METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA, Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; DEWAYNE CARGILL et al., Real Parties in Interest. CDI CORPORATION et al., Petitioners, V. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; DEWAYNE CARGILL et al., Real Parties in Interest.
No. S102371
Supreme Court of California
Feb. 26, 2004
491
Jeffrey Kightlinger, Herny Torres, Jr.; Horvitz & Levy, Mitchell C. Tilner, Jon B. Eisenberg; Bergman, Wedner & Dacey, Bergman & Dacey, Gregory M. Bergman, Daphne M. Anneet and Mark W. Waterman for Petitioner Metropolitan Water District of Southern California.
Katten Muchin Zavis, Stuart M. Richter, Patricia T. Craigie, Justin M. Goldstein, Donna L. Dutcher; Freedman & Stone and Marc D. Freedman for Petitioners CDI Corporation, Comforce Technical Services, Inc., H.L. Yoh Company, MD Technical Services Company, Peak Technical Services, Superior Technical Resources, Inc., Superior Staffing Services, Inc., Volt Information Sciences, Inc., Volt Management Corp. and Westaff (USA), Inc.
Musick, Peeler & Garrett and Charles E. Slyngstad for County Sanitation District No. 2 of Los Angeles County as Amicus Curiae on behalf of Petitioner Metropolitan Water District of Southern California.
McMurchie, Weill, Lenahan, Lee, Slater & Pearse and David W. McMurchie for California Special Districts Association as Amicus Curiae on behalf of Petitioner Metropolitan Water District of Southern California.
Jones, Day, Reavis & Pogue, Elwood Lui, Philip E. Cook; Brown, Winfield & Canzoneri, Nowland C. Hong and Scott H. Campbell for County of Los Angeles as Amici Curiae on behalf of Petitioner Metropolitan Water District of Southern California.
Myers, Nave, Riback, Silver & Wilson, Arthur A. Hartinger and Terry Roemer for 148 California Cities, Counties, Towns and Districts, California Association of Sanitary Agencies, State Water Contractors, California Special Districts Association and Association of California Water Agencies as Amici Curiae on behalf of Petitioner Metropolitan Water District of Southern California.
No appearance for Respondent.
Cochran-Bond Connon & Ben-Zvi, Cochran-Bond Law Offices, Walter Cochran-Bond; Law Offices of William M. Samoska, Samoska & Friedman, Judy A. Friedman and Richard N. Grey for Real Parties in Interest Dewayne Cargill, Anvar Alfi, John Sims, Paul Broussard, Joseph Zadikany, Sun Son, Charlotte Manuel, Steven Minor and Lisa Nelson.
Steptoe & Johnson, Edward Gregory, Sheri T. Cheung, Jason Levin and Bennett Cooper for Real Party in Interest California Public Employees’ Retirement System.
Bendich, Stobaugh & Strong, David F. Stobaugh, Stephen K. Strong, Brian J. Waid; Krakow & Kaplan, Rottman • Kaplan, Steven J. Kaplan; Kalisch, Cotugno & Rust, Lee Cotugno and Mark Kalisch as Amici Curiae on behalf of Real Parties in Interest.
Carol R. Golubock and Patricia C. Howard for Service Employees International Union, AFL-CIO, CLC as Amicus Curiae on behalf of Real Parties in Interest.
Davis, Cowell & Bowe, Richard G. McCracken and Andrew J. Kahn for Union of American Physicians and Dentists as Amicus Curiae on behalf of Real Parties in Interest.
Tosdal, Levine, Smith, Steiner & Wax and Thomas Tosdal for Center on Policy Initiatives as Amicus Curiae on behalf of Real Parties in Interest.
OPINION
WERDEGAR, J.—(1) Defendant Metropolitan Water District of Southern California (MWD) contracts with the California Public Employees’ Retirement System (CalPERS) for the latter to provide retirement benefits to MWD‘s employees. The single issue of law presented here is whether, under the Public Employees’ Retirement Law (PERL) (
We understand, as MWD argues, that public employers must occasionally hire additional workers for projects lasting an extended period of time and that, in some cases, enrolling those workers in CalPERS may involve a
The present writ proceeding, which arises from the trial court‘s pretrial decision on a single legal issue in this complex litigation, presents only the question of whether the PERL requires enrollment of all common law employees. We therefore do not decide whether plaintiffs are in fact common law employees of MWD, nor do we express any opinion as to whether plaintiffs, in the event they are determined to be MWD‘s employees as defined in the PERL, are therefore entitled to enrollment in CalPERS as of the dates they were first employed. Still less do we decide whether plaintiffs are MWD‘s employees for any purpose other than CalPERS enrollment or whether they are entitled to any benefits as employees under other provisions of law.
