Aft Michigan v. State of MichiganAft Michigan v. State of Michigan
In an opinion by Justice MARKMAN, joined by Chief Justice YOUNG and Justices KELLY, ZAHRA, MCCORMACK, and VIVIANO, the Supreme Court held:
2012 PA 300 does not violate the Takings Clauses, the Contracts Clauses, or the Due Process Clauses of the Michigan and United States Constitutions.
Const 1963, art 10, § 2 and theFifth Amendment , as applied to the states through theFourteenth Amendment , prohibit the government from taking private property for public use without providing just compensation to the owner. The term “taking” encompasses governmental interference with rights to both tangible and intangible property. However, governmental action creating general burdens or liabilities, i.e., merely requiring citizens to expend monies for valid public purposes and expenditures, typically will not form the basis for a cognizable taking claim. For there to be a compensable taking, the government must assert its authority to seize title or impair the value of property. This does not occur if the owner voluntarily relinquishes the property to the government. The retiree healthcare contributions are not mandatory. Public school employees may entirely opt out of the retiree healthcare program and thereby avoid making the salary contributions. The state is not obligated to provide publicly subsidized healthcare to public schoоl employees, but has affirmatively chosen to do so, and it is therefore entirely reasonable to request that any eligible employee who desires the benefit help pay for it. Accordingly, 2012 PA 300 does not take private property in violation of the Takings Clauses.- Assuming, without deciding, that the United States Supreme Court‘s doctrine of unconstitutional conditions applies in the present case, the state has also not attached an unconstitutional condition to the receipt of a governmental benefit. Plaintiffs argued that the act
requires public school employees seeking access to retiree healthcare to relinquish in exchange their right to demand just compensation if they eventually fail to qualify for retiree healthcare. Individuals generally may voluntarily waive their constitutional rights. Individuals also have no constitutional right to receive any particular governmental benefits. Under limited circumstances, however, the government may be prevented from denying a benefit to an individual because that person has exercised a constitutional right. This is known as the doctrine of unconstitutional conditions. The fundamental principle underlying the doctrine is that the government cannot attach conditions to governmental benefits that effectively coerce individuals into relinquishing their constitutional rights. The United States Supreme Court has held that a governmental benefit given in exchange for a seemingly voluntary transfer of private property interests to the government may violate the doctrine of unconstitutional conditions if the condition lacks a nexus between the burden that the condition imposes on the property owner and the government‘s interest advanced by the condition or if the burden that the condition imposes is not roughly proportionate to the governmental interest advanced by the condition. The retiree healthcare contributions under MCL 38.1343e , however, are voluntary and are not the product of coercion by an unconstitutional condition. Const 1963, art 1, § 10 andUS Const, art I, § 10, cl 1 prohibit laws that impair obligations under contracts. There can be no impairment of a contract, however, if the complaining party can freely avoid the alleged impairment altogether. UnderMCL 38.1391a(5) , public school employees who do not wish to participate in the retiree healthcare program can simply opt out and instead contribute money into their Tier 2 accounts. By opting out, the employees guarantee that the state will not receive their 3% contributions and that they will be paid the full amount of their bargained-for salaries. The retiree healthcare modifications therefore do not impair any employment contracts, but instead afford public school employees the option to choose between two potential retirement benefits, and the underlying employment contracts are unaffected.- Plaintiffs also argued that the act impairs separate contracts between the state and public school employees that guarantee the employees the opportunity to accrue pension benefits at a specific rate. A contract for employment is typically formed when the employee accepts the employer‘s promised terms of employment through performance. However, no contracts exist between public school employees and the state of Michigan, which has taken on the responsibility of providing pension benefits to public school
employees. Public school employees were given no express promises that they would continue to accrue pension benefits at a specific rate, and even if the Office of Retirement Services had made such promises, the promises would have been ultra vires and incapable of binding the state. Accordingly, 2012 PA 300 does not impair any contractual rights possessed by public school employees to continue accruing pension benefits at any particular rate. Const 1963, art 1, § 17 andUS Const, Am XIV, § 1 forbid the state from depriving any person of life, liberty, or property without due process of law. The Due Process Clauses offer not only procedural protections, but also have a substantive component that protects individuals against the arbitrary exercise of governmental power. If a challenged law does not infringe any fundamental rights, the plaintiff must prove that the law is not reasonably related to a legitimate governmental interest in order to prevail on a claim of a violation of substantive due process. Plaintiffs argued that the act violates substantive due process because current employees contribute money to fund current retirees’ healthcare benefits absent any guarantee that current employees themselves will ever receive retiree healthcare benefits. Plaintiffs did not argue that 2012 PA 300 infringes any fundamental rights, so the applicable test is whether the law is reasonably related to a legitimate governmental purpose, which was satisfied in this case. The state may reasonably request that public school employees assist in funding a retiree healthcare benefit system to which they belong, and the state‘s purpose (implementing a fiscally responsible system by which to fund public school employees’ retiree healthcare) is unquestionably legitimate. It is entirely proper for the state to seek the continuation of an important retirement benefit for its public school employees while simultaneously balancing and limiting a strained public budget. The means used by the state are also reasonably related to this purpose. 2012 PA 300 therefore comports with any constitutional guarantees of substantive due process.
