ATTACHMENT A

THE PROPOSED DECISION

Attachment A

BEFORE THE

BOARD OF ADMINISTRATION

CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM

STATE OF CALIFORNIA

In the Matter of the Calculation of Final

Compensation of:

SAMUEL B. VILLALOBOS,

Respondent,

and

COMMUNITY REDEVELOPMENT

AGENCY OF THE CITY OF LOS

ANGELES, A DESIGNATED LOCAL

AUTHORITY,

Respondent.

Case No. 2016-1155

OAH No. 2017050481

PROPOSED DECISION

Matthew Goldsby, Administrative Law Judge with the Office of AdministrativeHearings, heard this matter on October 26, 2017, in Glendale, California.

Kevin Kreutz, Senior Attorney, represented the California Public Employees'Retirement System (CalPERS).

Respondent Samuel B. Villalobos appeared and represented himself.

No appearance was made on behalf of the Community Redevelopment Agency of theCity of Los Angeles, a Designated Local Authority (Employer).'

The record was held open for the parties to file closing briefs on or before January 3,2018. Complainant timely filed a brief, which was marked for identification as Exhibit 20.Respondent timely filed a brief, which was marked for identification as Exhibit MMMM.The record was closed and the matter was submitted lor decision on January 3, 2018.

' Although the Employer is a respondent in this case, all references to "respondent"shall refer only to respondent Samuel B. Villalobos, unless otherwise speci^^,^co:^?^i|;^ pjjgj |q E,ypLOYEES'

R£iiREMEt^ SYSTEM

FACTUAL FINDINGS

Jurisdiction and Issues j1. Renee Ostrander, acting in her official capacity as the Chief of the Employer

Account Management Division of CalPERS, Eled the Statement of Issues against respondentand the Employer. ,

2. Pursuant to the Statement of Issues, the issues in this case are limited to tne

following: (1) Whether respondent is entitled to receive a pay rate of $9,008 instead of !$8,767; (2) Whether respondent is entitled to receive seven months of service credit forjtheperiod beginning May 11,2014, and ending November 22,2014; and (3) Whether CalPERSproperly conected respondent's pay rate. |Respondent's Employment History j

3. The Employer is a public agency contracting with the CalPERS Board ofiAdministration for retirement benefits for its eligible employees. (Gov. Code, § 20460 etseq.) The provisions for public agencies contracting with CalPERS are set forth in the PublicEmployees' Retirement Law (PERL). (Gov. Code, § 2000 et seq.) |

i

4. CalPERS is a defined benefit retirement plan. Benefits for its members arefunded by members and employer contributions, and by interest and other earnings on tnosecontributions. The amount of a member's contribution is determined by applying a fixe^dpercentage to the member's compensation. A public agency's contribution is determined byapplying a rate to the payroll of the agency.

5. Respondent became a member of CalPERS through his employment withj LosAngeles County schools from September 13,1976, to April 1,1977.

6. Respondent became a member again through his employment with the |Community Redevelopment Agency of the City of Los Angeles (CRA/LA) beginning |December 15,1982. Effective October 30,2006, CRA/LA promoted respondent to the jposition of Associate Planner with a salary placement at Step 4, Pay Grade 42, plus BilingualPremium Pay of 5.5 percent. (Ex. I, p. 79.)

7. In June 2011, the California legislature adopted a bill eliminating state fiipdingfor redevelopment. (Ex. L.) Consequently, CRA/LA dissolved, effective February 1, 2012,and the Employer was created "for the purpose of transferring CRA/LA's encumbered Ifinancial assets to the local taxing entities and disposing the CRA/LA's real property assets.'(Ex. HHH.)

8. The Employer initiated plans and procedures to effectuate a reduction in force,in May 2012, in lieu of lay off, respondent accepted a demotion from his position asAssociate Planner to Administrative Assistant. (Ex. XX.) The position of AdministrativeAssistant was usually done under the direction of the Employer, and not by a specialistwithout supervision. Respondent was not engaged in a distinct occupation or business while

acting as an Administrative Assistant, and there was no evidence to show that he suppliedany instrumentalities or tools of trade. '

9. Respondent failed to perform as an Administrative Assistant to the satisfactionof the Employer. On December 20,2012, the Employer notified respondent of its intent todischarge respondent from employment, effective December 31,2012. (Ex. YY.) His lastday of work was December 20,2012, when he was placed on paid administrative leave untilthe date of discharge, with the following instructions: '"You are instructed to not performwork, report to work, or access any [of the Employer's] facilities or systems including email,during this period,.. (Ex. XX.)

