Eagan v. Spellman , 90 Wash. 2d 248 ( 1978 )

Horowitz, J.

(dissenting) — The majority opinion holds Ms. Eagan's retirement rights are governed by RCW 41.40 (PERS), mandating retirement of a government employee at age 70, and that her discharge upon attaining the age of 65, although authorized by King County ordinance No. 422, § 3.12.060(j) was wrongful.

At the outset it is important to note what the majority does not hold. First, it does not hold that a mandatory retirement age fixed by statute or ordinance is unlawful per se on due process or equal protection grounds. Indeed, the majority enforces the 70-year mandatory retirement age fixed in PERS (RCW 41.40.180(2)). Second, the majority does not hold that her discharge violated the state law against discrimination, RCW 49.60, particularly in light of the statutory prohibition against discrimination against employees between the ages of 40 and 65 on the basis of their age found in RCW 49.44.090. Third, the majority does not hold that ordinance No. 422, § 3.12.060(j) is not by its own terms applicable to Ms. Eagan. Fourth, the majority does not hold Ms. Eagan was not an "exempt" or "noncareer" employee who is required to "serve at the pleasure of the appointing authority" under King County ordinance No. 422, § 3.12.020(g), or that her employment under the terms of the King County ordinance constituted anything other than employment terminable at will , as distinguished from employment terminable for cause. See RCW 41.06-.170. Finally, the majority does not hold that Ms. Eagan was not lawfully terminated if the 70-year age retirement provision of PERS is inapplicable to terms of tenure set by ordinance.

The sole question, then, is whether Ms. Eagan, a county employee terminable at will and lawfully retired at age 65 under the terms of ordinance No. 422, § 3.12.060(j), is nevertheless entitled to work until attaining the age of 70 because PERS provides that government employees enrolled in the employee pension fund may work until that age. The majority holds she is.

The majority's sole argument is that under the rationale of Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956) and the decisions following it, the PERS statute gave Ms. Eagan an enforceable, contractual right to continued employment to age 70, notwithstanding the fact she is employed under an ordinance making her employment terminable at will. The basic thrust of the argument is that after Ms. Eagan was employed by the county the first time and began making payments into the PERS retirement fund for government employees, the county had no right to deprive her of an allegedly promised mandatory retirement age of 70 by changing the terms of her employment from those of her original, unspecified job to an employment which was terminable at will. Although not so stated, the opinion in effect holds that it was a breach of Ms. Eagan's employment contract to do so, or that to do so would impair her contractual rights in violation of the federal or state constitution.

In order to understand the majority's essential error it is important to make clear both what PERS provides, and what Bakenhus v. Seattle actually held. The relevant PERS provision is RCW 41.40.180(2). This section provides that any member of the retirement system who has attained the age of 70 "shall be retired forthwith." The statute thus places an outside limit on accrual of pension rights. Pension benefits may continue to accrue only until an employee reaches the age of 70. The statute does not mean that an employee may not be lawfully discharged before that time, but only that he or she must be discharged upon attaining the age of 70. Significantly, no argument is made that the intent of RCW 41.40.180(2) is to limit the power of the county to control tenure of government employment. Tenure is a condition of employment which, as discussed below, is within the power of the hiring governmental authority to regulate unilaterally. Nor does the language of the PERS statute reveal an intent to preempt the field of tenure. In the absence of clear evidence of such an intent, it is improper to construe a pension statute as having such an effect. Thus the only proper construction of RCW 41.40.180(2) is that it sets an outside limit on the period of time during which a government employee may accrue pension rights under PERS.

Bakenhus v. Seattle, supra, held that pension benefits already accrued under a governmental employees' pension act may not be unilaterally reduced without the employees' consent. In Bakenhus a retired policeman challenged an amendment to the Police Relief and Pension Act of 1909 which placed a dollar limit on the monthly pension benefits allowed any member. The effect of the amendment was to reduce the petitioner's guaranteed benefit from $185 to $125 per month. This court held the amendment impaired his vested right to pension benefits as that right existed at the time he became a member of the police department. The court reasoned a pension in Washington does not constitute a mere gratuity, but is in the nature of deferred compensation for services rendered. Bakenhus v. Seattle, supra at 698. The pension benefits claimed were treated as part of an employee's contemplated compensation, which the State could not unilaterally reduce without the employee's consent. The doctrine of Bakenhus, later explained in Leonard v. Seattle, 81 Wn.2d 479, 503 P.2d 741 (1972) is that a pension is a right to deferred compensation "supported by consideration in the form of work performed and contributions made by an employee in the public service". Leonard v. Seattle, supra at 486. This pension right, under the doctrine of Bakenhus, may not be unilaterally impaired by the State.