Affirmed.
Justice BERNSTEIN took no part in the decision of this case.
Mark H. Cousens for AFT Michigan and others.
Bill Schuette, Attorney General, Aaron D. Lindstrom, Solicitor General, and Frank J. Monticello, Larry F. Brya, Joshua O. Booth, and Patrick M. Fitzgerald, Assistant Attorneys General, for the state of Michigan.
White, Schneider, Young & Chiodini, PC. (by James A. White, Kathleen Corkin Boyle, and Timothy J. Dlugos), and Michael M. Shoudy for the Michigan Education Association.
Jones Day (by James P. Cone) for the Judicial Education Project.
MARKMAN, J. We granted leave to appeal to address the constitutionality of 2012 PA 300, which modified the retirement benefits of current public school employees. Plaintiffs, which are various labor organizations representing such employees, raise three constitutional challenges: (1) whether the act violates the prohibitions of uncompensated takings in the Michigan and United States Constitutions,
I. FACTS AND HISTORY
A. 2010 PA 75
Facing a budget shortfall in the state public school system in 2010, the Legislature enacted Public Act 75, which modified retirement benefits for current public
B. AFT MICH I
Current public school employees, through their representative labor organizations, sued the state of Michigan and other state defendants in 2011, contending that
The Court of Appeals also held that
Judge SAAD, who authored an opinion concurring in part and dissenting in part, would have reversed the judgment of the Court of Claims and held 2010 PA 75 constitutional. He began by noting that “legislative enactments are presumed to be constitutional absent a clear shоwing to the contrary,” and then argued that an obligation merely to pay money cannot constitute a taking requiring just compensation, that 2010 PA 75 created an obligation between public school employees and the state that did not affect the employment
The state sought leave to appeal the Court of Appeals’ ruling in AFT Mich I. That application is currently pending before this Court and has been held in abeyance for the resolution of the instant case. AFT Mich v Michigan, 846 NW2d 57, 58 (Mich, 2014).
C. 2012 PA 300
The instant case arises from legislation enacted in response to the Court of Appeals’ decision in AFT Mich I. On September 4, 2012, the Governor signed into law 2012 PA 300, which further modified the Retirement Act. Current public school employees, once again through their representative labor organizations, have challenged provisions of this statute. In doing so, they raise many of the same constitutional challenges that were asserted with regard to 2010 PA 75 in AFT Mich I.
The legal challenges to 2012 PA 300 focus on two principal aspects of the new law—the changes it makes to the retiree healthcare plan and the changes it makes to the pension benefit plans provided by the MPSERS. Regarding retiree healthcare, 2012 PA 300 maintains in place
Concerning the pension benefits offered by the MPSERS, 2012 PA 300 alters the manner in which public school employees accrue these benefits. Before 2012 PA 300, public school employees generally fell into one of two groups. Those hired before January 1, 1990 belonged to what was commonly called the “Basic Plan.” These employees historically made no contributions to assist in funding their pensions. Those hired on or after January 1, 1990, automatically belonged to the “Member Investment Plan” (MIP) and contributed varying percentages of their salaries in the process of accruing pension benefits.
2012 PA 300 increased the amount that all current public school employees must contribute in order to continue accruing pension benefits at the existing rate. Members of the Basic Plan, who have never before been required to contribute to their pensions, must now contribute 4% of their salaries to the MPSERS for this purpose.
D. AFT MICH II
Public school employees, through their representative labor organizations, asserted numerous constitutional challenges to the validity of 2012 PA 300 in the Court of Claims. However, unlike its ruling in the challenge to 2010 PA 75, the Court of Claims ruled in favor of the state on all claims, holding that the provisions of the earlier statute deemed in AFT Mich I to have been unconstitutional had been sufficiently ameliorated by the enactment of the more recent statute, in particular by the choice afforded employees regarding whether to pay into the retiree healthcare plan, and that several new challenges raised for the first time against the later act were equally unavailing. Regarding the only new challenge germane to the instant case, the court found that public school employees had no vested interest in future pension benefits and, as a result, that
Plaintiffs appealed, and the Court of Appeals affirmed the Court of Claims. AFT Mich v Michigan, 303 Mich App 651; 846 NW2d 583 (2014) (AFT Mich II). As did the Court of Claims, the Court of Appeals held that contributions to the retiree healthcare program would be made voluntarily and were therefore free of constitutional infirmity. The Court also assessed plaintiffs’ challenges to the pension modification and, again as did the Court of Claims, concluded that 2012 PA 300 did not affect any obligation of contracts between the state and public school employees in this regard because the state is not obligated to provide future pension benefits to public school employees. Plaintiffs sought leave to appeal in this Court, which we granted. AFT Mich v Michigan, 495 Mich 1002 (2014).
