Bargained-For Reduction In Benefits For New City Employees Was Binding Before City Enacted Implementing Ordinance

A court of appeal recently held that employees who were hired after the city and labor representatives entered into collective bargaining agreements that provided employees hired by the city on or after July 1, 2005, are not eligible to receive certain benefits, are ineligible to receive such benefits despite the fact that the city did not pass an ordinance to reflect such ineligibility until January 17, 2007.  (The City of San Diego v. Haas, (— Cal.Rptr.3d —-, Cal.App. 4 Dist., June 29, 2012). 


The City Charter of the City of San Diego (“City”) permits the City Council to “to enter into multiple-year memoranda of understandings (MOUs) with any recognized City employee organization concerning wages, hours and other terms and conditions of employment.”  The Charter also permits City to maintain a pension system for City employees through the San Diego City Employees Retirement System (“SDCERS”), which issues rules and regulations for the pension system but is a separate entity from City.  The City Council, however, has exclusive authority to grant and modify retirement benefits.

City recognizes five employee bargaining units: (1) the San Diego Municipal Employees Association (“MEA”), (2) the San Diego Firefighters Local 145, (3) the American Federation of State, County and Municipal Employees, (4) the Deputy City Attorneys Association of San Diego, and (5) the San Diego Police Officers Association (“POA”).  City negotiated benefit modifications effective July 1, 20005, for prospective employees of these five bargaining units under the Meyers-Milias-Brown Act (“MMBA”).  The negotiations provided that employees hired on or after July 1, 2005, are ineligible for the following benefits:  (1) a 13th retirement check from excess earnings at the end of the year, (2) the deferred retirement option program, (3) the right to purchase additional service credits, and (4) retiree medical health benefits (collectively, “the Four Benefits”). 

The City Council adopted a resolution on June 27, 2005, approving and ratifying the MOUs entered into between the bargaining units and the City to be effective July 1, 2005.  The legislative history of the resolution “states that the parties or their representatives ratified their respective agreements, with the express understanding that new employees would not be eligible for the Four Benefits.”  It was the City’s custom and practice to provide employees who were not members of bargaining units with the same benefits as members of the MEA.  Richard Haas, an unrepresented employee, accepted the position of deputy chief of public works in December 2005.  The description of benefits City provided to Haas did not contain any reference to the Four Benefits. 

SDCERS advised new employees hired on or after July 1, 2005, that notwithstanding the MOUs and contracts, it “would continue to recognize their eligibility to receive the Four Benefits because the City Attorney ‘had not filed the paperwork’ necessary for modification.”  The City Council passed and adopted Ordinance No. 0-19567 (the “Ordinance”) on January 17, 2007.  The Ordinance amended the municipal code to provide that employees hired on or after July 1, 2005, are ineligible for the Four Benefits.  The Ordinance stated that it would take effect 30 days after its final passage.  Although the City Charter provides that no ordinance affecting “the benefits of any employee under the retirement system shall be adopted without the approval of a majority vote” from City’s employees, no vote on the elimination of the Four Benefits was conducted. 

In August 2007, SDCERS informed City it would use February 16, 2007, as the effective date for the 2005 benefit change and that it would continue to advise employees who were hired before that date that they were eligible for the Four Benefits.  SDCERS allowed Benjamin Vernon, who accepted a job as a firefighter for City in October 2006, to purchase service credits.  SDCERS also allowed Haas to purchase service credits in September 2007.

City filed a lawsuit against SDCERS and Vernon and Haas as class representatives seeking a declaration that City employees hired between July 1, 2005, and February 16, 2007, are ineligible for the Four Benefits.  The trial court granted summary judgment in favor of City finding that the new employees did not have a vested, contractual right to the Four Benefits.


The court of appeal affirmed the judgment of the trial court.  The appellate court concluded that although the Ordinance operates retroactively, it is not invalid because the Ordinance only amends the municipal charter to reflect City’s existing agreements with SDCERS and the other defendants.  The court further included no vote was required under the City Charter before the Ordinance could become effective because the employees who were hired after July 1, 2005, never accrued vested rights to the Four Benefits.

The MMBA provides that a local government may meet and confer with the authorized bargaining representative of its employees in regard to wages, hours, and other terms and conditions of employment and enter into MOUs to memorialize their agreements.  Prospective employees, however, “have no right to any benefits prior to accepting employment, and the public agency is free to change those benefits prior to hiring.”

Here, the MOUs eliminated the Four Benefits for those employees hired on or after July 1, 2005.  The agreement between City and the represented employees regarding the Four Benefits was memorialized in the MOUs and the City Council adopted a resolution in June 2005 that ratified the MOUs.  The benefit schedules provided to unrepresented employees like Haas did not contain the Four Benefits.  The express language of the MOUs, the last, best, final offer with the POA, and the contracts of unrepresented employees all provided that those employees hired on or after July 1, 2005, were not eligible for the Four Benefits.

The court rejected the claims that the defendants acquired vested rights to the Four Benefits finding that “[p]rospective employees have no right to any pension or other employment benefits prior to accepting employment.”  Vested rights are only acquired after an employee accepts and performs work. 

The court also rejected the new employees’ and SDCERS’ argument that the Ordinance was prospective in nature.  The Ordinance unambiguously provides that employees hired on or after July 1, 2005, are not eligible for the Four Benefits.  The fact that the Ordinance states that it does not take effect until 30 days after its passage does not mean the Ordinance has only prospective application.  The effective date stated in the statute is the date which it came into being as an existing law, not the effective date of the elimination of the Four Benefits.  The court stated, “The effective date language does not control over the City Council’s clear intent and purpose, which was to make employees hired on or after July 1, 2005, ineligible to receive the Four Benefits.”  This construction is consistent not only with the MOUs, the Resolution, and the Ordinance, but “with the MMBA, which makes valid and permissible MOUs providing retroactive salary adjustments to public employees.” 

The court found City overcame the presumption that legislation is presumed to operate prospectively because the plain meaning of the Ordinance’s text coupled with its legislative history reveal that the Ordinance is to be applied retroactively.  City was not required to enact a valid implementing ordinance before the terms of the MOUs became binding.  The court found that the Ordinance’s retroactivity is consistent with the City Charter and the MMBA and that retroactive application does not violate the California or United States Constitutions.

Also, a vote pursuant to the City Charter was not required.  The Ordinance does not affect the substantive benefits or rights of any members of the retirement system.  The employees hired on or after July 1, 2005, were ineligible to receive the Four Benefits, had no vested rights to those benefits, and were not SDCERS members within the meaning of the applicable Charter section.  Therefore, no vote was necessary. 

The court of appeal held the trial court did not err in certifying the defense class and allowing the matter to proceed as a class action.  Accordingly, the appellate court affirmed the judgment of the trial court. 


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Jeffrey L. Massey, Bruce A. Scheidt, Laura Izon Powell or David W. Tyra | 916.321.4500