The ordinance complained of in this case requires King County employees to retire at age 65. In doing so (unlike the statute challenged in Bakenhus) it does not impair Ms. Eagan's right to the deferred compensation promised by PERS. The benefits she has earned through public employment have not been diminished.

The King County ordinance simply exercised the unchallenged right of the county to control the terms of public employment, of which tenure is one. Eagan's internally contradictory claim, adopted by the majority, is that her contract with PERS created a contract for employment until she reaches the age of 70, not a contract for deferred compensation for work actually performed. Such a result conflicts with the nature of her employment as terminable at will, for a noncareer employee can be dismissed at any time "at the pleasure of the appointing authority." King County Code § 3.12.020(9). The astonishing effect of the rule adopted by the majority is to create, by means of a statutory pension scheme, a contract for tenure of employment for all employees who are members of that scheme, even those noncareer employees without the benefits of civil service protections, whose service is terminable at the will of the employer.

The defect in the majority's position is that it confuses the contract right to deferred compensation for work performed (in the form of a pension) with regulation of a term of public employment (tenure) which is the unchallenged right of the county to exercise unilaterally. Pension benefits are guaranteed by contract, and RCW 41.40.180(2) sets one of the conditions of membership in PERS. Tenure, however, is a term of employment, not of pension rights. To characterize the issue as one of pension rights rather than tenure (contrary to all the cases which have considered the matter, as next discussed) only obscures the analysis. All the cases we have found dealing with the problem of the relationship between tenure and pension rights have distinguished tenure as a condition of employment unrelated to the contract rights involved in a pension scheme. All these cases* have held tenure to be a term of public employment controlled by statute or ordinance which may be altered without violating the impairment of contract clause because of pension rights. We have found no authority to the contrary, and the majority points to none. We can only conclude that when Ms. Eagan was forced to retire at age 65 (which the county, in any case, could have required of a noncareer employee who is dischargeable without cause), she was lawfully discharged from her public employment, and her contract rights with PERS were not impaired.

A recent case directly on point is Miller v. State, 18 Cal. 3d 808, 557 P.2d 970, 135 Cal. Rptr. 386 (1977). The employee there had begun working for the state at a time when the mandatory retirement age was 70. The retirement age was later lowered to 67. Although pension benefits were increased at the same time, the effect of the new statute was to reduce the total retirement benefit the employee could earn. The plaintiff claimed his contract of employment had been unlawfully impaired.

The California Supreme Court held an employee has no right to continue in public employment contrary to the terms fixed by law, and that public employment is held by statute, not by contract. The court further held that plaintiff's reliance on the contract obligation of vested pension rights was misplaced. The leading case holding that pension rights are obligations protected by the contract clause, Kern v. Long Beach, 29 Cal. 2d 848, 179 P.2d 799 (1947), cited with approval and relied upon in Bakenhus, specifically approved the doctrine that the right to continued public employment is not held by contract. Kern v. Long Beach, supra at 853. The court in Miller, quoting Kern further explained:

Pension rights, unlike tenure of civil service employment, are deferred compensation earned immediately upon the performance of services for a public employer "[and] cannot be destroyed . . . without impairing a contractual obligation.

Miller v. State, supra at 814.

The plaintiff in Miller had a right to a pension that vested upon acceptance of employment. Concerning that right the court said:

Although his right to a pension based on this system was vested, plaintiff was not assured of receiving maximum pension benefits. His right to receive such benefits was subject to conditions and contingencies; specifically, that he remain in state employment until age 70. Plaintiff failed to satisfy that condition since he was lawfully placed on retirement at age 67. Thus, his right to a maximum pension based on retirement at age 70 never matured.

Miller v. State, supra at 817.

The court concluded by stating:

It avails plaintiff nothing that he failed to work until age 70 because the Legislature forced him to retire at age 67. Although he was entitled to earn increased pension benefits so long as he remained in state employment, as we explained above, plaintiff had no vested contractual right to continue working for any specified period of time. In short, his membership in PERS did not confer on him the right to remain in state employment beyond age 67 and he had no constitutionally protected right to continue in his position until age 70 in order to receive a larger retirement allowance. ...

As we stated in Kern v. City of Long Beach, supra, 29 Cal. 2d 848, 853 [179 P.2d 799, 802], "The fact that a pension right is vested will not, of course, prevent its loss upon the occurrence of a condition subsequent such as lawful termination of employment before completion of the period of service designated in the pension plan."