FACTUAL AND PROCEDURAL BACKGROUND
MWD, a public agency engaged in procuring, storing, and delivering water, hires and employs many employees under a merit system set forth in its administrative code, which establishes procedures for the selection of employees and provides those employees with various benefits; these recognized employees are also enrolled in CalPERS retirement plans pursuant to the MWD-CalPERS contract. In addition, however, MWD has entered into contracts with several private labor suppliers to provide it with workers. MWD classifies these workers as “consultants” or “agency temporary employees” and neither enrolls them in CalPERS retirement plans nor provides them with benefits specified in the MWD administrative code.
Plaintiffs are named individual workers hired through labor suppliers, and a proposed class of such workers, who allege MWD misclassified them as consultants and agency temporary employees and for that reason illegally denied them the ordinary benefits of MWD employment, including CalPERS
Plaintiffs also named as defendants several of MWD‘s labor suppliers, alleging they had violated the unfair competition law (
In a case management order, the trial court identified the following question, labeled “Issue A,” for pretrial resolution: “Whether MWD is mandated by the [PERL] to enroll all common law employees in CalPERS.” After extensive briefing and argument on MWD‘s motion for summary adjudication and CalPERS‘s motion for decision, both concerning Issue A, the court ruled that MWD is mandated by the PERL to enroll all common law employees in CalPERS.
MWD and the labor suppliers sought review in the Court of Appeal by petition for writ of mandate. The Court of Appeal, after issuing an order to show cause, denied the petition by opinion, holding the trial court had resolved Issue A correctly. We granted MWD‘s and the labor suppliers’ petitions for review.
The issue upon which we granted review is a purely legal one that can be decided without exploring the details of plaintiffs’ relationship with MWD and the labor suppliers. Suffice it to say that plaintiffs alleged, and have produced some evidence to show, that they worked at MWD for indefinite periods, in some cases several years; that MWD managers interviewed and selected them for employment; that they were integrated into the MWD workforce and performed, at MWD offices or worksites, duties that are part of MWD‘s regular business; that MWD supervisors directly oversaw and evaluated their work, determined their hourly rates of pay, raises, and work schedules, approved their timesheets, and had the power to discipline and
DISCUSSION
Under the PERL, the CalPERS system covers not only state employees but also employees of “contracting agencies,” that is, public entities, such as MWD, that have chosen to participate in CalPERS by contract with the CalPERS governing board. (
A CalPERS “member“—the status to which plaintiffs claim they are entitled—is an “employee who has qualified for membership in this system and on whose behalf an employer has become obligated to pay contributions.” (
The contract between a participating agency and CalPERS may exclude some of the agency‘s employees, but “[t]he exclusions of employees... shall be based on groups of employees such as departments or duties, and not on
The above establishes that both under the provisions of the PERL, to which MWD became subject when it entered into its contract with CalPERS (
As to contracting agencies, the PERL gives the term no special meaning, stating simply that “employee” means “[a]ny person in the employ of any contracting agency.” (
Observing that the PERL should be read as a whole, MWD points to several provisions of the law that, it contends, show the legislative intent that a contracting agency‘s worker is to be covered only if the funds from which the worker is paid are controlled by the agency, a criterion it asserts plaintiffs do not meet because their paychecks were issued by the labor suppliers, not MWD. We agree the provisions of the PERL should be read in the context of the entire law. (City of Huntington Beach v. Board of Administration (1992) 4 Cal.4th 462, 468.) For the reasons stated below, however, we do not agree that only those on the MWD payroll may be considered MWD employees for purposes of enrollment in CalPERS.