!Reinstatement per Settlement Agreement

10. Respondent was unemployed during the period from January 2,2013 throughMay 12,2014 (Unemployment Period). During the Unemployment Period, respondent^filedfive civil lawsuits, several grievances through his union regarding the termination of hisemployment, and a workers' compensation claim against the Employer. (Ex. 9, p. 0246-0247.)

11. On April 23,2014, respondent, his union representative, and the Employprexecuted a Settlement and Release Agreement (Settlement Agreement), stipulating inpertinent part to the following terms and conditions:

(A) "[T]he Employer will reinstate [respondent] beginning on May 12,2014, in the position of Administrative Assistant, at the monthly salary rate of $6,702 permonth. The effective date of enrollment in the CalPERS medical insurance plan... wHl beJune 1,2014. [Respondent's] last day on payroll will be November 14,2014. ('TheReinstatement Period'). [Respondent] will be placed on paid administrative leave during theReinstatement Period. In order to preserve his medical benefits with CalPERS, [Respondent]must retire from CalPERS within 120 calendar days of November 14,2014. On the filial dayof the Reinstatement Period, [the Employer] will reclassify respondent's title fromAdministrative Assistant to Associate Planner." (Ex. 9, p. 0248.)

(B) "In addition to the monthly salary payments made during thereinstatement period, the employer agrees to make payments in the total amount of $261,235composed of the following amounts: a) $66,988 for back pay; b) $64,719 for value of lostCalPERS benefits during the period of [respondent's] separation from [the Employer]; c)$103,560 representing the value of two years of CalPERS service credit; d) $5,000 forattorney fees; e) up to $21,000 for out-of-pocket medical expenses provided that valid 'supporting documentation is timely provided to [the Employer]." (Ex. 9, pp. 0248-0249.)

(C) "During this period, [respondent] shall not perform any work, report towork, or access any of [the Employer's] facilities or systems including email." (Ex. 9,Ip.0249.)

(D) "The SETTLEMENT PAYMENT shall constitute full and fairconsideration for settlement of the litigation and grievance matters [referred to above] .''i (Ex.9, p. 0249.)

12. Pursuant to a Stipulation for Entry of Judgment and Judgment (Judgment), theSuperior Court of the State of ̂lifornia, County of Los Angeles, ordered the Employer topay respondent sum of $301,479, the total amount of payments called for under theSettlement Agreement. (Ex. RRR; Ex. 9, p. 0249.) TTie Judgment further provided, "Aninitial payment of $56,000 against the judgment amount shall be made to [respondent] onMay 7,2014. A portion will be paid through reinstatement and the remainder shall be paidon January 14, 2015." (Ex. 9; Ex. RRR.)

13. The Employer would have preferred to pay the entire settlement aniount Lrespondent, but was prohibited from exceeding its budgetary spending limits. Moreover,reinstatement played critical roles in facilitating the Settlement Agreement for both parties.For respondent, restoring his employment rights was essential to qualifying for post- 'retirement health care benefits from CalPERS. For the Employer, reinstating respondentprovided "a mechanism by which to pay respondent for six or seven months additional j- toprovide respondent additional income pending the approval for the lump-sum payments thatwere authorized in Settlement Agreement," according to the testimony of Steve Valenzuela,Chief Executive Officer for the Employer.

14. Accordingly, the Employer restored respondent's employment status on May12,2014. The Employer placed respondent on payroll during the Reinstatement Period.Respondent was enrolled in CalPERS's medical plan and was otherwise entitled to allbenefits and rights of an employee. Respondent submitted time sheets that were approved bya supervisor. The Employer issued payroll checks to respondent on a bi-weekly basis in thesame form and manner as they were issued before his discharge. (Ex. UU, pp. 2-17,19-77.)Specifically, the Employer furnished respondent an "earnings statement" with each paycheckreflecting tax withholdings and other employment related deductions, including union duesand respondent's share of CalPERS contributions. Through its payroll service, the Employerissued "2014 W-2 and Earnings Summary" for the payments made to respondent during theReinstatement Period, inserting respondent's name and address in the box "Employee'sName and Address," and reporting to the Internal Revenue Service (IRS) all payments torespondent as "wages, tips, other comp." (Ex. UU, p. 1.) i

15. In addition, the Employer paid respondent $261,235 in the followinginstallments in compliance with the Settlement Agreement: $56,000 on May 7,2014, and$205,267 on January 14, 2015. The Settlement Agreement provided that the Employerwould report these lump-sum payments to the IRS on Form 1099.