II. STANDARD OF REVIEW
This case is an appeal from summary disposition in favor of defendants involving issues of constitutional, statutory, and contractual interpretation. This Court reviews de novo all such issues. Nat‘l Pride At Work, Inc v Governor, 481 Mich 56, 63; 748 NW2d 524 (2008); Archambo v Lawyers Title Ins Corp, 466 Mich 402, 408; 646 NW2d 170 (2002); Oakland Co Bd of Co Rd Comm‘rs v Mich Prop & Cas Guaranty Ass‘n, 456 Mich 590, 610; 575 NW2d 751 (1998).
III. PLAINTIFFS’ ARGUMENTS
Plaintiffs raise three clearly articulated arguments before this Court against 2012 PA 300. First, they argue that the statute violates the Takings Clauses of the Michigan
Although plaintiffs frame their third argument as a “breach of contract” claim, we understand them essentially to be raising a constitutional challenge to the pension modifications under
Plaintiffs also make a broad and unsupported argument that “2012 PA 300 does not repair the defect found in 2010 PA 75. [The act] is still unconstitutional because it permits an extraction with no guarantee of benefit and provides for a refund of contributions which itself is unconstitutional.” Plaintiffs elaborate that “[the retiree healthcare contributions] now made still lack any certainty that the individual paying in MPSERS will actually receive post employment retiree health care. Further, the provision for a refund of payments is so unreasonable as to be itself a violation of the individual‘s right to substantive due process.”
By arguing that 2012 PA 300 is “still” unconstitutional, plaintiffs appear to be reasserting the arguments that prevailed with respect to 2010 PA 75 in AFT Mich I. But to the extent that plaintiffs expressly raise these same arguments, they do so in an inconsistent and ambiguous manner. Plaintiffs’ brief on appeal, for example, states: “[MCL 38.1343e] is a deprivation of the right of substantive due process for the same reasons expressed to this Court, and the Court of Appeals, in [AFT Mich I].” Contradictorily, however, plaintiffs’ reply brief states: “Defendant incorrectly asserts that Plaintiffs have somehow argued that 2012 PA 300
In the interest of a thorough and complete adjudication for the numerous persons whom plaintiffs represent, we believe that the most appropriate solution is to conclude that by arguing that “2012 PA 300 does not repair the defect found in 2010 PA 75,” plaintiffs are essentially arguing that 2012 PA 300 is unconstitutional for the same reasons that the Court of Appeals deemed 2010 PA 75 to be unconstitutional. In other words, we believе plaintiffs continue to argue that 2012 PA 300 violates the Contract Clauses and any “substantive” due process guarantees of the Michigan and United States Constitutions for the same reasons that the Court of Appeals deemed these provisions to have been violated by 2010 PA 75.3
Defendants, not entirely without basis, contend that plaintiffs have abandoned these arguments by failing to properly rearticulate them; nonetheless, we believe it appropriate to address them. Although we are troubled that plaintiffs have not clearly reasserted their original arguments (or clearly articulated new arguments, if it was their intention to do so), we choose to address these arguments for several reasons. First, plaintiffs have framed their broad and unsupported arguments by at least referring to the Court of Appeals’ decision in AFT
IV. ANALYSIS
We have sought to examine closely plaintiffs’ constitutional arguments, and for the reasons set forth we conclude that they do not warrant the invalidation of 2012 PA 300. We preface our analysis leading to this conclusion, however, by noting that this Court is obligated to uphold all laws that do not infringe the state or federal Constitutions and invalidate only those laws that do so infringe. We do not render judgments on the wisdom, fairness, or prudence of legislative enactments. See Lansing Mayor v Pub Serv Comm, 470 Mich 154, 161; 680 NW2d 840 (2004). Legislation is presumed to be constitutional absent a clear showing to the contrary. Caterpillar, Inc v Dep‘t of Treasury, 440 Mich 400, 413; 488 NW2d 182 (1992). In the present case, this Court is not oblivious to the fact, as reflected by the sheer breadth оf the class of plaintiffs, that many public school employees intensely dislike the policies instituted by 2012 PA 300 and believe that the healthcare and pension choices imposed on them are unfair and unsatisfactory. However, decisions concerning the allo-
We also note at the outset that all public employees must contend with a variety of future uncertainties, of which they are, or should be, aware at the time that they pursue and accept public employment. The terms, conditions, and even continued existence of public employment positions may be influenced by the changing fiscal conditions of the state, the evolving policy priorities of governmental bodies, constitutional modifications and other initiatives of the people, and the ebb and flow of state, national, and global economies. The future is not easily predictable, and public employees, along with individuals working in the private sector, must contend with these realities.7 When changing circumstances require that the state undertake what may be difficult or unpopular decisions regarding its own work force, it will often be unavailing for dissatisfied public employees to file constitutional lawsuits insisting on an unreasonable level of fixedness or immutability. See LeRoux v Secretary of State, 465 Mich 594, 616; 640 NW2d 849 (2002) (” ‘[T]he Legislature, in enacting a law, cannot bind future Legislatures.’ “), quoting Bal-
A. TAKINGS
Plaintiffs argue that 2012 PA 300 causes the state to take private property without providing just compensation, in violation of the Michigan and United States Constitutions. AFT Mich I held that 2010 PA 75 violated both
The government may not take private property for public use without providing just compensation to the owner. The power to take property, commonly referred to as “eminent domain” or “condemnation,” arises from the state‘s power as a sovereign. Silver Creek Drain Dist v Extrusions Div, Inc, 468 Mich 367, 373; 663 NW2d 436 (2003). The term “property” encompasses everything over which a person “may have exclusive control or dominion.” Rassner v Federal Collateral Society, Inc, 299 Mich 206, 213-214; 300 NW 45 (1941) (quotation marks and citation omitted). The power of eminent domain is enshrined and limited in the Takings Clauses of the Michigan and United States Constitutions.