To recapitulate, we hold that plaintiff had no vested contractual right to remain in public employment beyond the age of retirement established by the Legislature. Upon being required by law to retire at age 67 rather than age 70, plaintiff suffered no impairment of vested pension rights since he had no constitutionally protected right to remain in employment until he had earned a larger pension at age 70.

Miller v. State, supra at 817-18.

Although the majority opinion disagrees with the Miller rationale, it cites no authority directly on point to support its disagreement. Apparently, no such authority has been found. Furthermore, it pays scant and inadequate attention to the many other cases whose rationale accords with that of Miller.

For example, in Peters v. Springfield, 57 Ill. 2d 142, 311 N.E.2d 107 (1974), a city ordinance had reduced the mandatory retirement age of firemen from 63 to 60. The firemen contended the ordinance impaired and diminished their pension benefits in contravention of the state constitutional prohibition against impairment of government pension benefits, which created an enforceable contract relationship. The court rejected their claim, holding the constitutional provision

was not intended, and did not serve, to prevent the defendant City from reducing the maximum retirement age, even though the reduction might affect the pensions which plaintiffs would ultimately have received.

Peters v. Springfield, supra at 152.

Other cases are equally clear in making the distinction between retirement as a condition of tenure, a term of employment within the control of the governmental authority, and pension rights governed by contract. In McCarthy v. Sheriff of Suffolk County, 322 N.E.2d 758 (Mass. 1975), Massachusetts state employees argued a reduction in the mandatory retirement age from 70 to 65 impaired their pension rights. The court agreed that the pension statute created a contract between employees and the state. It rejected the contention, though, that the contract obligation included the right of the employee to work until age 70.

[N]o such obligation was intended, nor was such created, by enactment of [the statute assuring pension rights]. Accordingly, no contractual obligations will be impaired by application of [the amended mandatory retirement age statute] to the plaintiffs, and such application will not violate either the Massachusetts or the Federal Constitution.

McCarthy v. Sheriff of Suffolk County, supra at 763.

The court in Gardner v. Nation, 522 P.2d 1281 (Wyo. 1974) came to the same conclusion when a municipal employee complained the imposition of a mandatory retirement age violated his preexisting contract rights under his pension plan. The court said:

Whatever rights plaintiff had under the pension plan, we do not think that they went so far as to deny the legislature the right to regulate the terms of the employment and by a nondiscriminatory enactment to place a time limit upon the right to continued employment.

Gardner v. Nation, supra at 1284.

Similarly, in Coopersmith v. Denver, 156 Colo. 469, 399 P.2d 943 (1965) the court rejected the contention that imposition of a mandatory retirement age impaired vested contract rights.

At the outset, we feel it is necessary to distinguish between pension rights and rights, if any, as to length of employment, and whether the latter is subject to any contract restrictions. The specific rights that plaintiffs claim are being impaired are those of pension benefits and those protected under the civil service act which assertedly thereby created a contractual relationship. We do not agree with either contention. No showing was made in the trial court, and none is made here, indicating that plaintiffs will receive a reduced pension or that they will forfeit or lose any pension rights due to involuntary retirement as applied to them by virtue of the challenged amendment. ... To hold that an employee can work as long as he desires, without an express contract to that effect, would destroy the concept of employer-employee entirely and make the administrated the administrator. To state the proposal is to refute it. We thus find no merit to this issue. Plaintiffs still have the right to receive pension benefits to the same extent they did before the amendment was approved.

Coopersmith v. Denver, supra at 478. The distinction is again seen in Boyle v. Philadelphia, 338 Pa. 129, 12 A.2d 43 (1940).

[B]y the establishment of a pension or retirement pay the legislature does not guarantee to public employees a tenure for the period of service specified as necessary to fulfill the pension requirements, nor does it intend thereby to interfere with the full right of a municipality to dismiss its employees for cause or for reasons of efficiency or economy. Underlying all pension legislation is the necessary principle that one who has been legally discharged prior to serving the prescribed term cannot share in the pension or retirement benefits.

Boyle v. Philadelphia, supra at 133. See also Humbeutel v. New York, 308 N.Y. 904, 126 N.E.2d 569 (1955), which was explained in Donner v. New York City Employees' Retirement Sys., 33 N.Y.2d 413, 353 N.Y.S.2d 428, 308 N.E.2d 896 (1974).