///

///

4

Respondent's Application for Retirement

16. On November 3,2014, respondent signed and filed a Service RetirementElection Application. On November 15,2014, the effective date of his retirement,respondent was 64 years of age. Pursuant to CalPERS records and data, respondent had37.226 years of service. (Ex. AAA.) Respondent filed a concurrent Service RetirementApplication with the California State Teachers' Retirement System (CalSTRS). (Ex. D )

17. After his demotion, and during the Reinstatement Period, respondent was paidat a lower pay rate than he was paid as an Associate Planner. Accordingly, the 12consecutive months of the highest compensation eamable by respondent was the period; fromJune 23,2011, to June 22,2012 (Final Compensation Base Period), when he last served as anAssociate Planner for the Employer.

18.- Pursuant to publicly available pay schedules, the pay rate for an AssociatePlanner was $8,767 during the Final Compensation Base Period until December 31,2011.On January 1,2012, the published pay rate was increased to $9,008 for the Associate Phnnerposition. (Ex. 8, p. 0370.) However, a CalPERS analyst included the $9,008 pay rate, plus a5.5 percent bilingual premium, for the entire Final Compensation Base Period. Based 0|n thismiscalculation, respondent began receiving a retirement allowance of $7,554.61 per month,effective November 15,2015, with health care benefits.

19. CalPERS subsequently adjusted respondent's final compensation to $8,767,plus a 5.5 percent bilingual premium, for the period commencing June 26,2011, and enjdingDecember 31,2012, and a pay rate of $9,008 for the period commencing January 1,2012 andending June 23,2012.

i

20. The adjustment of respondent's final compensation did not include the lujmp-sum payments made to respondent in the amounts of $56,000 and $205,267, or the 2015wages reported by the Employer to the IRS in the amount $216,577. The Employer did notreport any of these amounts to CalPERS.

Modification to Settlement Agreement

21. On January 19,2016, the Employer wrote respondent "to advise [him] ofimportant changed circumstances." (Ex. 1, p. 30.) During a field audit by an IRS agent'withthe Tax Exempt/Government Entities Unit, the Employer was advised that the paymentsmade to respondent in connection with the Settlement Agreement were subject to payroll taxwithholdings and must be reported on IRS Form W-2 as wages. The Employer wrote, "therevenue agent was emphatic that issuance of a 1099 is not allowed in these matters." (Ex. I.)

22. The IRS issued to the Employer Form 2504 "Agreement to Assessment smdCollection of Additional Tax and Acceptance of Overassessment," assessing additional jtax inthe amount of $4,590. (Ex. H.) The additional tax related to the $56,000 lump-sum paymentmade to respondent in 2015, reported on Form 1099-MISC and for which the Employerwithheld no federal tax. The IRS explanation for the assessment was, "Back pay received in

satisfaction of a claim for disparate treatment of employment discrimination under Titld VIIisn't excludable from gross income under [Internal Revenue Code] section 104(a)2)^.except to the extent the damages are paid for medical care attributable to emotional distress."(Ex. H, p. 11.)

23. Consequently, the Employer issued IRS Form W-2 to respondent for the 2015tax year, "grossed-up to show taxable wages of the $216,577.17" based on the two lump-sumpayments actually made. (Ex. I.) In addition to reporting ''wages, tips, other comp" in thegrossed up sum, the Employer reported "Social Security wages" in the amount of $l IsJsOO,"Medicare wages and tips" in the amount of $205,267, and "social security tax withheld" inthe amount of $7,347. (Ex. I, p. 32.)

Basis of Respondent's Appeal

24. On February 8,2016, respondent wrote to CalPERS, stating, "I believe that Iam entitled to review and consideration of one (1) additional year of service credit to be paidby employer for tax year 2015 and additional service credit for [the Unemployment Peijiod]... [and that] CalPERS and [the Employer] must adjust the final compensation calculation to$216,577.17." (Ex.3.)

25. In response, CalPERS issued a letter on September 9,2016, advisingrespondent of the following three determinations affecting his retirement benefit:

(A) "The $216,577.17 will not be used to adjust your retirement benefit asthe compensation was not for services rendered but intended to settle the dispute betwepnyou and [the Employer]." (Ex. 13.)

(B) "Because these earnings were intended to settle the dispute betweenyou and [the Employer] and you did not perform duties during the period in question, thiscompensation cannot be used to earn service credit or used as compensation for purposes ofcalculating a retirement benefit." (Ex. 3.)