The Fifth Amendment,
No person shall . . . be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
The Fifth Amendment is applied to the states through the Fourteenth Amendment,
The term “taking” can encompass governmental interference with rights to both tangible and intangible property. Ruckelshaus v Monsanto Co, 467 US 986, 1003-1004; 104 S Ct 2862; 81 L Ed 2d 815 (1984). However, governmental action creating general burdens or liabilities, i.e., merely requiring citizеns to expend monies for valid public purposes and expenditures, typically will not form the basis for a cognizable taking claim. See Eastern Enterprises v Apfel, 524 US 498, 540-542; 118 S Ct 2131; 141 L Ed 2d 451 (1998) (Kennedy, J., concurring in part and dissenting in part); id. at 554-555 (Breyer, J., dissenting). Adopting a rule to the contrary would include taxes and user fees within the realm of compensable takings, and the courts of this country have long held these kinds of governmental actions distinct from and outside the scope of takings analysis. Koontz v St Johns River Water Mgt Dist, 570 US _, _; 133 S Ct 2586, 2600-2601; 186 L Ed 2d 697 (2013); Mobile Co v Kimball, 102 US 691, 703; 26 L Ed 238 (1880). It is possible, nonetheless, for the government to undertake a constitutional taking that requires compensation when it asserts control over a discrete and identifiable fund of money, such as a deposit account. Webb‘s Fabulous Pharmacies, Inc v Beckwith, 449 US 155, 164-165; 101 S Ct 446; 66 L Ed 2d 358 (1980).
To generate a compensable taking, the government must assert its authority to seize title or impair the value of property. This does not occur if the property in question is voluntarily relinquished to the government.10 As the United States Supreme Court has explained:
[A]s long as [the property owner] is aware of the conditions under which the [property is given to the government], and the conditions [governing the transfer of property] are rationally related to a legitimate Government interest, a voluntary submission of [property] by an [owner] in exchange for . . . economic advantages . . . can hardly be called a taking. [Ruckelshaus, 467 US at 1007.]
Put simply, a property owner cannot give property to the government of his or her own volition, and then proceed to argue that the government must compensate the owner for that contribution.
Except as otherwise provided in this section or [
MCL 38.1391a ], each member who first became a member before September 4, 2012 shall contribute 3% of the member‘s compensation to the appropriate funding account established under the public employee retirement health care funding act, 2010 PA 77,MCL 38.2731 to 38.2747. The member contributions under this section shall be deducted by the employer and remitted as employer contributions in a manner that the retirement system shall determine. As used in this section, “funding account” means the appropriate irrevocable trust created in the public employee retirement health care funding act, 2010 PA 77,MCL 38.2731 to 38.2747, for the deposit of funds and the payment of retirement health care benefits.
Unlike the 3% retiree healthcare contribution in 2010 PA 75, which the Court of Appeals held to be a taking in AFT Mich I, the same contribution arising from 2012 PA 300 is not mandatory. Instead, public school employees may entirely opt out of the retiree healthcare program and thereby avoid making the 3% salary contributions:
Except as otherwise provided in this section, beginning September 4, 2012 and ending at 5 p.m. eastern standard time on January 9, 2013, the retirement system shall permit each qualified member to make an election to opt out of health insurance coverage premiums that would have been paid by the retirement system under [
MCL 38.1391 ] and opt into the Tier 2 account provisions of this section effective on the transition date. [MCL 38.1391a(5) , as amended by 2012 PA 359.]
Any public school employee who does not want to participate in the retirement healthcare plan can elect instead to contribute to a Tier 2 retirement account, and the school district employer will match this contribution up to 2% of the contributing employee‘s salary.
