466 P.3d 1166
Ariz.2020Background
- Phoenix’s Employees’ Retirement Plan (the Plan), in the City Charter, calculates pensions using "final average compensation" (average of highest annual compensation over a multi-year period) × credited service × benefit rate.
- Since 1996 Administrative Regulation (A.R.) 2.441 permitted some employees to cash out a portion of accrued sick leave at retirement, paid at the employee’s final pay rate; remaining hours convert to credited service.
- From 1996 until mid-2012 the City included these one-time retirement sick-leave payouts when computing final average compensation; in 2012 the City prospectively amended A.R. 2.441 to exclude payouts for leave accrued after July 1, 2012.
- Petitioners (retirees and unions) sued, claiming the amendment unlawfully excluded pensionable compensation and thus impaired vested pension/contract rights; trial court sided with Petitioners and awarded relief; the court of appeals reversed.
- The Arizona Supreme Court accepted review to decide whether the one-time sick-leave payout is "salary or wages" (pensionable) under the Plan and whether City practice created independent contractual pension rights.
- Holding: one-time sick-leave payouts upon retirement are not "salary or wages" under the Plan and did not create independent contractual pension rights; the trial-court judgment was reversed and the City awarded attorney fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a one-time sick-leave payout at retirement is "salary or wages" (pensionable) under the Plan | Piccioli: payouts are monetary salary/wages and must be included in final average compensation | City: payouts are irregular, one-time post-retirement payments, not regular salary/wages | Payouts are not "salary or wages" because they are irregular, one-time, and not paid at regular intervals; not pensionable |
| Whether historical administrative practice and representations created independent contractual/pension rights to include payouts | Piccioli: City’s long practice and representations created vested contractual rights independent of the Plan | City: no separate contractual right outside the Plan; dispositive interpretation is the Plan/Charter | No independent contractual pension rights were created by practice or representations; Petitioners’ alternative-contract claim fails |
| Whether excluding post-2012 accrued payouts from final average compensation violated the Pension and Contract Clauses | Piccioli: amendment diminished/impacted vested pension rights | City: no vested pension right to payouts existed under the Plan, so no constitutional impairment | No violation; amendment did not impair vested rights because payouts were never pensionable under the Plan |
| Attorney fees under A.R.S. § 12-341.01 | Piccioli: sought fees | City: sought fees as prevailing party in contract-based action | Court exercised discretion to award fees to the City and denied Petitioners’ request |
Key Cases Cited
- Fields v. Elected Officials’ Ret. Plan, 234 Ariz. 214 (2014) (public retirement membership is contractual and pension rights are protected under Pension and Contract Clauses)
- Cross v. Elected Officials Ret. Plan, 234 Ariz. 595 (2014) (Pension and Contract Clauses protect whatever pension rights exist under applicable law)
- Hall v. Elected Officials’ Ret. Plan, 241 Ariz. 33 (2016) (detrimental unilateral changes to statutory pension formula can breach public-employee contracts)
- Yeazell v. Copins, 98 Ariz. 109 (1965) (pension rights vest upon acceptance of employment and the employer may not unilaterally reduce benefits existing at hire)
- Piccioli v. City of Phoenix, 246 Ariz. 371 (App. 2019) (court of appeals decision reversing trial court’s ruling on pensionability of sick-leave payouts)
- Wistuber v. Paradise Valley Unified Sch. Dist., 141 Ariz. 346 (1984) (generally disfavor awarding § 12-341.01 fees against citizens challenging government action to avoid chilling suits)
- Glazer v. State, 237 Ariz. 160 (2015) (interpretation of charter/Plan provisions uses ordinary meaning; if only one reasonable interpretation exists, apply it)