While subdivision (b) of
MWD contends subdivision (b) of
We find these arguments unpersuasive. As the Court of Appeal explained, “[w]here the Legislature makes express statutory distinctions, we must presume it did so deliberately, giving effect to the distinctions, unless the whole scheme reveals the distinction is unintended.” Here, every indication is that the distinction was purposeful. Though the precodification version of the law contained provisions regarding state agencies and contracting cities in the same paragraph, indeed the same sentence, that text, like the two subdivisions today, nonetheless clearly distinguished between the two categories of employees and imposed a direct-control-of-funds limitation only as to employees of state agencies.8 The legislative intent to make this distinction, shown by the plain language of
A rational legislative basis for the distinction is, moreover, readily apparent. The direct-control-of-funds limitation in subdivision (a) of
MWD also argues that failing to read a control-of-funds limitation into
As CalPERS points out, however, other provisions of the PERL may permit retirement benefits to be calculated on a basis not formally dependent on state or contracting agency employer control of funds. (See
More to the point, the PERL‘s enrollment mandate is separate from the right to collect retirement benefits. A contracting agency must enroll all employees who are not excluded from the system by law or contract. (
No absurd or obviously unintended result is necessarily created, therefore, by reading
MWD also makes two related public policy arguments for construing the PERL to exclude workers hired through labor suppliers: first, MWD observes that if such workers are hired without going through the agency‘s normal merit selection procedures (in MWD‘s case, set out in its administrative code), but can obtain full employee benefits, merit selection programs will be undermined; and second, MWD argues that public agencies often need temporary workers solely for individual public works projects, which may take years to complete, and that giving such employees full civil service
MWD tethers neither argument to provisions of the PERL, and we are aware of nothing in the PERL to support an exclusion based on either rationale. Participation in the CalPERS retirement system does not depend on whether an agency chooses to classify an employee as eligible for benefits under civil service or local merit selection rules. Such an interpretation could lead, contrary to the letter and spirit of the law, to a patchwork of standards set by local agencies rather than a uniform definition set and applied by the CalPERS administering board. (See
Though we cannot rewrite the PERL to relieve MWD of the consequences it foresees from application of the law to its employment practices, MWD itself seemingly has the power to avoid at least some of them. As CalPERS observes, “[i]t was MWD who chose to hire [plaintiffs] through the providers instead of through its own merit selection system.” If, as it claims, MWD fears “favoritism, cronyism and political patronage” will result from giving workers hired outside the merit selection system employee status, the agency retains the option of applying its merit selection system more broadly to avoid these evils.
To the extent MWD complains of having to provide long-term project workers the employment security and other benefits provided for in its administrative code, we stress that no such result follows from our plain language reading of the PERL: a determination that long-term project workers are entitled to enrollment in CalPERS would not necessarily make those workers permanent employees for purposes of MWD‘s administrative code or entitle them to benefits provided by MWD to its permanent employees.10 For
The private labor suppliers, citing several statutes and regulations that permit dual employers of the same worker (joint employers or coemployers) to share or allocate between them certain responsibilities of employment, argue the PERL, too, should be construed to recognize coemployment. They maintain that under a theory of coemployment the labor suppliers, rather than their clients such as MWD, should be deemed the employers for purposes of the PERL, thus excluding workers they supply from the public retirement system. No legitimate basis exists, however, for finding a coemployment exception to the PERL.
The cited laws may be fairly read as showing a recognition of leased workers as a special case in certain contexts.11 But none purports to abrogate the common law test for employment, and none suggests that workers hired through labor suppliers are, for purposes other than those treated by the cited statutes, deemed employees only of the labor supplier. Nor, of course, has the Legislature provided in the PERL for any coemployment exception to a contracting agency‘s duty to enroll employees in CalPERS. The only relevant legislative choice to date has been to require enrollment of all persons in the “employ” of a contracting agency. (
None of the federal decisions cited by the labor suppliers and the concurring and dissenting opinion (Roth v. American Hospital Supply Corp. (10th Cir. 1992) 965 F.2d 862; Hockett v. Sun Company, Inc. (10th Cir. 1997) 109 F.3d 1515; Capital Cities/ABC, Inc. v. Ratcliff (10th Cir. 1998) 141 F.3d 1405) is to the contrary. The Roth court relied expressly on authority holding, under ERISA, that participation in a pension plan may be knowingly and voluntarily waived (Roth v. American Hospital Supply Corp., supra, at p. 867); under the PERL, as stated, membership is compulsory for eligible employees of contracting agencies. Roth, moreover, was not an ordinary leased worker but a chief executive officer who, in negotiations over sale of his company, insisted that he continue to be employed by the former parent company. The court limited its waiver holding to those facts, noting that “[e]mployers should not take either our reasoning or result to mean that they may coerce their employees to waive some or all of their benefits.” (Id. at
The concurring and dissenting opinion argues “it should be for the Legislature, not this court,” to decide “whether a public agency should be permitted to use leased workers to meet its labor needs.” (Conc. & dis. opn. of Brown, J., post, at p. 513.) We absolutely agree. Nothing we say here precludes the Legislature, if it so chooses, from amending the PERL to declare leased workers to be the employees of the labor suppliers, as the Legislature in fact has done for certain (but, notably, not all) labor suppliers in the unemployment insurance context. (
In sum, we conclude the PERL‘s provision concerning employment by a contracting agency (
Justice Baxter claims our decision will impose a “crushing burden” on MWD and other contracting agencies by requiring them to make up previously unpaid CalPERS contributions for leased workers. (Dis. opn. of Baxter, J., post, at p. 521.) As previously stated (see ante, at p. 497), however, we do not hold that plaintiffs or any other particular leased workers must be enrolled in CalPERS; nor do we hold that plaintiffs, if found to be MWD employees, must be enrolled as of their dates of initial employment. Moreover, as Justice Baxter himself recognizes (dis. opn. of Baxter, J., post, at pp. 523-524), employees with fewer than five years in qualifying service—presumably including most employees hired as temporary workers through labor suppliers—are ineligible for CalPERS retirement benefits, and a contracting agency‘s contribution obligations are determined actuarially, taking into account the employer‘s eligibility experience. (See
DISPOSITION
The judgment of the Court of Appeal is affirmed.
