Appeal
from the Superior Court in Maricopa County No.
LC2016-000008-001 The Honorable Patricia A. Starr, Judge
Jaburg
& Wilk PC, Phoenix By Kraig J. Marton, Jeffrey A. Silence
Counsel for Plaintiff/Appellant
Arizona State Retirement System, Phoenix By Jothi Beljan
Counsel for Defendant/Appellee
Presiding Judge Randall M. Howe delivered the opinion of the
Court, in which Judge Kenton D. Jones and Judge James B.
Morse Jr. joined.
OPINION
HOWE,
JUDGE.
¶1
The Griffin Foundation Inc. ("GFI") appeals the
superior court's decision affirming the Arizona State
Retirement System's ("ASRS") administrative
decision holding that GFI owed past-due contributions for its
employees from October 2010 to July 2015. GFI claims that
during that time, its workers were not ASRS-eligible members
because they were "leased" through third-party
companies and therefore it did not owe any past-due
contributions. A "leased employee" is an individual
that is not an employee of an ASRS employer, but performs
services under the employer's primary direction or
control and performs those services under a leasing agreement
between the employer and another person on a substantially
full-time basis for at least one year. A.R.S. §
38-711(23)(f). We hold that when a business enters into an
agreement to serve as a "co-employer" of those
working under its direction or control, those persons cannot
be considered "leased employees" within the
language of A.R.S. § 38-711(23)(f). We therefore affirm
the ASRS Board's decision.
FACTS
AND PROCEDURAL HISTORY
¶2
GFI operates three charter schools in Tucson. In September
2001, GFI became a participating ASRS employer by executing a
supplemental retirement plan under A.R.S. §§
15-187(C) and 38-729, which allow charter schools to enter
ASRS as political subdivisions. After entering ASRS, GFI
began remitting contributions to ASRS on behalf of its
employees.
¶3
In 2010, GFI's CEO, Lee Griffin, met with GFI's
business manager, to discuss budget issues. The business
manager informed Griffin about using leased employees, a
concept she first heard about while attending an ASRS
workshop. The business manager solicited more information
about leasing employees from ASRS. ASRS responded that
leasing employees was a practice that ASRS had seen but did
not "support." GFI subsequently met with businesses
that it believed satisfied the requirements to serve as a
leasing company. GFI contracted with
Administaff[1] for such services. GFI subsequently
stopped remitting contributions to ASRS on behalf of its
workers, who GFI claimed were no longer ASRS-eligible members
since the workers were by then leased through Administaff.
¶4
In February 2011, the business manager informed ASRS that on
October 26, 2010, GFI "contracted with Administaff to
provide payroll management services, including shared
employment." ASRS responded that it was not familiar
with the term "shared employment" and that it
needed additional information about GFI and Administaff s
contractual relationship. ASRS requested information on
whether GFI had its own employees or leased them through a
third-party company. The following month, GFI responded that
effective October 25, 2010, it no longer had employees, but
leased its workers from Administaff. GFI also attached a copy
of the signature page from GFI's contract with
Administaff.
¶5
Five months later, ASRS assistant director Patrick Klein
requested the entire contract between GFI and Administaff.
After receiving the contract, ASRS asked Administaff about
its contractual relationship with GFI. Administaff responded
that it had a "co-employer relationship" with GFI,
"under which our worksite employees are employed by both
co-employers." Administaff also stated that it was a
professional employer organization ("PEO") and that
the Arizona Professional Employer Organization Registration
Act governed its relationship with GFI.
¶6
In September 2011, citing inconsistencies between GFI's
and Administaff s characterization of their relationship,
ASRS informed GFI that it was liable for all contributions
not withheld from October 25, 2010, to the present and
attached a Contributions Not Withheld ("CNW") form
for GFI to submit for each employee. GFI responded that its
"workforce is employed through a leasing agency/PEO
program" and that Administaff s PEO program "offers
much more than the basic function of leasing employees
[.]"
¶7
This led ASRS to again seek information from Administaff
about whether it leased its employees to GFI. Administaff
stated that it was a PEO "that co-employ [ed GFI's]
employees, not a leasing agency" and that "it d[id]
not lease and never has leased employees." It also
explained that it entered into separate employment agreements
with the employees so that they became co-employees and
Administaff could provide payroll and human resource
services. Finally, Administaff stated that after it became
aware of GFI's possible obligations to ASRS, it offered
to provide a mechanism GFI could use to satisfy those
obligations but GFI declined the help. For that reason,
Administaff terminated its business relationship with GFI.
Accordingly, in November, ASRS informed GFI that the alleged
leasing relationship with Administaff was
"unfounded" and again attached CNW forms for GFI to
complete for the delinquent contributions.
¶8
In response, GFI told ASRS on November 30, 2011, that GFI had
ended its relationship with Administaff and contracted with
ADP TotalSource, another "leasing agency/PEO
program." GFI also stated that ADP's PEO program
"offers much more than the basic function of leasing
employees" and that ADP "understands that [GFI] has
no employees." GFI concluded that "any actions to
withhold [GFI's] State Equalization funding will result
in legal action."
¶9
A year later, in December 2012, GFI requested instructions
from ASRS on how to rejoin ASRS before the year ended. ASRS
responded that GFI would receive a letter addressing
ASRS's issues with it. In ASRS's subsequent letter to
GFI, it reiterated GFI's request to be reinstated as an
ASRS participating employer but explained that GFI had always
been an "employer partner with the ASRS prior to [its]
suspension of ASRS contributions in the fall of 2010."
ASRS then stated that it had never received documentation
between GFI and ADP following the November 30, 2011 letter
supporting GFI's claim that it leased its employees from
ADP. After requesting supporting documentation, ASRS
explained that its records would continue to show that GFI
owed contributions, plus interest, from October 2010.
¶10
Over the next year, GFI and ASRS communicated twice. In April
2013, GFI's attorney explained to ASRS that (1) GFI was
not required to make ASRS contributions while it leased its
employees, (2) ASRS failed to make its position clear and
therefore GFI reasonably believed that it was not required to
make contributions to ASRS, and (3) GFI should be allowed to
reenter ASRS. The attorney explained that GFI "requests
to be reactivated into the ASRS, now, so that it can begin
making ASRS contributions once again while the parties work
on a solution to address the past due issue." In May,
ASRS responded that GFI had been an employer partner with
ASRS since September 2001. ASRS also requested documentation
supporting GFI's contention that it had only leased
employees and continued that "[o]ur position is and has
been that [GFI] ...