In Humbeutel we upheld a statute imposing a mandatory retirement age of 63 upon city policemen . . . [T]he changes authorized in [Humbeutel] primarily affected, and were directed at, terms of employment, and had only . incidental effects on contractual retirement benefits. . . . [0]nly the effective date of retirement was involved, not the diminution of retirement benefits.

Donner v. New York City Employees' Retirement Sys., supra at 417.

A federal court made this same point in Kingston v. McLaughlin, 359 F. Supp. 25 (D. Mass. 1972). In that case a Massachusetts state employee sought an injunction against imposition of a mandatory retirement age, contending, inter alia, it created an impairment of their employment contract. The court rejected the claim and upheld the mandatory retirement provision.

[T]he new amendment does not impair any of their financial arrangements with the Commonwealth. Rather, it merely takes away their option of when to retire.

It is this option to determine voluntarily when to retire, when to cease drawing full salary and to commence receiving the lesser pension payments, that is claimed as an inchoate right or "entitlement" protected by the alleged contract with the Commonwealth. . . . But, if there is no basic vested right to office, we cannot see how any inchoate right to choose when to retire from that office can be protected against, constitutional amendment. Plaintiffs' sophisticated argument ... is but an assertion that tenure in office, which concededly has not been directly guaranteed, can be indirectly guaranteed by recognition of the "inchoate right" to determine when to cease drawing full salary.

Kingston v. McLaughlin, supra at 30. This case was affirmed by the United States Supreme Court. Kingston v. McLaughlin, 411 U.S. 923, 36 L. Ed. 2d 388, 93 S. Ct. 1900 (1973) (affirming without opinion).

We find the force of this uncontradicted case law compelling. The proper analysis, is that King County has changed a term of employment of its own employees, namely tenure, by imposing a mandatory retirement age. This action did not impair Ms. Eagan's pension rights under PERS. The majority has cited no case in point, and we know of none, supporting its contradictory argument that pension rights in this case include the right to tenure.¹

Our courts have held that a local government may prescribe conditions for municipal office in addition to those prescribed by other statute. State ex rel. Isham v. Spokane, 2 Wn.2d 392, 98 P.2d 306 (1940); State ex rel. Griffiths v. Superior Court, 177 Wash. 619, 33 P.2d 94 (1934). Moreover, the Attorney General has taken the view that the Washington Public Employees' Retirement System was not intended to guarantee length of service. Attorney General Opinion, September 11, 1972.

The mandatory retirement provision in question did not lessen the requirements of the pension act. Petitioner was still entitled to the pension accrued prior to the arrival of her mandatory retirement date. She was not, however, entitled to add to her retirement benefits by working between the ages of 65 and 70, because she had no tenure right to do so. I can only conclude it was no breach of contract for petitioner to be required to retire.

The majority contends, however, that all the cases set out above are wrong because they characterize the issue as "a matter of tenure rather than pension rights." Majority opinion, page 251. If we simply change the characterization to one of pension rights, we are told, the.result is completely different. In so doing the majority rejects the long prevailing and obviously sound analysis of the relationship between tenure and pension rights, and by a mere turn of phrase unsupported even by Bakenhus reverses the result reached by every court known to have considered the question. One of the decisions discussed above, Kingston v. McLaughlin, was affirmed by the United States Supreme Court. That decision directly contradicts the majority, and supports the position taken in this dissent. Such authority cannot lightly be disregarded.

The practical result of the majority's opinion is that no government agency will dare employ any person on a terminable at will basis, even though the majority concedes such a designation is a condition of employment unrelated to pension rights. Under the majority rule any employee ostensibly terminable at will would nonetheless have a reasonable expectation, based on a contract right, of remaining in employment until the age of 70. Such a rule disregards the essential nature of employment which is terminable at will. Moreover, it converts public employment, which is not a vested property right under the decisions of this court in Nostrand v. Little, 58 Wn.2d 111, 361 P.2d 551 (1961) and Yantsin v. Aberdeen, 54 Wn.2d 787, 345 P.2d 178 (1959), into a contractual property interest. This dramatic change in the nature of public employment is a matter for the legislature, not for this court.

I dissent.

Utter, J., concurs with Horowitz, J.

1 Finch v. Department of Pub. Welfare, 80 Ariz. 226, 295 P.2d 846 (1956), heavily relied upon by Ms. Eagan as a case "very similar" to the instant case, is distinguishable. In Finch the problem of whether pension benefits included tenure rights was not involved. The state agency claimed inherent power to mandatorily retire an employee before the compulsory retirement age set by statute. The court refused to recognize any such power in face of the statutory language fixing the compulsory retirement age.