Cypen & Cypen
JULY 15, 2010
Stephen H. Cypen, Esq., Editor
1. APPELLATE COURT REVERSES CONTRACT IMPAIRMENT RULING INVOLVING CHAPTER 99-1, LAWS OF FLORIDA: On May 8, 2009, a Tallahassee Circuit Judge issued a ruling involving Chapter 99-1, Laws of Florida, which took effect on March 12, 1999 (see C&C Newsletter for May 14, 2009, Item 1). Summary judgment was entered in a declaratory action filed by the City of Delray Beach, challenging a determination by the Department of Management Services, Division of Retirement, that the City's police and firefighter pension plan must comply with Chapter 99-1, Laws of Florida, which amended Sections 175.351(1) and 185.35(1), Florida Statutes. On appeal, the issues for review were (1) whether the Division's application of Chapter 99-1 unconstitutionally impaired the rights of retired police officers receiving benefits under the City's pre-existing pension plan and (2) whether the City is a "supplemental plan municipality" exempt from the minimum benefit requirement in Chapter 185, Florida Statutes, pertaining to pensionable earnings calculations for police officers. The court reversed on both points, and remanded for entry of summary judgment for the Division. Retirees did not have a vested right to annual incremental benefits made possible by excess premium tax revenue pursuant to a 1993 agreement among the City, its police and firefighter unions and the Board of Trustees of the Plan. Because the right to receive the additional annual benefit increase was dependent on continued legislative appropriations and the plan’s compliance with current law, it can be fairly characterized as either an expectant right or a contingent right. The Division’s application of Chapter 99-1 to the plan does not impair retirees’ vested rights under the 1993 agreement. In addition, the City was not exempt under Section 183.35(3)(a), Florida Statutes, from the 300 overtime hour minimum benefit requirement for police officer pension plans found in Section 185.02(4), Florida Statutes. The former section exempts a "supplemental plan municipality" from that particular minimum benefit requirement. As amended by Chapter 99-1, Section 185.02, Florida Statutes, defines supplemental plan as an element of a local plan that exists in conjunction with a defined benefit plan. (For some reason, the court focused on “in conjunction with” and disregarded “element of a local law plan.”) Nothing in the record showed that the City maintained a separate supplemental plan in conjunction with its defined benefit plan. Rather, the plan states the premium tax revenues received is put in the existing pension plan for exclusive use of the plan members and beneficiaries. Finally, the concurring opinion chided the City for not “appealing” the Division’s determination rather than litigating anew propriety of its position in circuit court. Nevertheless, the concurring judge reached the same result on the merits. State of Florida, Department of Management Services v. City of Delray Beach, Florida, Case No. 1D09-2854 (Fla. 1st DCA, July 13, 2010).
2. MERRILL REPORTEDLY SETTLES WITH SOUTH MIAMI PENSION BOARD: On or around November 27, 2007, the City of South Miami Pension Plan Board of Trustees instituted an arbitration proceeding against Merrill Lynch, Pierce, Fenner & Smith, Incorporated before the Financial Industry Regulatory Authority, No. 07-01946. According to an earlier Newsletter item (see C&C Newsletter for November 29, 2007, Item 1), the statement of claim alleged:
The Board also demanded the following relief against Merrill Lynch:
Now, at least one report in the press indicates that the parties have settled their differences. However, because we have not seen an executed copy of the general release and settlement agreement, we will not print any purported details. Once we read the subject agreement, which is a public record under Florida Law, we will do a follow-up piece.
3. EUROPE FACES UP TO LONGER WAIT UNTIL RETIREMENT: More than half (55%) of Europeans believe they will have to delay their retirement because of the current economic climate, according to Aon Consulting. French and German workers are most pessimistic, with 74% and 73%, respectively, thinking about extending their working careers, followed by the Swiss (67%), the Irish (65%) and the British (60%). Of those who believe the economic situation will force them to delay retirement, the Irish and the British have the most gloomy outlook, with 90% and 80%, respectively, of workers saying they think they will have to delay retirement by over two years. Previous results from the survey revealed just how averse to working longer Europeans are, with nearly one in three (29%) European workers stating they would rather retire earlier and receive less income in retirement than have their government extend the minimum retirement age in their country.