(C) "The original retirement benefit calculation for the final compensationperiod of June 23,2011 through June 22,2012, used a monthly pay rate of $9,008 and 5.5%special compensation identified as bilingual pay, for the entire twelve months of the filialcompensation period. The monthly pay rate of $9,008 used for the period of June 23,2011through December 24,2011 exceeded the maximum amount of $8,767.00 listed on theschedule provided by [the Employer] for your position as Associate Planner." (Ex. 3.)

26. Respondent Eled an appeal.

salary

^ Gross income excludes "the amount of any damages (other than punitive damages)received (whether by suit or agreement and whether as lump sums or as periodic payments)on account of personal physical injuries or physical sickness." (26 U.S.C. § 104(a)(2).k

LEGAL CONCLUSIONS

Burden and Standard of Proof

1. Respondent is an applicant for a benefit and has the burden of proof as themoving party to establish a right to the claimed entitlement or benefit, and that burden isunaffected by the general rule that pension statutes are to be liberally construed, (plover v.Board of Retirement (1989) 214 Cal.App.3d 1327,1332.) I

1

2. In an administrative hearing concerning retirement benefits, the party assertingthe claim has the burden of proof, including both the initial burden of going forward and theburden of persuasion, by a preponderance of the evidence. {McCoy v. Board ofRetirement(1986) 183 Cal.App.3d 1044,1051, fn. 5.) f

Final Compensation - In General

3. Upon retirement from service, a member of CalPERS is entitled to receive aservice retirement allowance. (Gov. Code, § 21350.) The formula for determining amember's retirement benefit takes into account; (1) years of service; (2) a percentage figurebased on the member's age on the date of retirement; and (3) *'flnal compensation" (Gdv.Code, §§ 20037 and 21350 et seq.; City of Sacramento v. Public Employees RetirementSystem (1991) 229 Cal.App.3d 1470,1479.) |

4. Respondent's final compensation is 'the highest annual average compen^tioneamable" during any consecutive 12-month period of employment preceding the effectivedate of his retirement. (Gov. Code, §§ 20037 and 20042.) Accordingly, payments receivedby respondent must be "compensation" and, more narrowly, "compensation eamable" asdefined by PERL to be included in the computation of his final compensation. {

5. Compensation is "remuneration paid out of funds controlled by the employerin payment for the member's services performed during normal working hours or for timeduring which the member is excused ffom work because of holidays, sick leave, industrialdisability leave, vacation, compensatory time off, and leave of absence." (Gov. Code,§20630,subds.(a)and(b).)

6. Pursuant to Government Code section 20630, "compensation eamable" |)y amember means the pay rate and special compensation of the member, as those terms aijedefined as follows:

(A) "Pay rate" is the normal monthly rate of pay or base pay of the m'emberpaid in cash to similarly situated members of the same group or class of employment forservices rendered on a full-time basis during normal working hours, pursuant to publiclyavailable pay schedules. (Gov. Code, § 20636, subd. (b)(1).) '

(B) "Special compensation" of a member includes a payment received forspecial skills, Imowledge, abilities, work assignment, workdays or hours, or other work |conditions." (Gov. Code, § 20636, subd. (c)(1).) !

7. Compensation earnable is not simply the amount of remuneration receive|d bya member. It is "exactingly defined to include or exclude various employment benefits landitems of pay." {Oden v. Board of Administration (1994) 23 Cal.App.4th 194,198; citingformer Gov. Code, § 20020 (currently § 20630).) Determining "compensation eamablej" isnot based on individual efforts, but is based on "the average time put in by members in thesame group or class of employment and at the same rate of pay." (City of Sacramento i|.PubUc Employees Retirement System, supra., 229 Cal.App.3d at p. 1479.) The principalpurpose for these rules is to prevent employers from "artificially increasing a preferred [employee's retirement benefits by providing the employee with compensation increaseswhich are not available to other similarly situated employees." (Prentice v. Board of Admin.,California Public Employees'Retirement System (2007) 157 Cal.App.4th 983,993.)

8. In this case, the Employer paid respondent various payments during thefollowing periods of time: payments made through payroll during the Final CompensatmnBase Period, payments made through payroll during the Reinstatement Period, and lumj}-sumpayments made directly to respondent before and after the effective date of retirement lAllthese payment must be analyzed to determine respondent's correct final compensation.