George, C. J., Kennard, J., and Moreno, J., concurred.
BROWN, J., Concurring and Dissenting.—This is a case of the tail wagging the dog—with a vengeance. The majority purports to decide only whether real parties in interest1—workers leased by the Metropolitan Water
I.
In its extensive case management order, the trial court considered threshold “Issue A“: “Whether [MWD] is mandated by the [Public Employees’ Retirement Law] to enroll all common law employees in CalPERS.” Plaintiffs reason that, under California‘s common law definition of “employee,” they are unquestionably MWD employees. Therefore, if the Public Employees’ Retirement Law (PERL) incorporates the common law test into its own definition of “employee,” plaintiffs are entitled to CalPERS enrollment.
The trial court permitted CalPERS to file a complaint in intervention. Consistent with plaintiffs’ interpretation, CalPERS sought declaratory relief that would (1) interpret the term “employee” in the PERL in accordance with the common law definition of that term, and (2) affirm CalPERS‘s role as the first arbiter of whether an individual is an employee of a public agency for purposes of applying the PERL.
The majority purports only to resolve the threshold issue; but, of course, the answer is not so simple. While enrollment in CalPERS does not directly resolve whether plaintiffs are MWD‘s employees for nonretirement purposes, or even expressly determine their entitlement to CalPERS benefits, it inevitably gives considerable momentum to their broader claims.
Thus, despite its disclaimers, the majority‘s ostensibly narrow interpretation of the PERL is effectively dispositive of the more significant underlying question of plaintiffs’ employment status. To say that a covered employee is any employee CalPERS says is a covered employee is a tautological response that not only rewrites the statute, it alters the whole purpose of the pension law.
II.
The majority‘s approach has several shortcomings. First, it conflicts with and undermines the purpose and intent of the PERL. Second, it rewrites the
A. PURPOSE AND INTENT OF THE PERL
“[O]ur first task in construing a statute is to ascertain the intent of the Legislature so as to effectuate the purpose of the law.” (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387.) “The Legislature enacted the Public Employees’ Retirement Law (
Neither the explicit nor the implicit purpose of the PERL is served by a determination that leased employees must be enrolled in CalPERS. These employees have chosen to work for private employers, without additional pension inducement and subject to termination at will when their services are no longer needed. The rule of liberal construction applicable to the PERL serves to effectuate the legislative intent of securing and retaining competent individuals for public sector employment in the first instance. It does not support a construction contrary to the statutory purpose, endorsing eligibility for workers clearly outside the PERL‘s intent. (See In re Retirement Cases (2003) 110 Cal.App.4th 426, 473.) In such circumstances, the court should approach its interpretive task with utmost circumspection rather than with the blithe assumption that a superficial construction suffices.
Indeed, while arguing that the purpose of the PERL should be liberally construed, plaintiffs, seconded by CalPERS, invoke a canon of construction intended to limit the scope of legislative enactments: that, as a general rule, statutes will not be interpreted to alter common law rules absent a clear statement to that effect. “‘A statute will be construed in light of common law decisions, unless its language “clearly and unequivocally discloses an
B. LEASED WORKERS AND THE COMMON LAW TEST OF “EMPLOYEE”
With respect to the common law, plaintiffs’ and CalPERS‘s argument contains a second fundamental analytical flaw—the uncritical assumption that “employee” as defined under the current common law test applies without further consideration to leased workers.
Plaintiffs, and by its language the majority (see maj. opn., ante, at pp. 498, 503, 504-505), assume the PERL incorporates a static common law definition of “employee” under which control over performance of the work is the most significant factor. This assumption erroneously ignores, or disregards, the essence of the common law: the evolution of court-crafted jurisprudence to address new circumstances and legal questions. Leased workers present a new paradigm, a three-sided labor relationship in which control has been expressly separated from other aspects of employment.
