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January 13, 2015

PEPRA v. UMTA – Transit Districts May Be The Ultimate Winners

On December 30, 2014, the United States District Court for the Eastern District of California granted a motion for summary judgment that clarifies the interplay between the Public Employees’ Pension Reform Act (“PEPRA”) and the Urban Mass Transportation Act (“UMTA”). In State of California, et al. v. United States Department of Labor, the District Court held that the Department of Labor (“DOL”) was wrong when it decided that California’s enactment of PEPRA prevented certification under Section 13(c) of the UMTA. This determination is significant for all transit agencies in California because it confirms that the enactment of PEPRA did not result in the loss of transit agencies’ continued eligibility to receive federal assistance.

Factual Background
In 2013, the DOL refused to certify the Sacramento Regional Transit District (“SacRT”) and the California Department of Transportation (“CalTrans”) under Section 13(c) because it decided that PEPRA prevented the preservation and continuation of collective bargaining rights.

SacRT is a special regional transit district that employs about 942 people, with about 492 of these employees represented by a union. SacRT established a pension plan for its unionized employees. On November 15, 2012, SacRT submitted an application to the Federal Transportation Agency (“FTA”) for funding to extend the south corridor of its light rail system and associated construction. ATU objected to certification based on PEPRA’s impact on pensions and other retirement issues. On April 18, 2013, the DOL declined to issue an interim certification, noting that PEPRA may create certain inconsistencies with Section 13(c), and it requested briefing on the issue. On September 4, 2013, the DOL issued its final determination and concluded that “the effects of PEPRA render it legally impermissible, under the current circumstances, for the Department to certify fair and equitable employee protection conditions for grants to SacRT.”

During this same general time frame, CalTrans was undergoing a similar experience with the DOL. CalTrans is an executive department within California that is authorized to assist local transit agencies in the development and operation of mass transit, as well as in applying for and using federal funds. In this role, CalTrans sought federal funding for Monterey-Salinas Transit’s (“MST”) Mobility Management Project. MST is the consolidated transportation services agency for Monterey County. At least a portion of MST’s workforce is represented by unions, and these individuals are provided with a CalPERS pension plan under a collective bargaining agreement. On December 26, 2012, MST applied for federal funding to update its trolley system. ATU filed objections, and on September 30, 2013, the DOL issued its final determination. As it had done with SacRT’s application, the DOL concluded that PEPRA precluded it from providing the requisite certification.

On October 4, 2013, SacRT and CalTrans filed a complaint challenging the DOL’s determination that PEPRA prevented 13(c) certification. This complaint raised four claims, including that the DOL’s determinations were arbitrary and capricious and that the DOL acted in excess of statutory authority in denying 13(c) certification.

The parties brought competing motions for partial summary judgment, which were heard on September 30, 2014. This Order pertains to that hearing.

The first pertinent issue addressed by the District Court was the continuation of collective bargaining rights. The DOL argued that PEPRA reduced the union’s ability to bargain for pension benefits, which resulted in the undercutting of the continuation of collective bargaining. Specifically, it claimed that, under federal law, every aspect of pensions must be open to bargaining for the “continuation of collecting bargaining” to be satisfied. On the other hand, SacRT and CalTrans argued that PEPRA merely determines the scope of negotiations about pension benefits, but does not restrict the parties from bargaining in good faith within that defined space.

Ultimately, the District Court agreed with SacRT and CalTrans. In reaching this conclusion, the District Court noted that PEPRA did not give one party control over collective bargaining; instead it made across-the-board changes in public employee pension law. The District Court further explained that employers and employees bargain with rights under state law that form the context for their negotiations. Part of this context may include pension reform. Additionally, the District Court found fault with the DOL’s assumption that a pension is necessarily a defined benefit plan. It noted that nothing in PEPRA prevents bargaining over a defined contribution plan, which is another form of pension. In short, the District Court held that the DOL’s failure to consider the realities of the process of public sector bargaining made its decision arbitrary and capricious.

The District Court also considered PEPRA’s impact on the preservation of collective bargaining. The DOL argued that PEPRA’s change to pension contribution formulas for “new” employees supported the conclusion that it did not preserve existing collective bargaining rights. SacRT and CalTrans countered that the DOL exceeded its authority when it rejected state law defining when a public employee is entitled to pension benefits. Based on this, the plaintiffs claimed that “new” employees have no rights to other pension formulas to be preserved.

In rejecting the DOL’s position, the District Court held that “new” employees are constrained by PEPRA as the backdrop to their employment relationship. The District Court explained that in deciding that not-yet-hired employees were covered by a collective bargaining agreement, the DOL improperly gave itself the authority to define a bargaining unit. The District Court relied on the definitions contained in the respective collective bargaining agreements and held that the DOL did not consider all relevant factors when it rejected certification based on its evaluation of PEPRA’s impact on “new” employees.

This case is significant because it holds that the enactment of PEPRA did not result in the loss of transit agencies’ continued eligibility to receive federal assistance from the FTA.

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