Final Compensation - Final Compensation Base Period

9. The Employer paid respondent bi-weekly during the Final Compensation! BasePeriod. These sums were indisputably compensation paid during his employment. The!amounts paid constituted "compensation earnable" by respondent because the amounts Icomported with the published pay rate for an Associate Planner, his position at the timei Thepayments were the highest annual average compensation earnable by respondent during! anyconsecutive 12-month period of employment preceding the effective date of his retirement,including the bi-weekly payments made through payroll during the Reinstatement Period

10. However, CalPERS incorrectly calculated respondent's retirement allowanceas if he were paid at the pay rate of $9,008 for the entire period. The evidence establishedthat respondent was compensated during the Final Compensation Base Period at the pay rateof $8,767 only from June 26,2011 to December 31,2011.

11. Accordingly, respondent is not entitled to a retirement allowance based o n apay rate of $9,008 during the entire Final Compensation Base Period. Instead, respondent isentitled to a pay rate of $8,767 for the period commencing June 26,2011 and ending 'December 31,2011, and a pay rate of $9,008 for the period commencing January 1,2012 andending June 23,2012. |/// i

Final Compensation - Reinstatement Period

12. The Employer paid respondent bi-weekly during the Reinstatement Periodafter reinstating him to the position of Administrative Assistant. Because respondent wasreinstated to his demoted position, the payments were less than the compensation he receivedas an Associate Planner before the demotion in 2012. Therefore, the amounts paid during theReinstatement Period were not the highest annual average compensation eamable byrespondent during his employment.

13. Accordingly, CalPERS correctly determined that respondent's finalcompensation excluded the bi-weekly payments made during the Reinstatement PeriodJ

Final Compensation -Liimp-Sum Payments

14. The Employer made two lump-sum payments to respondent as follows:$56,000 on May 7,2014, and $205,267 on January 14,2015. Neither payment is final icompensation for the following reasons.

15. The $205,267 payment was made after November 15,2014, respondent'seffective date of retirement. Because the amount was not paid **diiring any consecutivej 12-month period of employment preceding the effective date of respondent's retirementrequired by Government Code section 20037, the lump-sum payment is not final Icompensation for purposes of determining respondent's retirement allowance. I

16. Both lump-sum payments were not ̂'compensation eamable" by respondentduring his employment because the amounts exceeded his pay rate and were not specia^compensation. Similarly, the "grossed up" total of $216,577 reported to the InternalRevenue Service in 2015 exceeded his pay rate and was not special compensation. ^

17. Specifically, the amounts were not "pay rate" because they exceeded thenormal monthly rate of pay paid to other full-time Administrative Planners pursuant tOjpublicly available pay schedules. Moreover, the amounts were not paid to similarly situatedmembers of the same group or class of employment, and did not comport with a publiayavailable pay schedule for either an Administrative Assistant or Administrative Planne|.

18. The lump-sum payments were not "special compensation" because specialcompensation does not include ftnal settlement pay. (Gov. Code, § 20636, subd. (c)(7)|.)The term "final settlement pay" is defined as "pay or cash conversions of employee bejiefitsthat are in excess of compensation eamable, that are granted or awarded to a member inconnection with, or in anticipation of, a separation from employment" (Gov. Code, § p0636,subd. (f).) The lump-sum payments were in excess of compensation eamable by respondent,and paid in connection with, or in anticipation of, his separation from employment. 'Accordingly, the lump-sum payments constituted "final settlement pay" and are not specialcompensation and, thus, not compensation eamable by respondent for purposes ofdetermining his retirement allowance.

19. Although the Settlement Agreement includes "back pay" taxable as wages, thelump-sum payments were not final compensation within the meaning of PERL. If a !settlement pa3m)ent to a member includes "back pay** constituting gross income for taxpurposes, the amount attributable to back pay is excluded from the calculation of pensionbenefits unless the amount was (1) paid to similarly situated employees or (2) paid inaccordance with a "publicly available pay schedule... for services rendered on a fiill-timebasis during normal working hours." (Molina v. Board of Admin,, California Public 'Employees'Retirement System (2011) 200 Cal.App.4th 53,67; Gov. Code, §20636, subd.(b)(1).) I

20. Accordingly, CalPERS correctly determined that respondent's finalcompensation excluded the lump-sums paid to him.

I

Service Credit - In General \!I

21. Generally, one year of service credit is granted for "service rendered andjcompensated" in a fiscal year in full-time employment, depending on statutory minimumthresholds for the type of employment (i.e. monthly, daily, hourly, etc.). (Gov. Code,§ 20962, subd. (a).) A fractional year of credit is given for service rendered in a fiscal yearin fiill-time employment for less than the statutory minimum thresholds. (Gov. Code, §20962, subd. (b).) Time during which a member is absent on a paid leave of absence iscredited as service pursuant to Government Code section 21008, discussed in more detail atLegal Conclusion 38.