In support of their position, plaintiffs rely heavily on the Restatement Second of Agency (1958) (Restatement), section 220, and its apparent focus on the factor of control. Section 220, subdivision (1), defines a servant as “a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other‘s control or right to control.” Section 220, subdivision (2)(a) lists 10 factors relevant to distinguishing employees from independent contractors, the first factor being “the extent of control which, by the agreement, the master may exercise over the details of the work.”
This court has previously quoted with approval these provisions of the Restatement and characterized control as “the principal test” (Tieberg v. Unemployment Ins. App. Bd. (1970) 2 Cal.3d 943, 946 (Tieberg)) in defining employment for purposes of the
Indeed, the Legislature has taken the lead in suggesting that a distinct rule should apply to leased workers.
Undue emphasis on control assumes an overly reductionist approach to the common law. However close a link between control over the way the work is performed and employment in other contexts, in the case of worker leasing, control is relatively insignificant because the purpose of the labor relationship is to separate control from other terms of employment. Moreover, the worker enters into and accepts, generally expressly, this three-sided labor relationship fully aware of its purpose. As the Restatement recognizes, a relevant determinative of an employer-employee relationship is “whether or not the parties believe they are creating the relation of master and servant.” (Rest., § 220, subd. (2)(i); see also Tieberg, supra, 2 Cal.3d at p. 949.) Since the parties’ intent dominates the relationship among worker, labor supplier, and labor hirer, this element logically should weigh more heavily than control of work performance in determining employment status.
The Restatement is at best a snapshot of the common law as it existed in 1957. Because it follows the law—summarizing consensus and organizing relevant legal principles—it cannot serve as a definitive guide to assessing a new labor structure, one which reflects unprecedented economic, technological, and demographic transformations in our society. This does not render the PERL, with respect to the common law definition of employment, a moving target. The fundamental common law conception of employment has not changed. Rather, to the extent their significance varies from the original norm, the relevant factors must be reweighed in this new context, consistent with the intent of the parties.
The Restatement was formulated at a time when employee leasing in its purest form did not even exist. Thus, it differentiates only between employees and independent contractors, not employees and leased workers. Nor does the Restatement or our cases dealing with employee lending discuss the paradigm of labor supply and consumption. (See, e.g., Kowalski v. Shell Oil Co. (1979) 23 Cal.3d 168, 174.) For example, the labor relationship at issue here differs distinctly from that of one employer lending another employer one of its skilled employees for an occasional task. (See, e.g., Rest., § 227, com. c, illus. 3, p. 502.) Contrariwise, a labor supplier is in the business of providing workers to consumers temporarily in need of certain services. The latter situation represents an entirely new labor relationship in which control of the work is exclusively within the purview of the labor consumer; and, as all parties contractually agree, every other aspect of employment is exclusively within the purview of the labor supplier. Common law rules that evolved to address the traditional two-sided labor paradigm are simply inapposite in this context.
Moreover, the Restatement developed its definition of “employment” specifically in the context of assigning tort liability to employers under the doctrine of respondeat superior. Here, the predominant consideration is the statutory purpose of the PERL, which “is to effect economy and efficiency in the public service by providing a means whereby employees who become superannuated or otherwise incapacitated may, without hardship or prejudice, be replaced by more capable employees” (
In sum, ultimately the courts, not the Restatement, delineate the evolution of the common law definition of “employee” and identify the factors that should assume primary significance in any particular worker context.
Uncritical application of the Restatement‘s control test fails to recognize that the leased worker of today is unlike the lent employee of 1958. In Vizcaino v. United States Dist. Ct. for the Western Dist. of Wash. (9th Cir. 1999) 173 F.3d 713 (Vizcaino), the Ninth Circuit Court of Appeals considered whether leased workers (temporary agency employees) who provided services to Microsoft were employees for purposes of participation in Microsoft‘s employee stock purchase plan. The court conceded “that the assessment of the triangular relationship between worker, temporary employment agency and client is not wholly congruent with the two-party relationship involving independent contractors.” (Id. at p. 723.) Nevertheless, the court applied the Restatement—with its dispositive emphasis on control—as a fixed body of law, failing to recognize the common law as an organic element of the law intended to adapt itself to new circumstances. (See also Wolf v. Coca-Cola Company (11th Cir. 2000) 200 F.3d 1337, 1340-1341 [leased worker may be employee of labor consumer for purposes of Employee Retirement Income Security Act]; Burrey v. Pacific Gas & Electric Company (9th Cir. 1998) 159 F.3d 388, 391-392.)
