California court deems holiday cash-outs 'special compensation' in pensions case

• The union’s members received, instead of normal holidays, floating holidays with pay accruing on the day of the pre-existing holiday;
• Employees could “cash out” a maximum of four holidays per year if funds were available;
• For certain union officers, Cal Fire would annually buy down their leave credits to either the “normal carry-over maximum” or the amount the person had when entering office, whichever would be higher.

After the petitioners retired, the union asked the California Public Employees’ Retirement System (CalPERS) to include the amounts they received in the cash-outs when calculating their final compensation, which was part of the formula on which their pension benefits would be based. CalPERS refused.

Read more: California court rules on employee pensions case

An administrative law judge issued a proposed decision which favored CalPERS and which the board of CalPERS adopted. The judge determined that the holiday cash-outs should not be deemed special compensation and should not be included in the petitioners’ final compensation for the purposes of calculating their monthly retirement allowances.

The administrative law judge’s conclusion was based on the following findings:

• The petitioners’ positions required them to work on holidays. The holiday pay was not special compensation since the necessity for holiday work did not arise from the need for scheduled staffing, as required by section 571 of Title 2 of the California Code of Regulations.
• The cash-outs were not available to all members of their group or class of employment.

The petitioners filed a petition for writ of administrative mandamus. The trial court denied their petition and found that the cash-outs were not special compensation for the purposes of section 571 because they were not reported to CalPERS as that rule required.

The California Court of Appeal for the First District reversed this decision and directed the trial court to grant the petition for writ of administrative mandamus. The petitioners’ holiday cash-outs were special compensation and should be included in calculating their pensions, the appellate court said.

First, the appellate court held that the rule in section 571 did not apply to this dispute and did not determine the issue of whether the petitioners’ holiday cash-outs were special compensation. Section 571 provided a definition of special compensation items that was expressly limited to “members employed by contracting agency and school employers” and that did not include state employees.

For this reason, the decisions of the administrative law judge and the trial court in connection with section 571 were “on shaky ground,” the appellate court said.

Second, the appellate court tackled the administrative law judge’s finding that the cash-outs were not available to all members of their group or class of employment. The appellate court explained that the petitioners’ situation was different from that of their bargaining unit’s other members. The court noted that the petitioners:

• worked in a location different from where other members worked;
• worked in a different schedule compared with other members;
• were the only two firefighters who served as union officers at the time;
• were disallowed from carrying out firefighting duties;
• were ineligible for overtime.

The agreements among the bargaining unit, Cal Fire, and California recognized the difference in the petitioners’ situation and treated their holiday pay cash-outs and carry-over differently, as compared with the treatment for the bargaining unit’s other members, the appellate court said.

Learn more about federal holidays in the USA here.