22. In this case, the Settlement Agreement established that respondent wasreinstated to his position of Administrative Assistant and placed on paid administrative!leaveduring the Reinstatement Period. The Settlement Agreement was ratified by the Judgnjent,an enforceable obligation disposing the litigation. During the Reinstatement Period, thpparties complied with all terms of the Settlement Agreement. CalPERS provided health carebenefits based on the relationship and CalPERS initially gave respondent fiill service creditfor the Reinstatement Period. j

23. After giving respondent service credit for the Reinstatement Period, CalPERSdetermined that "the compensation [paid during the Reinstatement Period] cannot be used toearn service credit." (Factual Finding 25(B).) Despite the evidence of an employmentrelationship during the Reinstatement Period, CalPERS argued that respondent is not entitledto service credit for those seven months because (a) respondent was not a common lawemployee during the time, (b) respondent did not receive "compensation" and was not paidto render services, and (c) respondent was not on a bona fide leave of absence because hewas not "excused" from performing his duties. I

24. The burden of producing evidence as to a particular fact is on the party sjgainstwhom a finding on that fact would be required in the absence of further evidence. (Evid.Code, § 550, subd. (a).) Accordingly, CalPERS bears the burden of proof with respect to itscontentions regarding the determination of employment. (Southwest Research Institute v.Unemployment Ins. Appeals Ed. (2000) 81 Cal.App.4th 705, 708.) :

10

Service Credit - Employment Status

25. An employee is any person in the employ of any contracting agency. (Gov.Code, § 20028.) CalPERS has the sole authority to determine '^vho are employees and ...which persons may be admitted to ̂ d continue to receive benefits under [PERJ.]." (Gov.Code, § 20125.) PERL's provision concerning employment by a contracting agency hasbeen recognized to incorporate a common law test for employment. {Metropolitan WaierDist, of Southern California v. Superior Court (2004) 32 Cal.4th 491,509.) '

26. The common law test for employment was enunciated in the case of Em]^ireStar Mines Co, v. Cat Emp, Com. (1946) 28 Cal.2d 33,43-44, as follows:

In determining whether one who performs services for another isan employee or an independent contractor, the most important |factor is the right to control the manner and means of |accomplishing the result desired. If the employer has theauthority to exercise complete control, whether or not that rightis exercised with respect to all details, an employer-employeerelationship exists. Strong evidence in support of an employmentrelationship is the right to discharge at will, without cause.[Citations.] Other factors to be taken into consideration are (a)whether or not the one performing services is engaged in adistinct occupation or business; (b) the kind of occupation, withreference to whether in the locality, the work is usually doneunder the direction of the principal or by a specialist withoutsupervision; (c) the skill required in the particular occupation; (d)whether the principal or the workman supplies theinstrumentalities, tools, and the place of work for the persondoing the work; (e) the length of time for which the services areto be performed; (Q the method of payment, whether by the timeor by the job; (g) whether or not the work is a part of the regularbusiness of the principal; and (h) whether or not the parties |believe they are creating the relationship of employer-employee. '

27. Agreements are a significant factor for consideration in determining whetheran employment relationship exists. {Tieberg v. Unemployment Ins. App. BcL.{1970) 2 Cal.3d943,952.) An agreement may be ignored if the parties' actual conduct is inconsistent withthe agreement. {Toyota Motor Sales U.SA., Inc. v. Superior Court, {1990) 220 Cal.App.3dat p. 877.) Where there is "a genuine multiple-party transaction with economic substancewhich is compelled or encouraged by business or regulatory realities, is imbued with ta^-independent considerations, and is not shaped solely by tax-avoidance features that ha>|emeaningless labels attached, the Government should honor the allocation of rights and dutieseffectuated by the parties." {Frank Lyon Co. v. United States (1978) 435 U.S. 561,583.)

11

28. In this case, the Employer, respondent, and his union executed the SettlementAgreement with the intention to reinstate respondent to his position as Administrative !Assistant. Restoring respondent to his status as an employee had economic substance for allparties, enabling respondent to avail himself of post-retirement health benefits not otherwiseavailable, and providing the Employer with a mechanism to pay respondent within genuinebusiness and regulatory realities.