5. MONEY SICKNESS SYNDROME WIDESPREAD: Up to 42 million adults in the United Kingdom, from high-level managers to people on low incomes and pensioners, are suffering from Money Sickness Syndrome -- physical and psychological symptoms brought on by financial stress. A study from Axa found that 87 per cent of people have suffered from money worries, with more than one in ten saying they are constantly under strain. Respondents said their biggest concern is cost of living and bills, which are set to worsen as taxes are expected to increase, and there is continuing uncertainty over the outlook for employment and the economy. Common symptoms of MSS include anxiety, weight gain, depression, insomnia, increased drinking and loss of concentration. The survey found that while 36 per cent of adults have taken some practical steps to address their problems, another 25 per cent have done nothing to ease the financial strain. “An alarming number of people seem to have their heads in the sand about money matters."
6. FEDERAL APPEALS COURT REVIVES FLSA ACTION AGAINST NOVARTIS: In consolidated class actions, plaintiffs, current or former pharmaceutical sales representatives employed by Novartis Pharmaceuticals Corporation, appealed from a judgment denying their claims under the Fair Labor Standards Act of 1938, and state law, for overtime pay with respect to time worked in excess of 40 hours per week. The district court granted Novartis's motion for summary judgment on the ground that plaintiffs were outside salesmen or administrative employees who are exempted from FLSA's overtime pay requirements. On appeal, plaintiffs contended that the district court did not properly apply the exemption standards set out in regulations promulgated under FLSA by the United States Secretary of Labor. The Secretary, appearing as amicus curiae, endorsed that contention. The U.S. Second Circuit Court of Appeals also agreed, and vacated the judgment of the district court. FLSA provides that many employees must be paid one and one-half times their regular rate of compensation for time worked in excess of 40 hours a week, but provides that certain categories of workers are excluded from this requirement. As is the practice throughout the Pharmaceuticals industry, Novartis treats its Representatives as exempt from the overtime pay requirement in FLSA, as well as from comparable state law requirements. The Court concluded that the Secretary's regulations define and delimit terms used in the statute; that under those regulations as interpreted by the Secretary, the Representatives are not outside salesmen or administrative employees; and that the Secretary's interpretations are entitled to controlling deference. Where an employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase and cannot lawfully even obtain from the physician a binding commitment to prescribe it, it is not plainly erroneous to conclude that the employee has not in any sense within the meaning of the statute or the regulations, made a sale. In addition, in light of the controls to which Novartis subjects the Representatives, the Representatives are not sufficiently allowed to exercise either discretion or independent judgment in performance of their primary duties. Accordingly, the district court should have ruled that the Representatives are not bona fide administrative employees within meaning of FLSA and the regulations. In Re Novartis Wage and Hour Litigation, Case No. 09-0437 (U.S. 2nd Cir., July 6, 2010).
7. ORANGE COUNTY, CALIFORNIA, PROPERLY CALCULATED PENSION: Orange County, California, employees receive retirement benefits under a retirement system established pursuant to the County Employees Retirement Law of 1937. The pension amount an employee receives is based, in part, on the employee's “compensation earnable,” which is defined as “the average compensation...for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and at the same rate of pay.” An employee's compensation earnable includes compensation received for mandatory overtime work the employee performed that is also ordinarily worked by others in the same grade or class. Compensation received for work performed that is not ordinarily worked by others in the same grade or class of positions is excluded. Stevenson worked as an investigator in the narcotics bureaus of the Orange County Sheriff’s Department until he suffered a serious injury, and was approved for disability retirement. In calculating Stevenson's pension allowance, the Orange County Employees Retirement System did not include the overtime compensation he received for duties performed for the narcotics bureaus in calculating his compensation earnable. Stevenson challenged OCERS's Board of Retirement's exclusion of the overtime from the calculation of his compensation earnable, and the OCERS Board referred the matter to a referee to conduct an administrative hearing. The referee concluded that Stevenson's overtime compensation should not be included in his compensation earnable calculation because his grade or class under CERL was that of the class of investigators and not of a subgroup comprising narcotics investigators. In reaching this conclusion, the referee cited the above definitional section; the OCERS Board's Resolution that addressed the elements included in determining an employee's compensation earnable; and language from a memorandum of understanding applicable to peace officers, which did not identify narcotics investigators as a class separate from the class of investigators. He concluded the overtime Stevenson might have regularly worked as part of the narcotics investigator teams should not be included in compensation earnable because other investigators, specifically investigators who did not work in the narcotics bureaus, were not required to work such overtime and did not ordinarily work such overtime. The OCERS Board adopted the referee's recommendation, and after Stevenson’s petition for administrative mandate challenging the decision of the OCERS Board was denied by the trial court, he appealed. The California Court of Appeal affirmed. The administrative record contains substantial evidence showing Stevenson's grade or class within the meaning of the definitional section was that of investigator. Therefore, the overtime he worked that was unique to investigators in the narcotics bureaus was properly excluded from his compensation earnable. Stevenson did not argue that OCERS’s calculation of his pension was incorrect, assuming his greater class under the definitional section of CERL was that of investigator and not of narcotics investigator. Hence, because Stevenson belonged to the grade or class of investigator, his pension was not inaccurately calculated. Thus, the appellate court did not need to reach Stevenson’s second contention that the trial court erroneously found that there was insufficient evidence of any formal resolution or authority requiring narcotics investigators to work mandatory overtime as part of their normal hours of employment. Stevenson v. Board of Retirement of the Orange County Employees' Retirement System, Case No. G041816 (Cal. App. 4th, June 28, 2010).
