The California Supreme Court hears oral arguments (by videoconference) tomorrow at 9:00 a.m. in Alameda County Deputy Sheriffs' Association v. Alameda County Employees' Retirement Association (it will be the second case argued). Pension critics urge the Court to overturn the judicially-created "California Rule," which, going back some five decades, has protected public employee pensions against modification unless (1) the change is reasonable, (2) it is materially related to the theory of a pension system, and (3) any disadvantages to employees are offset by comparable advantages. Arguments are livestreamed.

At issue are the decisions of Alameda, Contra Costa, and Merced counties, after PEPRA in 2012, to discontinue including vacation or sick leave sold back at termination (terminal pay), on-call and call-back pay, pay for performance benefits, recruitment bonuses and other one-time payments, and various in-lieu payments in pension calculations. The trial court upheld the actions of the retirement boards; however, the Court of Appeal ruled that discontinuation of certain premiums from pensionable pay required constitutional analysis under the California Rule (a favorable ruling for employees). It also ruled that even though terminal pay could be discontinued from pensionable pay generally, principles of equitable estoppel (literally "fairness") required that some employees continue to receive pension benefits that included terminal pay (ditto).

Last year, the same Court decided CalFire, Local 2881 v. CalPERS. The Court ruled that the statutory right of public employees to purchase additional retirement service credits after performing 5 years of state service was not a pension benefit and thus there was no constitutional bar to the Legislature eliminating it. Then-Governor Brown wanted the Court to go further and eliminate California Rule protections for public employee pensions but the Court sidestepped the over-arching constitutional questions. It will be harder for the Court to avoid them in Alameda.

Here are three key things to watch for in the argument:

1. Will the Newsom administration push as aggressively as the Brown administration to gut the California Rule? In Local 2881, the Governor's Office, under Jerry Brown, argued that the California Rule only protects pension benefits already earned, not future benefits. When pressed by some justices at oral argument, the Governor's Office argued that the State could go so far as to reduce future pension accruals to ZERO-in other words, a safety employee could get 3% at 50 for their first 20 years of service and NOTHING for their last 10. It will be worth watching whether the Governor maintains this aggressive anti-pension position.

2. How will the pandemic play into the case? Governor Brown argued vigorously that a "fiscal emergency" in 2008-2010 justified the county retirement associations utilizing PEPRA to reduce pension benefits for existing employees. With each passing week, it appears COVID-19 has brought an economic collapse worse than anything we saw in 2008-2010. Mitch McConnell is arguing to let states go bankrupt because he does not want to bail out pension systems (Kentucky's is less than 20% funded). Will larger policy questions and financial implications underpin Justices' questions?

3. How unified is the Court? Local 2881 was a unanimous decision: 7-0. Yet Justices Leundra Kruger and Goodwin Liu felt compelled to issue a short concurring opinion that staked out the position that older cases establishing the California Rule were correctly decided. No other Justice joined that opinion. If there are indeed differing views on the California Rule amongst the Justices, expect that to be revealed in their questioning.

If you have any questions about this alert, please contact Gregg Adam.