Memorandum I-3 TCA Excluded Workers 1 of 3 Regular Board Meeting 10-17-2016 DATE: October 17, 2016 TO: Members of the Board of Retirement FROM: Steve Delaney, Chief Executive Officer SUBJECT: TCA EXCLUDED WORKERS Recommendation Adopt resolution regarding membership status of Transportation Corridor Agencies Employees. Background/Discussion While working to determine appropriate regulation or policy language regarding the broad question of Extra Help and other temporary employees’ membership in OCERS (see Agenda Item I-2), the OCERS Board has also directed that the Governance Committee provide a recommended resolution to the specific issue of the presently excluded workers at TCA. Letters from TCA’s legal counsel, as well as from the Orange County Employees Association (OCEA) are included. These were received and considered by the Governance Committee when it met on August 15, 2016. On September 22, 2016 the Governance Committee received staff’s recommendation: Regarding those individuals the TCA began employing on July 1, 2015 to cover a contract provider gap in services, such individuals will continue to be considered ineligible for OCERS membership only if they are no longer employees of TCA on or before June 30, 2017. If those individuals are still employees of TCA on July 1, 2017 and after: (1) the employee(s) will become an OCERS member retroactive to an effective date of July 1, 2016 (or hire date, if later), and (2) TCA shall be responsible for all member and employer contributions that would have been paid to OCERS had those individuals been enrolled as of July 1, 2016 (or hire date, if later), plus interest at OCERS actuarially assumed rate of investment return as of June 30, 2017. Beginning July 1, 2017 and continuing thereafter, the OCERS Board will determine all member and employer contributions for those employees now members in accordance with the Board’s normal procedures. The Governance Committee concurred with the staff recommendation and recommends it to the OCERS Board for approval. The recommended language has been formatted as an OCERS Board resolution and is attached to this memo.
Adopt resolution regarding membership status of Transportation Corridor Agencies Employees.
Background/Discussion
While working to determine appropriate regulation or policy language regarding the broad question of Extra Help and other temporary employees’ membership in OCERS (see Agenda Item I-2), the OCERS Board has also directed that the Governance Committee provide a recommended resolution to the specific issue of the presently excluded workers at TCA. Letters from TCA’s legal counsel, as well as from the Orange County Employees Association (OCEA) are included. These were received and considered by the Governance Committee when it met on August 15, 2016. On September 22, 2016 the Governance Committee received staff’s recommendation: Regarding those individuals the TCA began employing on July 1, 2015 to cover a contract provider gap in services, such individuals will continue to be considered ineligible for OCERS membership only if they are no longer employees of TCA on or before June 30, 2017. If those individuals are still employees of TCA on July 1, 2017 and after:
(1) the employee(s) will become an OCERS member retroactive to an effective date of July 1, 2016 (or
hire date, if later), and
(2) TCA shall be responsible for all member and employer contributions that would have been paid to
OCERS had those individuals been enrolled as of July 1, 2016 (or hire date, if later), plus interest at OCERS actuarially assumed rate of investment return as of June 30, 2017. Beginning July 1, 2017 and continuing thereafter, the OCERS Board will determine all member and employer contributions for those employees now members in accordance with the Board’s normal procedures.
The Governance Committee concurred with the staff recommendation and recommends it to the OCERS Board for approval. The recommended language has been formatted as an OCERS Board resolution and is attached to this memo.
Ms. Amy Potter, TCA CFO was present, and in testimony regarding the recommendation indicated that they do believe they will have all of their presently excluded employees off of TCA payroll and correctly employed by a third party contractor before July 1, 2017 and added “TCA understands staff’s recommendation and they accept it”.