8. AFTER HALF-CENTURY, “MOCKINGBIRD” STILL RESONATES: So many times in life, people are just known for one thing they do or say. That one moment could be infamous or famous. It could be defaming or defining. In the case of Pulitzer Prize-winning author Harper Lee, her first and only book, To Kill A Mockingbird, made her and her wonderful work of fiction instant American classics. Since being published 50 years ago this week, the novel has never gone out of print, selling more than 30 million copies worldwide. The story is legendary, and its message and themes are timeless, according to ocala.com. Librarians across the country have voted it as the best novel of the 20th century. The tale of racism, injustice and courage in a small Alabama town during the Depression has been a beloved favorite for years, and interest continues to grow strong. The 1962 movie, starring Gregory Peck, is considered by some as the greatest legal movie of all time (see C&C Newsletter for July 31, 2008, Item 13).
9. FAILURE OF CITY TO HIRE CAUCASIAN FIREFIGHTER-APPLICANTS MAY HAVE VIOLATED TITLE VII: Caucasian firefighter-applicants appealed from so much of a judgment of the district court as summarily dismissed their claims against City of Syracuse for racial discrimination in employment, ruling that the City was permitted to take race into account under a 1980 consent decree designed to have the percentage of City firefighters who were African Americans approximate the percentage of African Americans in the City's labor pool. On appeal, the Second Circuit vacated and remanded. Because the City failed to show racial makeup of the labor pool, its claim of reliance on the consent decree was inadequate. In addition, the City erroneously based its decision on the overall population. Vivenzio v. City of Syracuse, Case No. 08-2436 (U.S. 2nd Cir., July 1, 2010).
10. COMPANY MUST PAY RETIREES LIFETIME HEALTH CARE BENEFITS: A contract dispute arose between employees who retired from a manufacturing plant and the company that later reduced their healthcare benefits. There were two issues at stake in the case: (1) whether a series of collective bargaining agreements granted the retirees vested, lifetime healthcare benefits upon retirement and, if so, (2) the scope of those benefits. Both sides moved for summary judgment before the federal district court. A prime objective of contract law is to protect justified expectations of the parties. In the subject case, the language of the contract and extrinsic evidence permit only one conclusion: the collective bargaining agreements created vested, lifetime healthcare benefits for those employees who retired under them. Uncontradicted testimony from all sides of the bargaining table agrees that the parties intended their contracts to give the plant's retirees vested, lifetime healthcare benefits, including insurance benefits and full Medicare Part B reimbursement. Even representatives who negotiated on behalf of management agreed with the retirees on these points. To avoid the impact of this uncontradicted evidence of the parties' actual intention, the company would have to show that the contract language the parties used to express their intention utterly failed to do so, and that the language actually expressed an unambiguous intention not to confer vested benefits. The company could not make such a showing. To the contrary, the contract language was so plain that when the company was investigating purchasing the plant in question, its own attorneys reviewed the collective bargaining agreements and concluded that the retirees were entitled under them to vested, lifetime benefits. Where the language of the collective bargaining agreements, the extrinsic evidence of actual negotiators on both sides of the table and the company’s own after-the-fact due diligence memorandum from the time it purchased the subject plant all agree on the key point of lifetime vesting of healthcare benefits for qualified retirees, there is no reason for trial, and summary judgment for retirees is appropriate. Bender v. Newell Window Furnishings, Inc., Case No. 1:O6-CV-113 (WD Mich., July 6, 2010).