In AFT Mich II, the Court of Appeals held that 2012 PA 300 did not give rise to an uncompensated taking because the retiree healthcare contributions are now completely voluntary:
[T]here is no “taking” under 2012 PA 300 because participation in the retiree healthcare system is now voluntary. Unlike in [AFT Mich I], in which the retiree healthcare contributions were mandatory and involuntary, members under the new legislation now have a choice. Thus, it cannot be argued that members’ wages have been seized or confiscated . . . . [AFT Mich II, 303 Mich App at 678.]
We agree with this analysis. Voluntary healthcare contributions do not violate
Plaintiffs observe that not all public school employees who opt into the retiree healthcare program will eventually receive any actual healthcare benefits. Some number of employees will inevitably leave public school employment before they acquire sufficient years of service to qualify for these benefits.12 Under 2012 PA 300, these employees do not forfeit the contributions that they made toward the retiree healthcare program. Rather,
A member or former member who does not make the election under subsection (5), who is 60 years of age or older, who does not qualify for the payment of health insurance coverage premiums by the retirement system under [
MCL 38.1391 ], and who files an application with the retirement system on or after termination of employment shall receive a separate retirement allowance as calculated under this subsection. Except as otherwise provided under this subsection, the separate retirement allowance under this subsection shall be paid for 60 months and shall be equal to 1/60 of the amount equal to the contributions made by the member under [MCL 38.1343e ] . . . . The amount of the separate retirement allowance as determined under this subsection shall be increased in a manner as determined by the retirement system by a percentage equal to 1.5% multiplied by the total number of years that member made contributions under [MCL 38.1343e ].
To briefly paraphrase, an employee qualifying for this allowance will receive it over the course of 60 equal monthly installments beginning when the employee reaches the age of 60, and the allowance will equal the total amount that the employee contributed under
Plaintiffs have argued before this Court that even if
[
MCL 38.1391a(8) ] allows the State of Michigan to keep monies deposited with MPSERS by public school employees who choose to opt in to MPSERS post employment retiree health care but, for myriad reasons, are never eligible to receive that benefit. However, the statute does not require prompt refund of contributions made by these public school employees . . . . Although the deposits are eventually refunded, the State of Michigan is permitted to keep these deposits for decades, invest the deposits and retain the increase in value of the deposits . . . . This is a per se Taking . . . .
Plaintiffs here are attempting to create a distinction where none exists. The terms of the separate retirement allowance under
In the wake of the Court of Appeals’ holding in AFT Mich II that the retiree healthcare contributions do not constitute takings because they are voluntary transactions, plaintiffs continue to argue that the employees’ right to be free of an uncompensated taking has nonetheless been violated by 2012 PA 300. Specifically, plaintiffs allege that 2012 PA 300 is invalid because by requiring public school employees to make contributions in order to qualify for retiree healthcare, the state has attached an unconstitutional condition to the receipt of a government benefit:
[A]s a condition of the receipt of post employment retiree health care (for which the [public school employee] pays), he or she must аgree to surrender rights guaranteed to them by both the Constitution of the United States and that of the State of Michigan. The person must consent to having the State of Michigan take the value of their invested contributions. That is a patently unconstitutional requirement . . . . [2012] PA 300 may not require a surrender of the right to be protected from a Taking without just compensation.
This argument essentially disputes the Court of Appeals’ conclusion that retiree healthcare contributions are made voluntarily. 2012 PA 300, in plaintiffs’ view, requires public school employees seeking access to retiree healthcare to relinquish in exchange their right to demand just compensation if they eventually fail to qualify for retiree healthcare and the state retains possession of their contributions until they reach the age of 60. Plaintiffs argue that, by assuming that the contributions are made voluntarily, the Court of Appeals failed to recognize the unconstitutional condition imposed by 2012 PA 300. According to plaintiffs, the enticement of a governmental benefit—access to the
The Court of Appeals rejected the contention that retention of interest was a Taking because “participation in the retiree healthcare system is now voluntary.” [AFT Mich II, 303 Mich App at 678.] However, with respect, this conclusion misses the point entirely. The State of Michigan cannot require an individual to waive rights available under the Constitution as a condition of receipt of a state provided benefit.
We disagree and conclude that the state has not attached an unconstitutional condition to the receipt of a governmental benefit.
Individuals may under most circumstances voluntarily waive their constitutional rights.14 Individuals also have no constitutional right to receive any particular governmental benefits. Falk v State Bar of Mich, 411 Mich 63, 107; 305 NW2d 201 (1981) (opinion by RYAN, J.), quoting Elrod v Burns, 427 US 347, 361; 96 S Ct 2673; 49 L Ed 2d 547 (1976). However, under limited circumstances, the government may be prevented from denying a benefit to an individual because that person has exercised a constitutional right; this is known as the
The United States Supreme Court has applied the doctrine of unconstitutional conditions to claims arising under the Takings Clause of
The ‘nexus/proportionality’ analysis is unique to unconstitutional conditions claims arising under
We note that in most applications of the doctrine of unconstitutional conditions concerning constitutional rights other than the Fifth Amendment right to be free of an uncompensated taking, the Supreme Court has focused mainly on whether the condition coerces individuals into relinquishing constitutional rights. See, e.g., O‘Hare Truck Serv, Inc v City of Northlake, 518 US 712, 721; 116 S Ct 2353; 135 L Ed 2d 874 (1996) (“Our cases make clear that the government may not coerce support [by punishing a person for political views], unless it has some justification beyond dislike of the individual‘s political association.“). Under either the nexus/proportionality or the coercion standard, however, plaintiffs’ unconstitutional conditions argument fails.
