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Piccioli v. City of Phoenix

Court of Appeals of Arizona, First Division

April 2, 2019

FRANK PICCIOLI, et al., Plaintiffs/Intervenors/ Appellees/Cross-Appellants,
CITY OF PHOENIX, et al., Defendants/Appellants/ Cross-Appellees

          Appeal from the Superior Court in Maricopa County No. CV 2012-010330 The Honorable Mark H. Brain, Judge REVERSED AND REMANDED

          Osborn Maledon, PA, Phoenix By Colin F. Campbell, Eric M. Fraser, Hayleigh S. Crawford Counsel for Defendants/Appellants/Cross-Appellees

          Martin & Bonnett, PLLC, Phoenix By Susan Martin, Daniel L. Bonnett, Jennifer L. Kroll, Michael Licata Co-Counsel for Plaintiffs/Intervenors/Appellees/Cross-Appellants

          Napier Coury & Baillie, PC, Phoenix By Michael Napier Co-Counsel for Plaintiffs/Intervenors/Appellees/Cross-Appellants

          Presiding Judge Michael J. Brown delivered the opinion of the Court, in which Judge Maria Elena Cruz and Judge David D. Weinzweig joined.


          BROWN, JUDGE

         ¶1 This opinion addresses the enforceability and constitutionality of an administrative regulation that partially ended a longstanding practice of including payouts for accrued sick leave when calculating an employee's pension benefits under the City of Phoenix Employees' Retirement Plan ("Plan"). Because Phoenix voters never took any affirmative act to authorize this practice, we hold the regulation does not violate common-law or constitutional protections applicable to public employee pensions.


         ¶2 Phoenix is a home rule city organized under Article 13, Section 2 of the Arizona Constitution through adoption of a city charter ("Charter") in 1913. Phoenix voters amended the Charter in 1953 to adopt the Plan and vested administrative, management, and operation authority for the Plan in a Retirement Board. Phoenix City Charter, ch. XXIV, art. II, §§ 3.1, 4.1. Except where noted, we refer to Phoenix, the Retirement Board, and the Plan collectively as "the City."

         ¶3 AFSCME Local 2384, AFSCME Local 2960, and ASPTEA ("Unions") represent three "units" of Phoenix employees and are joined in this litigation by 12 retired employees who began receiving pension benefits under the Plan after July 8, 2012 ("Retirees"), as well as four current Phoenix employees ("Current Employees"). Unless otherwise noted, we refer to the Unions, Retirees, and Current Employees collectively as "Members."

         ¶4 Under the Plan, an employee's pension benefit is calculated by multiplying three figures: (1) "final average compensation," (2) credited service, and (3) a defined benefit rate. "Final average compensation" is calculated based on a member's average compensation paid over a three-year period of credited service. Phoenix City Charter, ch. XXIV, art. II, §§ 2.13, 2.14. As explained below, a member's "compensation" may either be monetary ("salary or wages") or non-monetary. See id. at § 2.13. Phoenix voters amended the Plan in 1973 to allow members to include additional credited service based on the amount of accrued sick leave they had remaining at retirement but never authorized the use of accrued sick leave as part of the pension calculation. Id. at § 14.4.

         ¶5 Consistent with collective bargaining agreements between Phoenix and the Unions, the city manager adopted Administrative Regulation ("A.R.") 2.441 in 1996, which allowed employees to convert a certain percentage of their accrued unused sick leave hours to a cash payout at retirement. A.R. 2.441 was silent as to whether the Charter required this payout to be treated as "compensation" for purposes of calculating pensions. As a matter of administrative practice, however, from 1996 to 2012 the Retirement Board counted these one-time payouts as part of the employee's "final average compensation," and the City repeatedly communicated this practice to employees.

         ¶6 The City created a pension reform task force to evaluate the health of the Plan. The task force recommended, among other things, that the City prospectively end the practice of including accrued sick leave payouts at retirement in the pension calculation. During negotiations with the Unions regarding the 2012-2014 collective bargaining agreements, Phoenix proposed a "sick leave snapshot" program that would have prospectively ended the practice but would still allow Plan members to include payouts for unused sick leave hours accrued as of July 1, 2012 in their "final average compensation." The Unions rejected the proposal and thus the 2012-2014 collective bargaining agreements did not explicitly address whether Plan members could include accrued sick leave payouts in their "final average compensation." The deputy city manager then amended A.R. 2.441 ("Revised A.R. 2.441"), essentially adopting the snapshot program by excluding payouts for sick leave accrued after July 1, 2012, from an employee's pensionable compensation.

         ¶7 Several days before this amendment, Current Employees and the Unions sued the City, seeking declaratory, injunctive, and mandamus relief based on the claim that Revised A.R. 2.441 would unlawfully reduce their pension benefits. After Retirees intervened the superior court conducted a bench trial on various issues, including whether Members had "a vested and contractual right" to include accrued sick leave payouts in the calculation of their "final average compensation."

         ¶8 The superior court ruled in favor of the Members, finding that (1) unused sick leave is non-monetary "compensation" under the Plan; (2) the city council fixed the value of that compensation through A.R. 2.441 and its repeated approval of the collective bargaining agreements; and (3) the parties to those agreements understood that accrued sick leave payouts were included as "final average compensation." The court explained that a public employee has a right to "the existing formula by which his benefits are calculated as of the time he began employment," Fields v. Elected Officials' Ret. Plan, 234 Ariz. 214, 220, ¶ 27 (2014), and ultimately concluded that Phoenix could not unilaterally change the sick leave regulation.

         ¶9 After the parties submitted briefing on the scope of damages and potential equitable relief, the superior court enjoined the City from using Revised A.R. 2.441 to calculate Retirees' pension benefits, awarded Retirees a combined total of $5, 482.04 in damages, and awarded Members $22, 328.37 in taxable costs. The court declined ...

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