BACKGROUND OCERS was informed that for many years the TCA has contracted with private labor suppliers to staff the TCA’s Call Center and Violation Processing Unit. Because these workers historically were the employees of private labor suppliers, they were not enrolled in OCERS. In this memo I will refer to those workers as the “Excluded Workers. Several months before the contract with the most recent labor supplier was to expire on June 30, 2015, apparently the TCA learned that the labor supplier would not be renewing its contract with the TCA. Since then, the TCA has been trying to find a replacement labor supplier. In the meantime, the TCA has employed the Excluded Workers directly. The Excluded Workers perform the same functions that they performed when they were employed by the labor suppliers. The TCA pays compensation directly to the Excluded Workers with funds that the TCA controls and the TCA issues W2’s to the Excluded Workers. The terms of the Excluded Workers’ employment with the TCA are stated in offer letters that are prepared by the TCA and signed by the Excluded Workers. There were telephone communications between the TCA and OCERS before June 30, 2015, in which OCERS explained that the Excluded Workers did not need to be reported to OCERS, so long as their direct employment with the TCA was a temporary measure while the TCA found a replacement labor supplier. More specifically, OCERS explained how the County excludes “extra help” workers, who are hired for less than a year of service. Since employing the Excluded Workers directly, beginning July 1, 2015, the TCA has continued to not report the Excluded Workers as OCERS members. OCERS understands that the TCA has always been clear in its public reporting and in its communications with the Excluded Workers that its direct employment relationship with the Excluded Workers is a temporary measure in place only until the TCA can find another private labor supplier to manage the staffing of the Call Center and Violations Processing Unit. The TCA raised the issue of the Excluded Workers with OCERS again recently, because it is approaching the end of the first year in which it has employed the Excluded Workers directly, but it does not expect to find a replacement labor supplier for at least several more months and possibly not until as late as July 1, 2017. Government Code section 31551 provides: “except as expressly excluded, the persons enumerated in this article or the California Public Employees’ Pension Reform Act of 2013 shall become members of the association.” Section 31557 provides that “all officers and employees of any district become members of the association …” The California Supreme Court has held that a person who meets the requirements of enrollment in a public retirement system must be enrolled, absent a statutory exception. See Metropolitan Water District v. Superior Court (2004) 32 Cal.4th 491. Public retirement benefits “are established for a public reason and may not be waived by private agreement.” Id. at 507 (citing Ops.Cal.Atty.Gen. 205, 206 (1953)). Thus, unless the TCA employees fall under a statutory exception, they must be included as members of OCERS. The only statutory exception that OCERS believes might apply in this circumstance arises under the Board's Regulations, which are authorized by Government Code section 31527. More specifically, under section
31527(e), the Board’s Regulations may include provisions “for the exemption or exclusion … from membership altogether … of persons whose tenure is temporary, seasonal, intermittent, or for part time only.” A copy of the Board’s Regulations is enclosed with this letter. The TCA’s part-time employees (who work less than 20 hours per week) were, and will continue to be, properly excluded from OCERS membership under the plain terms of the Board’s Regulations. As for the TCA’s employees working more than 20 hours per week, the Board’s Regulations require the inclusion of “limited term employees” in OCERS membership, but also allow the exclusion of “extra help” employees. "Extra help” employees have historically been understood by OCERS as those hired by the County for a year or less of service. Based on the Board’s authority under CERL section 31527(e) and the Board’s Regulations, it was appropriate to exclude the Excluded Workers from OCERS membership, so long as their direct employment with the TCA was expected to last no more than a year. But, the question becomes more complicated now that the TCA expects to directly employ the Excluded Workers for as long as two years (and possibly longer if the TCA cannot find a labor supplier by July 2017). Under California law, an employer cannot maintain a fiction of temporary employment by simply renewing temporary contracts over and over again. See e.g. Balen v. Peralta Junior College District (1974) 11 Cal.3d 821. As previously noted, for County employees “extra help” has generally been understood as employment of a year or less. In OCERS' view, however, if unforeseen circumstances result in the TCA directly employing the Excluded Workers for more than a year, the Board is not legally required to immediately include those Excluded Workers as members the moment they work more than a year. Rather, the Board has broad discretion over the administration of the system that enables it to exercise its best judgment in circumstances like this. See e.g. Barrett v. Stanislaus County Employees Retirement Association (1987) 189 Cal.App.3d 1593; In re Retirement Cases (2003) 110 Cal.App.4th 426.; City of Oakland v. Oakland Police & Fire Retirement System (2014) 224 Cal.App.4th 210; Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328.”