In my view, the better rule is expressed in Roth v. American Hospital Supply Corp. (10th Cir. 1992) 965 F.2d 862 (Roth), in which the court considered the claim of a leased worker that, for purposes of the Employee Retirement Income Security Act (ERISA;
Accordingly, the role of the court should not be to judge the propriety of a labor relationship otherwise permitted by law, but to effectuate the intent of the parties, particularly one they all knowingly and intentionally accept. Here, since MWD intended to avoid entering into an employer-employee relationship with plaintiffs, and they, in turn, willingly accepted their jobs on the terms offered, the courts should recognize their mutual intent as the principal consideration in determining plaintiffs’ employee status. Assuming MWD did
Contrary to the fundamental precepts of the common law, the majority here views the question presented in statutory isolation, focusing on the PERL and refusing to assess the unique position of leased workers. Like the lower courts, the majority erroneously views worker leasing as bilateral. But by definition this is a three-party labor relationship, the very purpose of which is to separate control over work performance from every other aspect of employment and thus realign the parties’ relationship whereby labor consumers are not employers. The majority‘s failure to recognize the legal significance of this distinct labor structure arbitrarily adjudicates the obligations of the parties contrary to their original expectations.
C. CONTRACTUAL IMPAIRMENT
In this regard, the majority also fails to consider the impact of its holding on contractual rights and expectations. While it disclaims the power “to remake the parties’ agreement” (maj. opn., ante, at p. 497), its analysis accomplishes exactly that. Given the contractual relationship between MWD and CalPERS, their respective conduct over the course of nearly 60 years is highly relevant to determining their understood intent. (See 1 Witkin, Summary of Cal. Law (9th ed. 1987) Contracts, § 689, pp. 622-623.)
For purposes of PERS entitlement, CalPERS has heretofore only used the common law control test to distinguish independent contractors. Its long-term dealings with MWD give no indication that CalPERS regularly or consistently applied any version of that test to leased workers or that it had ever developed a formal, system-wide policy with respect to leased workers. Similarly, nothing in the record indicates CalPERS had, prior to this litigation, definitively interpreted the PERL as including leased workers within its definition of “employee.” Nor did MWD understand the PERL in that way.
Thus, even if MWD‘s leased workers are employees for purposes of the PERL, that holding cannot apply retroactively if the parties’ conduct indicates they never interpreted their contract in that way. The majority‘s contrary implication imposes on MWD a potentially huge liability it had no basis for anticipating. (See dis. opn. of Baxter, J., post, at p. 521.) If the historic
D. PREEMPTION OF THE LEGISLATURE
Noting that the PERL contains “no broad exclusion for long-term, full-time workers” (maj. opn., ante, at p. 497), the majority declares that “[a]ny change in the PERL to accommodate such long-term temporary hiring must come from the Legislature, not from this court, which cannot remake the law to conform to MWD‘s hiring practices.” (Ibid.) With due respect, this completely inverts the statutory analysis. Given the historical perspective of leased workers, there is no basis for finding the PERL would have contemplated leased workers in the first instance; thus, there would be no reason for the Legislature to refer to them, either by inclusion or exclusion. In other words, contrary to the majority‘s unsupported assumption, their absence from the statutory scheme has no legal significance. By investing this purported omission of any reference to leased workers with legal substance, the majority itself rewrites the statute—inferring that public employers are prohibited from using leased workers outside the purview of the PERL.
The specific question raised in this case is whether a public agency that has purchased labor from a labor supplier in lieu of hiring its own employees must enroll these workers in CalPERS. Under this new three-sided model, the labor consumer is no longer the employer of the worker. Instead, the employment contract lies between the worker and a third party—a labor supplier—that separately contracts with labor consumers to satisfy their labor needs. In the abstract, this new labor paradigm appears to be simply a matter of personal choice and private agreement. Disputes, however, arise when workers who have willingly entered into employment contracts with labor suppliers then seek the rights and benefits of employment with the labor consumers. In essence, these workers ask the courts to redraw the boundaries of the three-sided relationship.
That task is clearly one the court should defer to the Legislature, which can better assess the policy implications and balance the respective interests of the public and individual workers. Indeed, the Legislature has already taken action where it has thus far deemed it appropriate. (See
The PERL does not mention the common law control test. This test becomes part of the statutory scheme only by virtue of judicial interpretation. Thus, while plaintiffs argue the PERL incorporates the same common law rule that applies outside the context of the PERL they ignore the fact that nothing in the common law rule prohibits a labor consumer from leasing workers and having control over their work—without thereby becoming an employer. Any other interpretation of the common law would bring it into conflict with the Legislature‘s express approval of employee leasing.
