New Legislation Limits Out-of-class Assignments for CalPERS Members

01.18.2018

Effective January 1, 2018, Assembly Bill 1487 added section 20480 to the California Government Code, which limits "out-of-class" appointments by PERS contracting agencies to 960 hours per fiscal year, and imposes a penalty for work in excess of this limit.

The new law applies to public agencies that have contracted with the California Public Employees’ Retirement System. These employers must take steps to identify employees who are in an "out-of-class appointment" as defined by AB 1487, to track and report their hours worked commencing January 1, 2018, and to ensure each employee is compensated for the work according to a collective bargaining agreement (for represented employees) or a public pay schedule (for non-bargaining unit employees).

The purpose of the legislation is to "limit the amount of time a worker can serve in an out-of-class temporarily upgraded position." The limitation is enforced by a penalty payable to CalPERS.

CalPERS has not indicated its intentions for implementing and enforcing AB 1487. To avoid penalties, employers are advised to: (1) carefully scrutinize all out-of-class assignments to determine whether they are subject to AB 1487; (2) begin maintaining accurate records of all such assignments to facilitate reporting; (3) consider commencing out-of-class assignments that may exceed 960 hours midway through the fiscal year, to avoid exceeding 960 hours in a fiscal year; and (4) consider in advance the applicable penalty if an out-of-class assignment will exceed 960 hours per fiscal year.

Definition of "Out-of-class" Appointments

AB 1487 defines the term out-of-class appointment as an "appointment ... to an upgraded position or higher classification ... in a vacant position for a limited duration." The term vacant position "refers to a position that is vacant during recruitment for a permanent appointment," and expressly does not refer "to a position that is temporarily available due to another employee’s leave of absence."

Although this language is not entirely clear, it appears AB 1487 applies only to appointments to upgraded or higher positions that are vacant during recruitment for a permanent appointment. If so, positions that are not subject to recruitment would not be subject to the 960-hour limit.

The 960-Hour Limit per Fiscal Year
The 960-hour limitation is tracked on a fiscal year basis. Under California law, statutes are generally presumed to operate prospectively. (Western Security Bank v. Superior Court (1997) 15 Cal. 4th 232, 243.) Accordingly, hours worked before January 1, 2018 likely will not count toward the 960-hour limit during the current fiscal year.

As a result, employers with a July 1 through June 30 fiscal year may be able to assign employees to work out of class for up to 960 hours from January 1 through June 30, 2018, and work the same employees out of class for up to 960 hours during the new fiscal year starting July 1, 2018, without risk of penalty.

In future years, employers with a July 1 through June 30 fiscal year may opt to commence lengthy out-of-class assignments (exceeding 960 hours) midway through the fiscal year, to limit the possibility of exceeding the 960-hour threshold during a given fiscal year.

Tracking and Reporting Requirement
Perhaps the most burdensome requirement of AB 1487 is tracking and reporting all hours worked in out-of-class assignments each fiscal year. Even if no employee is assigned to work out of class for more than 960 hours, the hours worked by any employee in such an assignment must be "tracked" and reported to CalPERS no later than 30 days after the end of the fiscal year.

Thus, employers must begin tracking these out-of-class assignment hours immediately (beginning January 1, 2018), and by July 30, 2018, report those hours to CalPERS. Currently there is no mechanism for reporting these hours; presumably CalPERS will create a reporting structure in the next few months.

Penalties and Possible Exception for "New Members" under PEPRA
AB 1487 imposes a penalty for out-of-class appointments that exceed 960 hours in a fiscal year. The penalty is equal to three times the difference between "the employee and employer contributions that would otherwise be paid to the [PERS] system for the difference between the compensation paid for an [out-of-class appointment] ... and the compensation paid and reported to the system for the member’s permanent position."

Again, this language is not a model of clarity (the term "otherwise be paid" is not defined). The most likely interpretation is that the applicable penalty is three times the difference between the employee’s regular employer/employee CalPERS contributions and the actual employer/employee CalPERS contribution paid in connection with the out-of-class assignment.

Thus, the penalty for a given out-of-class assignment that exceeds 960 hours may be negligible or even zero. Even where the penalty is substantial, the operational need for the assignment may outweigh the possible penalty. But AB 1487 also imposes an additional requirement that the employer reimburse CalPERS "for administrative expenses incurred in responding to this situation." It is not clear what costs may be included in calculating CalPERS’s administrative expense.

As it specifically imposes administrative penalties, AB 1487 does not appear to create a private cause of action, meaning individual employees (or their unions) would not have the ability to sue employers for allowing out-of-class assignments to exceed 960 hours.

Notably, a broad exception may affect penalties applicable to "new members" under the Public Employees’ Pension Reform Act of 2013 (PEPRA; Government Code § 7522.04(f)). CalPERS has advised that "temporary upgrade pay" is not a reportable form of compensation for "new members" under PEPRA. (CalPERS Circular Letter 200-064-17, Dec. 6, 2017.) Therefore, the employer/employee CalPERS contribution paid in connection with an out-of-class assignment may be identical to the regular CalPERS contributions for the employee’s permanent assignment, since no additional contribution would apply to the temporary upgrade pay. As a result, there might be no net "penalty" for these employees when they exceed the 960-hour threshold.

Determining whether a given position is subject to the 960-hour limit, and if so, whether a penalty applies, will require a fact-specific analysis. Employers are encouraged to contact one of the authors or another AALRR attorney with questions about these new requirements.