Submitted by:
______________________________ Steve Delaney Chief Executive Officer
Resolution No. 16-001 Adopted by the Board of Retirement
Resolution Regarding Membership Status of Transportation Corridor
Agencies Employees
Whereas the Transportation Corridor Agencies (“TCA”) began direct employment of certain individuals on July 1, 2015 to cover a contract provider gap in services. Whereas such direct employment has continued for more than one year raising doubt as to whether these individuals can be considered temporary employees. Whereas TCA has informed OCERS that the individuals at issue are essential for the continued operations of TCA. It is resolved by the Board of Retirement that such individuals will continue to be considered ineligible for OCERS membership only to the extent they are no longer employees of TCA on or before June 30, 2017. If any of those individuals are still employees of TCA on July 1, 2017 and after:
(1) the employee(s) will become an OCERS member(s) retroactive to an effective date of
July 1, 2016 (or hire date, if later), and
(2) TCA shall be responsible for all member and employer contributions that would have
been paid to OCERS had those individuals been enrolled as of July 1, 2016 (or hire date, if later), plus interest at OCERS actuarially assumed rate of investment return as of June 30, 2017. Beginning July 1, 2017 and continuing thereafter, the OCERS Board will determine all member and employer contributions for those individuals now members in accordance with the Board’s normal procedures.
ATTESTED TO: I hereby certify that on the 17th day of October, 2016, the Board of Retirement of the Orange County Employees Retirement System adopted this Resolution.
_____________________________ Steve Delaney Secretary to the Board of Retirement Orange County Employees Retirement System
TCA has been diligent in its efforts to procure the replacement contracted services, however as
indicated above, entering into long-term contracts that greatly affect the Agency and customers of
the Toll Roads must be thought through carefully. We believe that the unanticipated delays in the
procurement process have been addressed appropriately, and the original intent of employing the
excluded workers on a temporary basis has not changed.
Legal Memo
MEMORANDUM To: Orange County Employees Retirement System
Board Of Retirement
From: Kenneth W. Ruthenberg, Jr.
Jeffrey C. Chang
Date: July 8, 2016 Re: Exclusion Of Transportation Corridor Agencies Temporary Project
Employees
Background On June 8, 2016, Steve Delaney, Chief Executive Officer of the Orange County Employees Retirement System (OCERS), and Jeff Rieger, Esq. of ReedSmith, presented the OCERS Board of Retirement (Board) with a memorandum regarding the continued exclusion of certain employees of Transportation Corridor Agencies (TCA). A copy of that memorandum is attached. The memorandum served as background for a discussion of the issue at the Board meeting on June 22, 2016 and for further consideration at the Board meeting on July 18, 2016. As a result of the discussion of the memorandum at the Board meeting on June 22, 2016, the Board requested that TCA provide its own legal analysis of the issue for the Board's consideration at the Board meeting on July 18, 2016. This memorandum provides that analysis. This memorandum should be read in conjunction with the accompanying memorandum prepared by TCA that sets forth the factual background for the situation that the Board has been asked to address. Therefore, the facts are not repeated in this memorandum. This memorandum should also be read in conjunction with the June 8, 2016 memorandum from Messrs. Delaney and Rieger as it contains important factual information and legal analysis, as supplemented by this memorandum.
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Summary Of Recommendations The Board should determine that TCA's temporary project employees will continue to be excluded from OCERS as "extra-help" employees, pursuant to subsection c of section 1 of article I of the OCERS regulations, because: • They are such "extra-help" employees as contemplated by this provision
in view of the exigencies of the circumstances giving rise to them having to become TCA employees;
• They have been excluded from OCERS membership on this basis since
they first became TCA employees, which step was taken after TCA conferred with OCERS about excluding them with no time limit on how long they could be excluded;
• Their status as such "extra-help" employees does not change by virtue of
them having to remain TCA employees in view of the difficulties that TCA has encountered in the contracting process to again out-source these workers; and
• Neither the regulation that excludes such "extra-help" employees nor
Government Code section 31527(e), which authorizes the Board to adopt such a regulation, contains any time limit on a worker remaining an "extra-help" employee (in fact, the regulations provide that the exclusion applies "regardless of number of hours worked").