29. Although the Settlement Agreement anticipated respondent's retirement, thetransaction was not shaped solely by meaningless labels to achieve any improper legal ;objective. The amounts were not included in respondent's Final Compensation Base Period,and did not artificially increase his retirement benefits by providing him with compensationincreases not available to other similarly situated employees. The bi-weekly paychecks paidto respondent after reinstatement comported with the pay rate published for respondent'position on publicly available pay schedules.

30. The conduct of the parties throughout the Reinstatement Period was consistentwith the employer-employee relationship contemplated by the Settlement Agreement. |Respondent was paid in the same manner and method as any other employee, and he wasgranted other employment benefits after reinstatement, including health care and a sept rationfrom employment based on retirement rather than discharge.

I

31. By contractually prohibiting respondent from performing any services, theEmployer divested respondent of any control over the performance of his job duties, ar dretained full control over the management of the position. Although work is an integral partof common law employment, the actual rendering of service is not an element under th^cases cited by CalPERS. There are a myriad of circumstances in which an employer mayhire an employee without immediately placing the worker in service, or to remove a longtime employee from service without terminating the employment relationship. I

32. 'The modem tendency is to find employment when the work being done is anintegral part of the regular business of the employer and the worker does not furnish anindependent business or professional service relative to the employer." {Santa Cruz \Transportation (1991) 235 Cal.App.3d 1363.) Here, respondent's position was usualljl doneunder the direction of the Employer, and not by a specialist without supervision. Respondentwas not engaged in a distinct occupation or business, and he supplied no instrumentalities ortools of trade. (Factual Finding 8.) These findings are consistent with the parties' intentionto restore respondent's status to that of an employee.

33. The legislature has favored granting service credit for members who arejreinstated after an involuntary termination of employment "pursuant to an administrative,arbitral, or judicial proceeding, ... for the period for which salary is awarded andcontributions are received." (Gov. Code, §§ 20969.3 and 21198.) Although not directly

12

applicable to respondent's case,^ the legislative action has relevance under the circumstancesof this case before common law doctrines are applied to disrupt the legal relationshipcontemplated by the parties.

34. OfHcial notice was taken of In the Matter of the Final Calculation of the FinalCompensation of Desi Alvarez et. al (OAH No. 2014080757), dated January 20,2017, inwhich the Board of Administration of CalPERS reached the legal conclusion that commonlaw employment was not established on facts similar to, but not identical to, the facts ;established in this case. The prior fair hearing decision is advisory only, and not controbased on the facts and circumstances presented at this hearing.

ling

35. Weighing all of the factors of common law employment, CalPERS has failedto refute the evidence that respondent was an employee of the Employer during the IReinstatement Period. I

Service Credit - Compensation for Services Rendered

36. Respondent did not render services during the Reinstatement Period, andservice credit is generally granted to a member for "service rendered and compensated"during employment. (Gov. Code, § 20962, subd. (a).) However, service credit is allowed insome circumstances when no services are actually rendered or compensated. ^

37. Service credit is available for absences while on active military duty, due toserious illness or injury, to pursue further education, and while on maternity or paternityleave. (Gov. Code, §§ 20990-21013.) Eligible members may purchase service credit undercertain terms and conditions without rendering additional services. Two years of additionalservice credit was available to respondent without rendering additional services, pursuant tothe "golden handshake" provisions at Government Code section 20903. (Ex. B at p. 90j Ex. Iat p. 45.) '

38. Time during which a member is absent on a paid leave of absence is creditedas service pursuant to Government Code section 21008, which states in pertinent part:

Time during which a member is excused from performance ofhis or her duties, whether or not he or she is required to performany portion of those duties during that time, and for which he orshe receives compensation, but in an amount less than the fiillcompensation eamable by him or her while performing his orher duties when not so excused, such as sabbatical leave, shallbe credited as seiyice in the proportion that the compensation

^ Government Code section 20969.3 applies to members who were subject to aninvoluntary termination after January 1,2017. (Gov. Code, § 20969.3., subd. (c).)Government Code section 21198 applies to "a person who has been retired" following apinvoluntary termination of employment, and who is subsequently reinstated to thatemployment.

13

paid to the member bears to the full compensation that would beeamable by him or her while performing his or her duties on afull-time basis.

39. In this case, respondent was paid the full amount of compensation eamable byan Administrative Assistant during the Reinstatement Period. Accordingly, he must be giventhe same credit that would be eamable by him while performing his duties on a full-tim^basis, regardless of whether he was required to actually perform any portion of those dutiesduring that time. The contractual obligation under the Settlement Agreement not to work, orto return to work, during the Reinstatement Period should have no less adverse impact on hisservice credit than the instmction given in connection with the paid leave of absence grantedin December 2012 pending his discharge. (Factual Finding 9.)