11. SOCIAL SECURITY HEAD AND CHIEF ACTUARY CLASH: Lexisnexis.com reports that a rift has developed between the Social Security commissioner and the agency's chief actuary, causing members of Congress to worry about possible interference with work of the actuary's office, just as lawmakers begin hearings on the future of Social Security. In interviews and in letters to the administration, lawmakers said they relied on the actuary for objective analysis of proposals to change Social Security. And they made clear that he should not be reassigned or demoted, as Congress prepared for a re-examination of the program. The chief actuary helps write the annual trustees' reports on solvency of Social Security, which pays $700 Billion a year in benefits to 53 million people. The reports, filled with facts and figures, are the starting point for debate on the program and its financial problems. The actuary's responsibilities have suddenly increased: leaders of a presidential commission seeking ways to reduce the federal budget deficit said they would rely exclusively on his estimates to measure the financial effects of proposals to overhaul Social Security. Lawmakers said they had learned of tensions between the actuary, a civil servant who has worked at Social Security for 37 years, and the commissioner of Social Security, who was appointed by President George W. Bush to a six-year term ending January 19, 2013. People close to the two said the disagreements involved personal chemistry, Social Security policy and technical quality of the actuary’s work on disability programs -- not political ideology. Relations have been strained since late 2008, when the men clashed over scope of the actuary's independence. Basically, the commissioner views the actuary as a conscientious employee, and agrees that he is free to make calculations and use data as he sees fit. However, in an effort to keep the agency out of politics, the commissioner has sometimes tried to limit what the actuary can say publicly about Social Security, and the actuary has sometimes bridled at the restraints. By expressing confidence in the actuary, lawmakers hope to protect him. The commissioner has expressed reservations about the actuary’s performance in annual evaluations that could be used to justify action against him. The commissioner has complained, on occasion, of insubordinate conduct by the actuary, who insists he is simply trying to preserve the independence and integrity of the actuary's office.
12. AN OVERVIEW OF SECTION 218 AGREEMENTS: Internal Revenue Service’s office of Federal, State and Local Governments FSLG Newsletter for July 2010 contains a handy overview on Section 218 Agreements. A Section 218 Agreement is a written agreement between a state and the Social Security Administration to provide social security and Medicare coverage, or Medicare-only coverage, for state and local government employees. These arrangements are called "Section 218 Agreements" because they are authorized by Section 218 of the Social Security Act. In 1939, the Old-Age, Survivors, and Disability Income program was created. The funding mechanism for the social security program was officially established in the Internal Revenue Code as the Federal Insurance Contributions Act (FICA). IRS is responsible for collection of this tax. In 1950, legislative changes allowed for voluntary agreements to include public employees in social security. In 1991, mandatory social security coverage began for public employees not covered by a Section 218 Agreement or a public retirement system. All 50 states, Puerto Rico, the Virgin Islands and approximately 60 interstate instrumentalities have Section 218 Agreements with SSA. Because of the voluntary nature of Section 218 Agreements, the extent of social security coverage varies from state to state. At the state level, most public employees participate in social security. The following table includes major historical developments since state and local employees first became eligible for social security coverage in 1951:
January 1, 1951 - Beginning this date, states could voluntarily elect social security coverage for public employees not covered under a public retirement system, by entering into a Section 218 Agreement with SSA.
January 1, 1955 - Beginning this date, states could extend social security coverage to employees (other than police officers and firefighters) covered under a public retirement system.
July 1, 1966 - Beginning this date, employees covered for social security under a Section 218 Agreement are automatically covered for Medicare.
August 20, 1983 - Beginning this date, coverage under a Section 218 Agreement cannot be terminated unless the governmental entity is legally dissolved.
April 1, 1986 - Employees hired on or after this date are mandatorily covered for Medicare, unless specifically excluded by law. For state and local government employees hired before April 1, 1986, Medicare coverage may be elected under a Section 218 Agreement.
July 2, 1991 - Beginning this date, most state and local government employees became subject to mandatory social security and Medicare coverage, unless they are (a) members of a public retirement system, or (b) covered under a Section 218 Agreement.
For more detailed information about Section 218 Agreements or social security and Medicare taxes, see Publication 963, Federal-State Reference Guide, http://www.irs.gov/pub/irs-tege/p963_1109.pdf. For information about whether a Section 218 Agreement applies to your entity, contact your Social Security Administrator through http://www.ncsssa.org.