Accordingly, in order to address plaintiffs’ arguments, we will inquire whether 2012 PA 300 “coerces” public school employees into relinquishing their constitutional rights. We will also evaluate 2012 PA 300 under the United States Supreme Court‘s “rough proportionality” standard, even though the Court has yet to extend this analysis to situations akin to that in the present case. Applying the analytical framework set forth by the United States Supreme Court, we find plaintiffs’ unconstitutional conditions argument unavailing. The retiree healthcare contributions made pursuant to
As an initial matter, we note that a necessary premise of plaintiffs’ unconstitutional conditions argument is the existence of a situation in which there would have been a compensаble taking but for the property owner‘s choice to give property rights to the government. Only in such a situation could a property owner properly argue that he or she had a constitutional right to be free of an uncompensated taking that an unconstitutional condition allegedly coerced the owner to waive. In the
The state here is not coercing public school employees into giving up their rights under
Suggesting that the state‘s condition here bears no nexus or roughly proportionate relationship to the state‘s interest advanced by the contributions would strain credulity. The
Furthermore, the willingness of public school employees to participate in the retiree healthcare program compellingly suggests that any burden imposed on employees by the state‘s condition is also proportionate to its goal. This is because, in this situation, the interests of the state and public school employees participating in the MPSERS retiree healthcare program are aligned. That is, the state seeks to provide retiree healthcare to its public school employees, and these self-same employees seek to receive retiree healthcare benefits. If the burden imposed by the
B. CONTRACTS
Plaintiffs next argue that 2012 PA 300 impairs the “obligation of contracts” in violation of
No bill of attainder, ex post facto law or law impairing the obligation of contract shall be enacted.
No State shall . . . pass any Bill of Attainder, ex post facto Law or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
This Court has often interpreted these provisions coextensively,20 and because plaintiffs have not argued that the Michigan Constitution affords additional protection, we will not seek to ascertain otherwise.
1. RETIREE HEALTHCARE BENEFITS
AFT Mich I, 297 Mich App at 610-616, held that 2010 PA 75 violated
In AFT Mich II, the Court of Appeals analyzed and
In contrast to the scheme established under 2010 PA 75, which was deemed unconstitutional in [AFT Mich I], employee contributions under 2012 PA 300 are now voluntary. A member may now choose to either continue to participate in the retiree healthcare program and contribute 3% of his or her salary to do so, or the member may simply opt out of the program altogether . . . . Thus, the constitutional infirmities found in [AFT Mich I] have now been cured. [AFT Mich II, 303 Mich App at 673.]
We agree with the Court of Appeals’ conclusion in AFT Mich II. There can be no impairment of a contract when the complaining party can freely avoid the alleged impairment altogether. Under
Plaintiffs also argue that 2012 PA 300 impairs separate contracts between the state and public school employees guaranteeing the latter the opportunity to accrue pension benefits at a specific rate.22 We reject this argument as well.
A valid contract requires five elements: (1) parties competent to contract, (2) a proper subject matter, (3) legal consideration, (4) mutuality of agreement, and (5) mutuality of obligation. Detroit Trust Co v Struggles, 289 Mich 595, 599; 286 NW 844 (1939). The party seeking to enforce a contract bears the burden of proving that the contract exists. Hammel v Foor, 359 Mich 392, 400; 102 NW2d 196 (1960). Contracts necessarily contain promises: a contract may consist of a mutual exchange of promises, Rowe v Montgomery
A contract for employment is typically formed when the employee accepts the employer‘s promised terms of employment through performance. Toussaint v Blue Cross & Blue Shield of Mich, 408 Mich 579, 630-631; 292 NW2d 880 (1980) (separate opinion by RYAN, J.). “The employer‘s promise constitutes, in essence, the terms of the employment agreement. . . .” Id. The terms of an employment contract regarding compensation must be express promises, either oral or written; an employer‘s policy statements may not form the basis for any rights to specific forms or amounts of compensation. Dumas v Auto Club Ins Ass‘n, 437 Mich 521, 528-531; 473 NW2d 652 (1991).
