Issue
The California Supreme Court recently considered the issue of whether local agencies that contract with CalPERS must enroll in their retirement plans workers who would be considered the agency’s employees under the California common law, including those workers who are hired through private labor suppliers. (Metropolitan Water District of Southern California v. Superior Court (Cargill), Case No. S102371.
Facts
Metropolitan Water District of Southern California (Water District) is a local agency that contracts with California Public Employees’ Retirement System (CalPERS) for the latter to provide retirement benefits to Water District’s employees. While Water District employs many employees under a merit system, it also has many “consultants” or “agency temporary employees” provided by private labor suppliers. Water District does not enroll these workers in CalPERS’ retirement plan. A group of these workers sued Water District, asking that it be compelled to enroll them in CalPERS. The trial court ruled in favor of the employees and the California Court of Appeal agreed. The California Supreme Court agreed to review the Court of Appeal’s decision.
Supreme Court Decision
Under the Public Employee’s Retirement Law (the PERL) and Water District’s contract with CalPERS, Water District is required to enroll all “employees” in the retirement plan, except safety employees and those excluded by the PERL (such as certain part-time and short-term temporary employees). Therefore, the Court had to determine the meaning of “employee” under the PERL. When the PERL discusses agencies that contract with CalPERS, it simply states that “employee” means “[a]ny person in the employ of any contracting agency.” Therefore, the Court determined that the common-law definition of “employee” under the PERL must be applied to determine who may be considered employees. The common law test in California, used to distinguish between employees and independent contractors, considers several factors, including control over the means and manner of how the work is performed, the location of the work, and the intent of the parties, to name just a few.
The Court rejected Water District’s argument that the temporary employees cannot be considered employees for purposes of CalPERS because it does not pay them, the private labor suppliers do. The Court also noted that “while many temporary workers (generally, those employed for no more than six months at a time or 125 days in a fiscal year) are excluded from CalPERS . . . , the PERL contains no broad exclusion for long-term, full-time workers hired through private labor suppliers.” Recognition of this type of exclusion should be left to the Legislature not the courts. Moreover, Water District did not contract with CalPERS to exclude the selected categories of employees at issue.
While the Supreme Court affirmed the decisions of the trial court and the Court of Appeal, it declined to address whether the particular employees in the lawsuit are employees as defined by the common-law because there had been no trial on the issue yet. However, the Court indicated certain facts that the trial court might consider: the length of time the employees have worked for Water District; the extent of their integration into the Water District workforce; and the amount of control that Water District, versus the labor suppliers, exercises over their work.
Comment: As noted, the Supreme Court has now definitively stated that common law employees are “employees” under the PERL. Importantly, the Court did not decide whether the workers at issue were common law employees. Moreover the Court did not determine whether its decision has retroactive application or the timing of when an agency must enroll an employee with PERS. In light of the Supreme Court’s decision, public agencies that contract with PERS and are currently contracting with private labor suppliers should consider evaluating their contractual relationships using the common law test to determine whether any contract workers may be considered employees. This process is fairly complex, as is the procedure that an agency should follow if it finds that a contract worker is a common law employee, and agencies are advised to consult with their labor counsel throughout the process.