘active member’ of the system in the service of a participating public employer. Appellant cites to the definition of ‘active member’ * * * set forth [i]n ORS 238.005(12). He further asserts that in construing *38the statute, PERS erroneously equates the term ‘active member’ with the concept of‘creditable service.’
* 5fc * *
“Appellant was not an ‘active member’ for purposes of ORS 238.005(12)(b) during the time he had opted out of the City of Salem’s pension plan. An ‘active member’ is one who ‘is presently employed by a participating employer in a qualifying position.’ ORS 238.005(12)(b). During the time Appellant opted out of the City of Salem’s pension plan, the City of Salem was not making contributions to its retirement system related to Appellant, nor was Appellant making any contributions.
«5}i íji % íjí
“Because Appellant opted out of the City’s plan from 1974 until 1989, that period is not counted as creditable service for PERS purposes, and for that same reason Appellant cannot be considered to have been an active member of PERS during that time * *

(Footnotes omitted; emphasis added.) PERB assumed that petitioner was entitled to credit for sick leave that he had accumulated when he was employed by the Data Center and participating in its plan before integration. Its argument in the order on review is that petitioner is entitled to credit for sick leave accumulated while he was an active member (i.e., a paying participant) of the city’s preintegration plan, but is not entitled to credit for those preintegration periods during which he was not an active member. That assumption is consistent with petitioner’s interpretation of former ORS 237.153, including his interpretation of paragraph 6 of the integration contract, and not with the interpretation that PERB advances on judicial review.

PERB presents the argument that it made below— that petitioner is entitled to credit for the sick leave he accumulated while an active member of the city’s preintegration retirement plan, but cannot claim credit for periods he was not an active member of the city’s preintegration plan — as an alternative argument on judicial review. Having rejected PERB’s primary argument, I now turn to that alternative argument.

*39As noted above, PERB’s argument below incorporated the interpretation of paragraph 6 that petitioner proposed there and proposes again on judicial review. PERB, in other words, argued (and argues again, as a fall-back) that the integration contract extended the sick leave benefit only to those who, if they had been PERS members during their employment with the Data Center and the Data Center had been a PERS participant employer, would have qualified for it under PERS statutes. The relevant PERS statutes include former ORS 237.153, under which “accumulated unused sick leave with pay” is defined as pay accumulated by a “member.” Former ORS 237.011 (1989), in turn, provides,

“No person may become a member of the system unless that person is in the service of a public employer and has completed six months’ service uninterrupted by more than 30 consecutive working days during the six months’ period. Every employee of a participating employer shall become a member of the system at the beginning of the first full pay period of the employee following the six months’ period.”

Membership terminates only if “during any absence from * * * service the employee withdraws the amount credited to the account of the employee” or if “the employee is absent from the service of all employers participating in the system for a total of more than five consecutive years.” Former ORS 237.109 (1989). Under the undisputed facts, petitioner was a member. By virtue of paragraph 6 of the integration contract, the Data Center is considered a “participating employer.” Nothing in the PERS statutes that are incorporated into the integration contract would have authorized the exclusion of sick leave accumulated by a member when the member was not contributing. It is true, as PERB argues, that former ORS 237.071(1) (1989) obligated members to contribute to PERS. That obligation, however, was a requirement of membership, and not part of its definition.3 Indeed, petitioner had a retirement account with the Data Center during the time that he *40did not contribute. He might be said to have been a delinquent member, but not a nonmember.

In sum, the contract between the Data Center and PERB extended accumulated unused sick leave benefits to all Data Center employees who would have been entitled under the relevant PERS statutes to the benefits if the Data Center had been a PERS participating employer when the leave was accumulated. The relevant statutes extend the benefits to “employee member[s].” Petitioner was such an employee when he accumulated the leave, even when he was not contributing to the city’s retirement plan. He therefore should have received credit for all 2,118 hours of accumulated unused sick leave. I therefore dissent.

Former ORS 237.153 (1989) has been renumbered as ORS 238.350, and paragraph (1)(c) has been amended. The amendment changed the phrase “employee member” in paragraph (1)(c) to “active member.” Or Laws 1993, ch 177, § 17. As explained below, I refer to that particular statute in its unamended form, and, for that reason, I use its 1989 codification number.

Former ORS 237.153(l)(a) provided:

“Upon the request by a public employer that its employees he compensated for accumulated unused sick leave with pay in the form of increased retirement benefits upon service or disability retirement, the board shall establish a procedure for adding to the gross amount of salary used in determining final average salary the monetary value of one-half of the accumulated unused sick leave with pay of each retiring employee of the requesting public employer and shall establish benefits of the retiring employee on the basis of a final average salary reflecting that addition.”

The analysis in this paragraph presumes that paragraph 6 incorporates former ORS 237.153 and other PERS statutes as they existed when the integration contract was executed in 1991. If I were to presume that the contracting parties intended to incorporate amendments to those statutes, then the relevant statutes are the ones in effect when petitioner retired in 2001. Under those statutes, the sick leave benefit was extended in accordance with ORS 238.350. Under that statute, unused accumulated sick leave is that which is accumulated by an “active member.” ORS 238.350(1)(c). A “member” is a “person who has established *40membership in the system” by working for a participating employer for six months, and whose membership has not been terminated by withdrawal of his account or unemployed by a participating employer for five years. ORS 238.005(12)(a); ORS 238.015(1); ORS 238.095. An “active” member is one who has completed six months of service for the participating employer. ORS 238.005(12)(b). No statute specifies that a member who is not contributing is not an active member.