Incidentally, here’s a directory of Federal, State and Local Governments Specialists in Florida:
Luis Roman 305.982.5091
13. CITY’S REQUEST THAT EMPLOYEE PASS A FITNESS-FOR-DUTY EXAM FELL WITHIN ADA BUSINESS NECESSITY EXCEPTION: Wisbey, an emergency dispatcher required to receive calls for emergency service and dispatch emergency service units on a regular basis, appealed a federal district court's dismissal on summary judgment of her lawsuit alleging violations of the Americans with Disabilities Act, 42 U.S.C. §§ 12101-12213, and the Family Medical Leave Act, 29 U.S.C. §§ 2601-2654. The Eighth U.S. Circuit Court of Appeals affirmed. Evidence showed City was not mistaken in its belief that Wisbey was unfit for duty in light of her impairment, which substantially limited her ability to work. City's request that Wisbey pass a fitness-for-duty exam fell within the business necessity exception to ADA's prohibition on such exams, since her duties as an emergency services dispatcher had important public safety aspects, and her ability to focus was critical to performance of her duties. Wisbey failed to show that she had a right to Family Medical Leave Act leave, and
14. CHICAGO’S TOUGH NEW GUN LAW ALREADY UNDER FIRE: Breaking a national trend toward more tolerance for firearms, Chicago has begun enforcing the toughest gun law in the nation (see C&C Newsletter for July 8, 2010, Item 7) -- and it is already under fire, according to ABC News. Two lawsuits have been filed against the ordinance, which bans gun shops in the city and limits permit holders to one ready-to-fire weapon inside the home -- excluding the porch, the garage or the yard. People are allowed to own more guns, but they cannot be loaded. Legal experts say the law is not bulletproof, and could be headed back to the U.S. Supreme Court, which ruled in June that Americans have the right to possess handguns for self-defense (see C&C Special Supplement for July 2, 2010, Item 1). That ruling made Chicago's existing gun ban, which had been in effect for 28 years, unenforceable. In its place, Chicago enacted the new law that went into effect July 12, 2010. The Chicago Police Department has begun detailing on its website steps to becoming a legal gun owner. The first step is to obtain a permit, which requires range and classroom training, decent eyesight, a fingerprint background check and other elements. Once the permit is obtained, all guns must be registered, which includes the single loaded gun in the house, as well as an unlimited supply of unloaded rifles and shotguns allowed under the law. Residents are allowed to buy one additional handgun every month, but are prohibited from owning assault weapons, sawed-off shotguns, laser sites, mufflers and other accessories. Both lawsuits challenging the gun law were filed in federal court. One was filed by a gun store owner who wants to open another store and the other was filed by four individuals who say they need guns for protection, including a financial trader, an educator who lives near a high-crime neighborhood, a veterinarian who owns an animal clinic and a person in the aircraft restoration business.
15. NEW YORK CITY SUED FOR CUTTING COP’S PENSION OVER ARMY SERVICE: The city of New York and its police department discriminated against a police officer by reducing his pension because of military service, according to a federal lawsuit reported by aolnews.com. David Goodman worked as a New York cop for 17 years, including 10 years as a detective, before retiring in 2009. Goodman, who was a member of the U.S. Army Reserve, served two stints in Iraq, as well as one in Afghanistan and one in Jordan while on the NYPD payroll. Prosecutors say Goodman was a victim of discrimination because city authorities relied on his base salary while he was on active military duty to calculate his pension. According to the suit, they should have included any benefits and overtime he would have accrued had he not been on military service. A lawyer for the city characterized the dispute as a difference of opinion with respect to the law governing how pensions of reservists should be calculated. “It will be helpful to have a court rule on this issue of first impression." Hey, Pal, if you do a little research, you just may find lots of prior authority on the subject.
16. ALL PUNS INTENDED: A group of chess enthusiasts checked into a hotel, and were standing in the lobby discussing their recent tournament victories. After about an hour, the manager came out of the office, and asked them to disperse. "But why," they asked, as they moved off. "Because," he said. "I can't stand chess-nuts boasting in an open foyer."
17. OXYMORON: Why do we wash bath towels? Aren't we clean when we use them?
18. FABULOUS RANDOM THOUGHTS: There's no worse feeling than hat millisecond you're sure you are going to die after leaning your chair back a little too far.
19. QUOTE OF THE WEEK: “Most conversations are simply monologues delivered in the presence of witnesses.” Margaret Millar
20. PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to the number of people who choose to enter a free subscription. Many pension board administrators provide hard copies in their meeting agenda. Other administrators forward the newsletter electronically to trustees. In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm. Thank you.
Copyright, 1996-2011, all rights reserved.
Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.