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In a decision that could have a big financial impact on public employers, the California Supreme Court on Thursday held that longtime workers hired by contract through private labor suppliers are entitled to state retirement benefits. “We conclude,” Justice Kathryn Mickle Werdegar wrote for a 4-3 majority, “that the [Public Employees' Retirement Law] incorporates common law principles into its definition of a contracting agency employee and that the PERL requires contracting agencies to enroll in [the California Public Employees' Retirement System] all common law employees except those excluded under a specific statutory or contractual provision.” The ruling drew sharp criticism from the dissenters. Justice Janice Rogers Brown argued that the majority ignored the realities of the modern labor market, while Justice Marvin Baxter accused them of exposing “financially strapped local agencies” to a “crushing burden.” “Aside from future contributions to the system on the workers’ behalf,” Baxter wrote in a separate dissent, “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.” Justice Ming Chin concurred with Baxter. Individual workers hired through labor suppliers filed suit against the Metropolitan Water District of Southern California, claiming that the agency had denied them employment benefits, including enrollment in CalPERS, by classifying them as consultants or temporary employees. Some of them had worked for the agency for years. The water district had responded by saying that the legislative intent behind the retirement law was that a contracted employee would be covered only if his or her payment is provided by the employing agency. Currently, payment came from the labor supplier. The water district also argued that the workers’ stance could undermine the agency’s merit selection programs and unnecessarily increase public staffing costs. Neither argument carried weight with the Supreme Court, which upheld rulings by Los Angeles’ Second District Court of Appeal and the L.A. County Superior Court. “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,” Werdegar wrote. “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.” In her concurring and dissenting opinion, Brown called the ruling “a case of the tail wagging the dog — with a vengeance.” “The majority has uncritically applied an arguably obsolete common law definition of employee to a new labor paradigm,” she wrote, “and conferred an authority on CalPERS — one never accorded by the Legislature — to unilaterally determine the legality of public employers using leased workers.” Nowadays, she added, agencies such as the water district are no longer the employer. “Instead,” she wrote, “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.” Justice Baxter said CalPERS has long known that public agencies were leasing help, but never alerted them that the workers might be considered employees. “The result of CalPERS’ misleading procrastination,” he wrote, “is that MWD and may 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.” Interest in the case has been high. Amici curiae for the water district included several technical service companies and 148 California cities, counties, towns and special districts. Siding with the workers were several unions, including the AFL-CIO. The ruling is Metropolitan Water District of Southern California v. Superior Court (Cargill), 04 C.D.O.S. 1658.

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