Discussion
Government Code section 31527 provides, as relevant here (emphasis in bold added): In its regulations, the board may include the following provisions:
…
(e) For the exemption or exclusion from membership as a peace officer member or as a safety member or from membership altogether, in the discretion of the board, of persons whose tenure is temporary, seasonal, intermittent, or for part time only, or persons whose compensation is fixed at a rate by the day or hour.
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Pursuant to Government Code section 31527(e), the Board adopted regulations that include subsection c of section 1 of article I of the OCERS regulations. It provides, as relevant here: All employees…who are classified as extra-help regardless of number of
hours worked, are hereby excluded from membership. TCA's temporary project employees have been classified as such "extra-help" employees and excluded from membership in OCERS since they first became TCA employees in June 2015 as a result of the expiration of TCA's contract with 3M who had employed these workers before then. They were not hired by TCA as its employees until after TCA had conferred with OCERS staff regarding the exclusion of these workers. Having been excluded from OCERS membership for the beginning of their employment by TCA, is there any reason why they should no longer be excluded because of the passage of time? In other words, have these workers ceased being such "extra-help" employees based solely on the passage of time (i.e., because no other facts have changed since they were first hired as employees of TCA)? Subsection c of section 1 of article I of the OCERS regulations contains no time limit on how long an employee can be classified as "extra-help." In fact, quite the opposite is implied by the modification of the exclusion by the phrase "regardless of number of hours worked." The exclusion of "extra-help" employees is an exception to the general rules for membership set forth in subsections a and b of section 1 of article I of the OCERS regulations. They provide that full-time employees and part-time employees are eligible for membership so long as they work a minimum number of hours, "including limited term employees." Thus, when the Board was promulgating these regulations, the Board was cognizant of the need to address hours and time of service, and yet the Board decided to address this aspect of the exclusion of "extra-help" employees by indicating that the number of hours worked was not relevant. Had the Board wanted to limit the time during which an employee could have been classified as "extra-help," the Board certainly could have done so – but it did not add a time limit to this exclusion. Government Code section 31527(e) contains no time limit for an employee whose tenure is "temporary." If the California legislature had intended to limit the Board's authority to exclude temporary employees from membership in the Board's regulations by including a time limit on such a classification, it certainly could have done so. It did not, however, include a time limit in this statute. Contrast this statutory provision with other retirement plan provisions in the Government Code that do contain such time limits, such as the following:
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1. Government Code section 7522.56 addresses the treatment of retired annuitants who are rehired. As relevant here, it provides in subsections (e), (f) and (g) (emphasis in bold added):
(e)
(1) Notwithstanding subdivision (c), any retired person shall not be eligible to serve or be employed by a public employer if, during the 12-month period prior to an appointment described in this section, the retired person received any unemployment insurance compensation arising out of prior employment subject to this section with a public employer. A retiree shall certify in writing to the employer upon accepting an offer of employment that he or she is in compliance with this requirement.
(2) A retired person who accepts an appointment after receiving
unemployment insurance compensation as described in this subdivision shall terminate that employment on the last day of the current pay period and shall not be eligible for reappointment subject to this section for a period of 12 months following the last day of employment.
(f) A retired person shall not be eligible to be employed pursuant to
this section for a period of 180 days following the date of retirement unless he or she meets one of the following conditions:
(1) The employer certifies the nature of the employment and
that the appointment is necessary to fill a critically needed position before 180 days have passed and the appointment has been approved by the governing body of the employer in a public meeting. The appointment may not be placed on a consent calendar.