Moreover, given the policy considerations, it should be for the Legislature, not this court, to address the narrower question of whether a public agency should be permitted to use leased workers to meet its labor needs. Unlike the broader proposition of using leased workers generally, that narrower question raises distinct concerns because these workers can provide a public agency with a means to avoid certain costs and burdens that apply exclusively in the public employment context, such as merit selection requirements and the possibility of suits under
Contrary to the majority‘s implication, recognizing a special rule for employee leasing does not carve out an exception to the PERL‘s definition of “employee” without any basis for such an exception in the statutory language. (Cf.
This case is not a referendum on the legality, morality, or any other aspect of public agencies’ utilizing leased workers to supplement their workforce.
III.
In sum, I do not think the Legislature intended to strike a fatal blow to worker leasing when, in 1943, it first enacted the PERL‘s rather vague definition of public agency employee. More likely, it did not even consider the issue at that time. When it did consider the issue 43 years later in defining the employer-employee relationship in another statutory context, the Legislature gave its imprimatur to employee leasing by making express provision for it. This latter point, more than any other, should settle the issue before us. The common law definition of “employee” cannot work to foreclose an innovative labor relationship that the Legislature has explicitly recognized. Rather, in deference to and consistent with that legislative approval, we should interpret the common law to accommodate worker leasing by adjusting the relevant test to reflect the singularity of this new labor relationship, one in which the control factor assumes less, and the intent of the parties greater, significance.
I agree with the majority‘s rejection of MWD‘s argument that
Therefore, even if the majority‘s determination that the PERL‘s definition of “employee” incorporates California‘s common law is correct, I would also conclude that the common law factors that are relevant to determining the existence of an employer-employee relationship do not have the same weight in every context, and that in the context of worker leasing, control over the manner in which the work is performed is not determinative of an employment relationship and does not override the express intent of the parties.2
BAXTER, J.—I respectfully dissent. In the case of a local public agency, such as defendant Metropolitan Water District of Southern California (MWD), that has voluntarily contracted with the California Public Employees’ Retirement System (CalPERS) to include its eligible “employees” in CalPERS, the Public Employees’ Retirement Law (PERL;
The majority‘s contrary conclusion, wrong on the law, also has potentially unfair, even calamitous, consequences for the agencies that have volunteered to provide their true employees with CalPERS benefits. CalPERS, which has primary responsibility for determining who are “employees” covered by the
Yet, though it now supports plaintiffs’ belated claims for membership, CalPERS never alerted contracting agencies that leased workers are the agencies’ own “employees” in this regard. It never required these workers’ enrollment in the system, and it never assessed ongoing employer and employee contributions toward their CalPERS pensions. On the contrary, internal memoranda indicate that CalPERS avoided the issue except in scattered individual cases. CalPERS deferred pertinent regulations and guidelines, decided only to “research[] further [its] position,” and placed the problem on the “back burner,” meanwhile conducting “a fact-driven review of each request for membership.” In 1996, a knowledgeable CalPERS official stated internally that leased workers were “justifiably excluded” under current conditions.
The result of CalPERS‘s misleading procrastination is that MWD and many other local contracting agencies, which have budgeted on the assumption that leased workers were not their “employees” for pension purposes, may now have to enroll significant numbers of such workers, nunc pro tunc, as CalPERS members. Aside from future contributions to the system on the workers’ behalf, these agencies may also now have to make up previously unpaid contributions that are actuarially necessary to finance full pension rights of those leased workers who have already worked long enough to “vest” in the system. I cannot join the majority‘s decision to expose financially strapped local agencies to this crushing burden.
In reaching their result, the majority essentially reason as follows: Unless the worker is expressly excluded by contract or statute (see, e.g.,
I believe this analysis is flawed. The majority reject the argument of MWD and its amici curiae that workers are a local contracting agency‘s “employee[s],” for purposes of CalPERS enrollment, only if their work is compensated from funds controlled by the agency itself. Focusing exclusively on
The majority dismiss the contention that by virtue of other provisions of the PERL, a control-of-funds rule is implied in subdivision (b) of section 20028, and restricts the class of eligible “[e]mployee[s]” who must be enrolled in CalPERS. However, I find that interpretation persuasive.