2012 PA 300 requires all current public school employees to increase the amount of their pension contributions in order to continue accruing pension benefits, calculated using a 1.5% multiplier. Members of the Basic Plan must now contribute 4% of their salaries, and members of the MIP must now contribute 7%. These changes are codified in
Beginning on the transition date and ending upon the member‘s termination of employment or attainment date, as applicable under [
MCL 38.1359(1) ], each member who made the election under [MCL 38.1359(1) to continue accruing pension benefits using the 1.5% multiplier] shall contribute an amount equal to a percentage of his or her compensation to the reserve for employee contributions or to the member investment plan as set forth in subdivision (a) or (b), as applicable, to provide for the amount of retirement allowance that is calculated оnly on the credited service accrued and compensation for that member on or after the transition date. Subject to subsection (2), the
- For a member who does not contribute to the member investment plan as of September 3, 2012, 4% of compensation to the reserve for employee contributions.
- For a member who does contribute to the member investment plan as of September 3, 2012, 7% of compensation to the member investment plan.
The increased salary contributions under
- Beginning February 1, 2013, the calculation of a retirement allowance under this act for a member who did not make the election under [
MCL 38.1359(1) to pay the additional contributions underMCL 38.1343g ] and who made or is considered to have made the alternative election under [MCL 38.1359(2)(a) to continue accruing pension benefits after the transition date] shall include only the following items of credited service, as applicable, multiplied by 1.5% of final average compensation as provided in [MCL 38.1384 ]:- The years and fraction of a year of credited service accrued to that member before the transition date.
* * *
- Beginning February 1, 2013, the calculation of a retirement allowance under this act for a member described in subsection (1) shall also include the following items of credited service, as applicable, multiplied by 1.25% of final average compensation:
- The years and fraction of a year of credited service accrued to that member on and after the transition date.
* * *
Beginning February 1, 2013, the calculation of a retirement allowance under this act for a member who did not make the election under [ MCL 38.1359(1) to pay the additional contributions underMCL 38.1343g ] and who made the alternative election under [MCL 38.1359(2)(b) to cease accruing pension benefits and contribute to a Tier 2 account] shall include only the following items of credited service, as applicable, multiplied by 1.5% of final average compensation as provided in [MCL 38.1384 ]:- The years and fraction of a year of credited service accrued to that member before the transition date.
* * *
- Beginning February 1, 2013, the calculation of a retirement allowance under this act for a member described in subsection (3) shall not include any year or fraction of a year of service performed by that member on and after the transition date or any service credit that is purchased by that member after February 1, 2013, except as provided in subsection (3)(c). Beginning with the first payroll date after the transition date, and ending upon the member‘s termination of service, the employer of a member described in subsection (3) shall contribute 4% of the member‘s compensation as defined in [
MCL 38.1422(1) ] to the member‘s Tier 2 account. . . .
* * *
- The calculation of a retirement allowance under this act for a member who makes the election under [
MCL 38.1359(1) to pay the additional contributions underMCL 38.1343g ]. . . shall include all items of credited service accrued to that member, regardless of when the service credit was accrued, which shall be multiplied by 1.5% of final average compensation as provided in [MCL 38.1384 ].23
Plaintiffs claim that public school employеes have a contractual right to continue accruing pension benefits calculated using the 1.5% multiplier. They assert that this right has arisen from statements made in publications prepared by the state Office of Retirement Services explaining to public school employees the retirement benefits they would be eligible to receive. These publications contained statements such as: “Your Retirement Plan provides a benefit that is determined by a formula. The formula is your final average salary times 1.5% (.015) times your total years of service credit. . . .” Michigan Public School Employees’ Retirement System, An Introduction to Your Retirement Plan (1990 rev), p 7. Plaintiffs claim that these statements are unequivocal promises by the state to provide pension benefits under those specific terms, which were made binding contractual guarantees when public school employees entered into their employment. By enacting 2012 PA 300, plaintiffs argue, the state impaired contracts between itself and the employees by altering the manner in which current employees continue to accrue pension benefits.
The Court of Claims did not err by concluding that the [publications] did not form an enforceable contract. The pamphlets and brochures were simply an informational explanation of the then existing formula; the state was not bound, in perpetuity, by the contents of those publications. [AFT Mich II, 303 Mich App at 662.]
We agree with the Court of Appeals. Plaintiffs’ argument fails because they have not shown that enforceable contracts concerning future pension benefits exist between the employees and the state.24 This is so for two reasons.
First, plaintiffs cannot demonstrate that the state actually made any promises. Every publication that plaintiffs cite to demonstrate the existence of explicit promises contains а clear disclaimer notifying the reader that public school employee retirement benefits
DISCLAIMER
This booklet was written as an introduction to your retirement plan. You should find it very helpful in the early stages of your planning for retirement. It is designed to answer commonly asked questions in a simple and easy to understand style. However, information in this booklet is not a substitute for the law. If differences of interpretation occur, the law governs. The law may change at any time altering information in this booklet. [Your Retirement Plan, p ii (emphasis added).]
Another publication, issued in 1997, included the following in its introduction:
Remember, this book is a summary of the main features of the plan and not a complete description. The operation of the plan is controlled by the Michigan Public School Employees Retirement Act (Public Act 300 of 1980, as amended). If the provisions of the Act conflict with this summary, the Act controls. [Michigan Public School Employees’ Retirement System, Retirement Guidelines (May 1997), p 3 (emphasis added).]