(2) The state employer certifies the nature of the employment
and that the appointment is necessary to fill a critically needed state employment position before 180 days have passed and the appointment has been approved by the Department of Human Resources. The department may establish a process to delegate appointing authority to individual state agencies, but shall audit the process to determine if abuses of the system occur. If necessary, the department may assume an agency’s appointing authority
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for retired workers and may charge the department an appropriate amount for administering that authority.
(3) The retiree is eligible to participate in the Faculty Early
Retirement Program pursuant to a collective bargaining agreement with the California State University that existed prior to January 1, 2013, or has been included in subsequent agreements.
(4) The retiree is a public safety officer or firefighter hired to
perform a function or functions regularly performed by a public safety officer or firefighter.
(g) A retired person who accepted a retirement incentive upon
retirement shall not be eligible to be employed pursuant to this section for a period of 180 days following the date of retirement and subdivision (f) shall not apply.
2. Government Code section 20305 addresses the exclusion of certain employees from CalPERS. As relevant here, it provides in subsections (a)(1), (a)(2) and (a)(3) (emphasis in bold added):
(a) An employee whose appointment or employment contract does not fix a term of full-time, continuous employment in excess of six months is excluded from this system unless:
(1) He or she is a member at the time he or she renders that
service and is not otherwise excluded pursuant to this article or by a provision of a contract.
(2) His or her position requires regular, part-time service for one
year or longer for at least an average of 20 hours a week, or requires service that is equivalent to at least an average of 20 hours a week for one year or longer, unless he or she elects membership pursuant to Section 20325.
(3) His or her employment is, in the opinion of the board, on a
seasonal, limited-term, on-call, emergency, intermittent, substitute, or other irregular basis, and is compensated and meets one of the following conditions:
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(A) The appointment or employment contract does not fix a term of full-time, continuous employment in excess of six months, but full-time employment continues for longer than six months, in which case membership shall be effective not later than the first day of the first pay period of the seventh month of employment.
(B) The person completes 125 days, if employed on a
per diem basis or, if employed on other than a per diem basis, completes 1,000 hours within the fiscal year, in which case, membership shall be effective not later than the first day of the first pay period of the month following the month in which 125 days or 1,000 hours of service were completed. For purposes of this subdivision, "day" means each eight-hour period of employment worked by an employee paid on a per diem basis so that membership is effective after he or she has completed 1,000 hours of compensated service in a fiscal year.
Therefore, the California legislature is quite familiar with including time limits, either before an individual can resume employment, while an individual is performing services as an employee, or when an individual must cease such employment. However, it did not include any time limit under Government Code section 31527(e). In the absence of a time limit in Government Code section 31527(e) and under subsection c of section 1 of article I of the OCERS regulations, the issue becomes who is a "temporary" employee or an "extra-help" employee and, as a result, is excluded from OCERS membership. Let us start with the definition of "temporary" in Webster's Dictionary – the word means "lasting for a time only; existing or lasting for a limited time." This definition certainly applies here because TCA's temporary project employees were not TCA's employees at all prior to the expiration of the contract with 3M (i.e., they were 3M's employees) and TCA's intent was from the beginning, and remains, for them to serve as TCA's employees only during the limited period of time between the expiration of 3M's contract and the placement of a new third party vendor to take 3M's place as the employer of the workers performing their tasks. The current employment arrangement is clearly intended to last "for a time only" and to exist "for a limited time." In other words, it is indeed "temporary" employment.
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Such an interpretation is consistent with how CalPERS has interpreted the word "temporary" in other settings. On October 3, 2011, the Governor signed AB 1028 into law, effective as of January 1, 2012. Among other things, AB 1028 amended Government Code sections 21224 and 21229 by adding the word "temporary" to each section. As part of its explanation of this change in both (i) Circular Letter No. 200-002-12, dated January 26, 2012, to all public agencies, county offices of education, and school districts, and (ii) Circular Letter No. 200-003-12, dated January 26, 2012, to all State agencies and California State University, CalPERS stated, as relevant here (emphasis in bold added): This Circular Letter also serves to remind that pursuant to G.C.
sections 21224 and 21229:
• A retiree can work for more than one fiscal year for the same employer only if the employment is temporary "extra help" work as defined above.