Service Credit - Excuse from Performance of Employment Duties

40. CalPERS argued that respondent was not on a bona fide leave of absencebecause he was not excused from work within the meaning of PERL.

41. In its closing brief, CalPERS defined ''excuse*' as "[a] reason that justifies anact or omission that relieves a person of the duty." (Ex. 19.) Courts have recognized tliatprevention of performance by one party to a contract excuses performance by the otherJ{Lortz V. Connell (1969) 273 Cal.App.2d 286,290; Rains v. Arnett (1961) 189 Cal.App 2d337.)

42. The Settlement Agreement created an obligation on the Employer's part toplace respondent on a paid leave of absence, and expressly prohibited respondent fromperforming his job duties and returning to the Employer's premises. Because the Emplj3yercontractually prevented respondent from performing his job duties, respondent was exclusedfrom any obligation to perform work as an employee. The contractual prohibition justifiesthe omission of actual job duties, and relieves respondent of the duty to perform his jobduties during the Reinstatement Period.

43. Accordingly, the Reinstatement Period was time during which respondent wasexcused from performance of his duties, and service credit is allowable under GovemnientCode section 21008.

Authority to Correct Errors i

44. CalPERS is obligated to correct an error or omission made within theCalPERS system. (Gov. Code, §§ 20160, subd. (b), and 20058.) The party seekingcorrection of an error or omission has the burden of presenting documentation or otherevidence to establish the right to correction. (Gov. Code, § 20160, subd. (d).) Correctionsmust be "such that the status, rights, and obligations of all effected parties are adjusted to bethe same that they would have been if the act that would have been taken, but for the eiror oromission, was taken at the proper time." (Gov. Code, § 20160, subd. (e).)

14

45. In this case, CaiPERS discovered an error in its calculation of respondent'sfinal compensation. A CalPERS analyst included the $9,008 pay rate, plus a 5.5 percentbilingual premium, for the entire Final Compensation Base Period, whereas the $8,767 payrate applied for the period beginning June 26,2011 through December 31,2011. (FactualFinding 19.) The corrective action adjusted respondent's retirement benefit to be the same asthe benefit would have been if, but for the error or omission, the correct action was taken atthe proper time. !

46. Respondent requested that his calculation of benefits be corrected to includethe lump-sum payments in his final compensation. Respondent has failed to presentsufficient evidence to establish that CalPERS made any error or omission by excluding eitherthe lump-sum payments or the bi-weekly payments made during the Reinstatement Periodfrom its calculation of his pay rate and final compensation. [

47. Respondent requested that his calculation of benefits be corrected to includeservice credit for the Unemployment Period. Official notice was taken of In the Matte^ofthe Final Calculation of the Final Compensation ofKareemah M. Bradford et. al (OAH No.201609090597), dated March 20,2017. The precedential decision adopted by the Board ofAdministration of CalPERS is not controlling based on the facts and circumstances presentedat this hearing. Respondent has failed to present sufficient evidence to establish thatCalPERS made any error or omission by excluding service credit during the UnemploymentPeriod.

48. Respondent requested that his calculation of benefits be corrected to includeservice credit for the Reinstatement Period. The weight of the evidence shows that CalPERSwas correct when it gave respondent full credit for the Reinstatement Period. Adjustingrespondent's retirement allowance to exclude seven months of credit during theReinstatement Period was an error, and the adjusted benefit was not the same as the benefitwould have been if, but for the error, the correct action was taken at the proper time.

ORDER

1. The appeal of respondent Samuel B. Villalobos is granted, in part, and denied.in part.

2. Respondent is not entitled to receive a pay rate of $9,008 for the periodcommencing June 26,2011, and ending June 23,2012. Instead, respondent is entitled to apay rate of $8,767 for the period commencing June 26,2011 and ending December 31,[ 2011,and a pay rate of $9,008 for the period commencing January 1,2012 and ending June 23,2012, plus a 5.5 percent bilingual premium.

///

15

3. Respondent is entitled to receive service credit for the period beginning May11,2014, and ending November 22,2014. '

4. CalPERS properly corrected respondent's pay rate to $8,767 for the periodcommencing June 26,2011 and ending December 31,2011, once it determined that |respondent had not received the $9,008 pay rate during that period.

DATED: January 23,2018

DocuStgned by:DOCU!

IMSrmtl^^DLDSBYAdministrative Law JudgeOffice of Administrative Hearings

16