We must construe specific statutory provisions in the context of the overall scheme of which they are a part (e.g., Robert L. v. Superior Court (2003) 30 Cal.4th 894, 903; Horwich v. Superior Court (1999) 21 Cal.4th 272, 280; Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735), avoiding, if possible, anomalous or absurd results that contravene the Legislature‘s presumed intent (see, e.g., Diamond Multimedia Systems, Inc. v. Superior Court (1999) 19 Cal.4th 1036, 1047). The PERL‘s purpose is, of course, to establish a public employee pension system administered by CalPERS and funded by employer and employee contributions, and to determine eligibility for the system‘s benefits. As MWD and its amici curiae point out, the PERL makes clear that one who claims CalPERS pension benefits through a local contracting agency may only obtain such benefits for service compensated from funds controlled by the agency itself.
Because CalPERS membership simply reflects the member‘s potential eligibility for CalPERS benefits, it seems apparent that one cannot be a local agency‘s eligible “[e]mployee,” and thus a compulsory member of CalPERS, if his or her only service fails, ab initio, to qualify for such benefits by reason of the control-of-funds rule.
Moreover, the PERL states explicitly that a CalPERS “[m]ember” is “an employee who has qualified for membership in this system and on whose behalf an employer has become obligated to pay contributions.” (
The path to these conclusions is clear. We necessarily begin with the PERL‘s definition of “[s]tate service“—the basis upon which all CalPERS eligibility, benefits, and contributions are calculated. Under
A member may retire “for service” only “if he or she has attained age 50 and is credited with five years of state service.” (
As noted, the CalPERS pension system is funded by contributions from both CalPERS members and the public agencies that employ them. The normal rate of the employee contribution for local miscellaneous members is “7 percent of the compensation paid that member for service rendered on and
The employer‘s contribution is an amount calculated to produce, when combined with its employees’ contributions, service retirement allowances for eligible employees in the amounts specified by the PERL. (See
Thus, the employer‘s duty to contribute is limited to the amount actuarially necessary, when combined with employee contributions, to pay pensions for its eligible workers on the terms and conditions set by the PERL. As explained above, that pension eligibility is based upon state service—service compensated from funds controlled by the employer—and calculated on the basis of the employees’ final compensation—compensation paid from funds controlled by the employer. It follows that a CalPERS employer has no obligation to contribute on behalf of workers who have not rendered service, or received compensation, from funds controlled by the employer, and are thus not eligible to receive CalPERS retirement benefits. And persons for whom the employer is not obligated to contribute need not be enrolled as CalPERS “[m]embers.” (
The majority suggest the issue whether plaintiffs must be enrolled as CalPERS members—all the majority purport to decide here—is separate from their eligibility, if any, for CalPERS retirement benefits. I disagree. As indicated above, the statutory scheme, read as a whole, restricts and limits compulsory CalPERS membership to those workers who can qualify for CalPERS retirement benefits. Under the control-of-funds rule that underlies
The majority, like plaintiffs and their amici curiae, insinuate that to exclude leased workers from CalPERS under a control-of-funds requirement is to encourage and reward an easy subterfuge, by which public agencies may bypass their merit hiring systems, and may deny the full benefits of public employment to large numbers of persons who essentially function as employees. But plaintiffs have raised no challenge to the legality of MWD‘s use of leased workers. They simply seek to “have their cake and eat it too.” They agreed to be employed, not by MWD, but by private entities that leased their services to MWD. This choice spared them the rigors of a competitive merit selection system in obtaining their positions. It may well have enhanced their take-home pay, as well as increasing their flexibility and mobility. They have made no contributions to CalPERS, and, as MWD and its amici curiae point out, they may already be covered under pension plans provided by their private employers. Yet, without assuming the burdens of competitive merit employment by a public agency, they now seek the very benefits they decided to forgo.
Moreover, though the majority suggest otherwise, it is entirely rational for the Legislature to determine, by means of a control-of-funds requirement, that workers employed and paid by others, like independent contractors (
By concluding otherwise, after CalPERS‘s long failure to provide guidance to its contracting agencies, the majority impose, at this late hour, the potential for new and unexpected financial liabilities, significant in amount, on local government agencies throughout this state that already face unprecedented fiscal challenges. As I have explained, the current legislative scheme does not dictate such a result. Given the very substantial implications, it might now be well for the Legislature to confront and consider directly the issue how the growing phenomenon of leased workers is to be treated for public pension purposes.
In the meantime, I cannot join the majority‘s reasoning, or their result. I would reverse the judgment of the Court of Appeal.
Chin, J., concurred.
Notes
Though CalPERS now supports plaintiffs’ position, the majority are not so bold as to invoke the principle of deference to CalPERS‘s expert agency interpretation. Their restraint on this point is wise. As indicated above, CalPERS dithered and delayed on the matter and never promulgated a formal construction of the PERL in line with its apparent current stance.