Therefore, at least with respect to AB 1028, CalPERS interpreted the amended statute to mean that "temporary" work was not limited to one fiscal year – no time limit applies so long as the employment is "temporary." In addition, the lack of a time limit on how long an employee could be classified as "temporary" or "extra-help" is consistent with what OCERS staff told TCA when, prior to hiring these temporary project employees, TCA specifically asked OCERS staff how long these employees could be considered temporary and whether their employment as such could extend beyond one year. OCERS staff told TCA that there was no specific time frame that determined whether an employee was "temporary." TCA relied, and continues to rely, on this response in hiring these workers. What about the meaning of "extra help"? There does not appear to be any statutory use of or definition for this phrase. It must be either synonymous with or within the meaning of "temporary" (see above) in order for subsection c of section 1 of article I of the OCERS regulations to be valid under Government Code section 31527(e). CalPERS has given such an interpretation to the phrase and has given us insights as to what it thinks the phrase means in the following CalPERS Circular Letters: 1. In a Circular Letter (not numbered), dated January 14, 2014, to all
CalPERS employers, CalPERS discussed the post-retirement service requirements set forth in Government Code section 7522.56 (quoted in part above). The letter states, as relevant here (emphasis in bold added):
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The work a retiree performs should supplement the work of regular staff (e.g., it is extra help work such as elimination of backlog, special project work, or to help with work in excess of that which regular staff can do)….
2. In both Circular Letter No. 200-002-12, dated January 26, 2012, to all public agencies, county offices of education, and school districts, and Circular Letter No. 200-003-12, dated January 26, 2012, to all State agencies and California State University, CalPERS discussed the changes made to Government Code sections 21224 and 21229 effective as of January 1, 2012. These letters state, as relevant here (emphasis in bold added):
Both sections were amended as follows:
• To include the word "temporary" to clarify that these sections apply to retirees as temporary "extra help" appointments – during an emergency to prevent stoppage of public business or to perform work of limited duration, i.e., elimination of backlog, special projects, work in excess of what the employer's permanent employees can do, etc….
• To include the word "specialized" to clarify that retirees
employed as temporary "extra help" are to have the specialized skills required to perform the needed work.
Lastly, we want to emphasize what Messrs. Delaney and Rieger said in their June 8, 2016 memorandum to the Board about the distinction between this situation and a situation such as that addressed by the California Supreme Court in Balen v. Peralta Junior College District. In this case, the court addressed the "administrative practice" in which the Peralta Junior College District engaged in dismissing its part-time instructors annually and then rehiring them in order to, in the view of the court, "circumvent proper classification" of the instructors. The court stated that these actions were not determinative of the instructors' employment status. This is not the case here. When TCA hired the temporary project employees, it did so only to meet the need that it had for the services provided by such workers until such time as a contract with a new vendor for such services could be implemented. While it is unfortunate that the contracting process is taking longer than a year, the delay is not part of an "administrative practice" or any other scheme to "circumvent proper classification" of these workers. They have been, and continue to be, properly classified as "extra-help" employees.
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Conclusion
The temporary project employees were hired by TCA as temporary, "extra-help" employees in order to perform critical tasks for TCA during the gap between the expiration of the 3M contract and the commencement of a contract for such services with a new vendor. These services are of a type that is beyond what TCA's regular staff can do, have historically been performed for TCA by an outside vendor such as 3M, and are performed by third party vendors for all tolling entities in California (with the exception of one — SANDAG). Numerous tolling entities across the nation use third party vendors for these services as well. Therefore, these workers have been properly classified as "extra-help" employees who are excluded from OCERS membership, and this exclusion does not expire because of the passage of time. TCA's temporary project employees should continue to be excluded from OCERS membership. . KWR/lm Enclosure NO0037.003 22Q158403