As the Court of Appeals correctly concluded, these disclaimers demonstrate that the publications are merely instructional materials designed to generally explain the retirement benefits available at the time of publication. A person could not read these disclaimers and reasonably believe that the state was legally obligating itself to provide public school employees pension benefits exactly as described in the publications for the duration of their careers, notwithstanding any altered
Second, assuming arguendo that plaintiffs could demonstrate that the publications did make express promises, plaintiffs have failed to show that these promises could be enforced against the state. “Public officers have and can exercise only such powers as are conferred on them by law, and a State is not bound by contracts made on its behalf by its officers or agents without previous authority conferred by statute or the Constitution.” Roxborough v Mich Unemployment Compensation Comm, 309 Mich 505, 510; 15 NW2d 724 (1944) (quotation marks and citation omitted). Individuals dealing with public officers are charged with knowledge of the limits of the officers’ authority, and officers cannot act for the state without the express power to do so.25 Therefore, even if the publications contained express promises of future benefits, in order to form a contract the promises would still need to have been made by a promisor with the legal authority to bind the state in such a matter.
C. “SUBSTANTIVE” DUE PROCESS
AFT Mich I held that 2010 PA 75 violated the “substantive” due process guarantees of
The Michigan and United States Constitutions forbid the state from depriving any person of life, liberty, or property without due process of law.
No person shall be ... deprived of life, liberty or property, without due process of law. The right of all individuals, firms, corporations and voluntary associations to fair and
just treatment in the course of legislative and executive investigations and hearings shall not be infringed.
The Fourteenth Amendment provides:
No State shall. . . deprive any person of life, liberty, or property, without due process of law. . . . [
US Const, Am XIV, § 1 .]
Although these provisions are often interpreted coextensively,27
This Court has stated that the term “due process” encompasses not only procedural protections, but also contains a “substantive” component that protects individuals against “the arbitrary exercise of governmental power.” Bonner v City of Brighton, 495 Mich 209, 223-224; 848 NW2d 380 (2014). If a challenged law does not infringe any “fundamental rights“—the substantive liberties that are deemed “implicit in the concept of ordered liberty”29—this Court has stated that to prevail on a claim of a violation of “substantive” due process, the plaintiff must prove that the challenged law is not “reasonably related to a legitimate governmental interest.” Id. at 227.
In assessing plaintiffs’ “substantive” due process claim, the Court of Appeals in AFT Mich II held that the act does not violate “substantive” due process guarantees:
The state, in enacting 2012 PA 300, has set forth a legitimate governmental purpose: to help fund retiree healthcare benefits while ensuring the continued financial stability of public schools. It is undisputed that in recent years public schools have been required to pay higher fees for the healthcare of retirees and their dependents. Healthcare costs are expected to continue to rise in the future. By seeking voluntary participation from members, the statute rationally relates to the legitimate governmental purpose of maintaining healthcare benefits for retirees while easing financial pressures on public schools. [AFT Mich II, 303 Mich App at 676.]
We recognize that some employees might be dissatisfied if and when, and for whatever reason, they ultimately fail to qualify for retiree healthcare after contributing to fund the retiree healthcare of others. However, to prevail on a “substantive” due process claim, plaintiffs must surmount the exceedingly high hurdle of demonstrating that the law is altogether unreasonable, and they have completely failed to do so here. These employees fully recognized that the possibility of not qualifying for retiree healthcare benefits existed when they initially opted into the retiree healthcare program. There is nothing arbitrary or unreasonable about the choice placed before public school employees by 2012 PA 300.
We are also unpersuaded by plaintiffs’ concerns about the possibility of subsequent modifications to either the retirement healthcare benefit program or the
V. CONCLUSION
On the basis of the preceding analysis, we conclude that plaintiffs have failed to demonstrate that 2012 PA 300 takes private property without providing just compensation in violation of
YOUNG, C.J., and KELLY, ZAHRA, MCCORMACK, and VIVIANO, JJ., concurred with MARKMAN, J.
BERNSTEIN, J., took no part in the decision of this case.
Notes
In AFT Michigan [I] the Court of Appeals rightly found that 2010 PA 75 deprived members of the Public School Employees Retirement System of their right to substantive due process because the statute mandated the extraction of 3% of wages without assuring that anything would be provided in return. . . .
* * *
. . . 2012 PA 300 does not repair the defect found in 2010 PA 75. Section 43e,
MCL 38.1343e , is still unconstitutional because it permits an extraction with no guarantee of benefit. . . .
This argument was properly rejected by the Court of Appeals in AFT Mich II on the basis of this Court‘s holding in Studier thatThe accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.
A judicial inquiry investigates, declares and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation on the other hand looks to the future and changes existing conditions by making a new rule to be applied thereafter to all or some part of those subject to its power.