Meister v. PERB

No. 630 September 5, 2024 725

IN THE COURT OF APPEALS OF THE

STATE OF OREGON

MARK MEISTER,

Plaintiff-Appellant,

v.

PUBLIC EMPLOYEES RETIREMENT BOARD,

Defendant-Respondent.

Lincoln County Circuit Court

21CV14232; A177870

Amanda R. Benjamin, Judge.

Argued and submitted February 13, 2023.

Aruna A. Masih argued the cause and filed the briefs for

appellant.

Peenesh Shah, Assistant Attorney General, argued

the cause for respondent. Also on the brief were Ellen F.

Rosenblum, Attorney General, and Benjamin Gutman,

Solicitor General.

Before Ortega, Presiding Judge, Powers, Judge, and

Hellman, Judge.

ORTEGA, P. J.

Affirmed.

726 Meister v. PERB

ORTEGA, P. J.

On appeal in an other than contested case, ORS

183.484 and ORS 183.500, plaintiff 1 seeks review of a final

order of the Public Employees Retirement System (PERS)

that calculated his retirement benefits. In a single assign-

ment of error, plaintiff asserts that PERS, which is adminis-

tered by defendant the Public Employees Retirement Board

(PERB), incorrectly computed his retirement benefits when

it applied the salary cap provision in ORS 238.005(26)(c)(M),

which became effective January 1, 2020, to his final employ-

ment check issued in January 2020. Plaintiff asserts that

applying the salary cap to that paycheck excluded his lump-

sum payment for accrued vacation leave and compensatory

time (comp-time) from the calculation of his final average

salary, and, because those hours accrued before the salary

cap went into effect, that was an unconstitutional retroac-

tive application of the salary cap. We conclude that PERS

correctly applied the salary cap to plaintiff’s final employ-

ment check as provided in ORS 238.005(26) and that it did

not violate the Contract Clause in Article I, section 21, of

the Oregon Constitution in doing so. Accordingly, we affirm.

The relevant facts are undisputed. Plaintiff began

employment in a PERS-covered position on September 1,

1991, which makes him a Tier One member of PERS. He

retired on February 1, 2020, after 28 years and 5 months

of credible service in PERS-eligible employment. By check

dated January 31, 2020, for the identified pay period of

January 16 to 31, 2020, plaintiff was paid a lump-sum pay-

ment for accrued vacation leave and comp-time that totaled

$21,945.07. During January 2020, plaintiff was also paid for

time worked that month, totaling $14,073.52.

On January 1, 2020, Senate Bill 1049 (2019) went

into effect, which includes a salary cap for purposes of cal-

culating a member’s final average salary, which in turn is

used to calculate the owed retirement benefit. See Or Laws

1

As the state points out, on judicial review in the circuit court of an order in

an other than contested case, ORS 183.484, the party seeking review is meant

to be referred to as the petitioner. However, the case caption in this matter both

below and on appeal identifies the party seeking review as plaintiff, so we follow

that convention in this opinion.

Cite as 334 Or App 725 (2024) 727

2019, ch 355, §§ 39, 62. The salary cap is codified at ORS

238.005(26)(c)(M), and provides:

“(c) ‘Salary’ or ‘other advantages’ does not include:

“* * * * *

“(M) For years beginning on or after January 1, 2020,

any amount in excess of $195,000 for a calendar year. If

any period over which salary is determined is less than

12 months, the $195,000 limitation for that period shall

be multiplied by a fraction, the numerator of which is the

number of months in the determination period and the

denominator of which is 12.”

On March 23, 2020, PERS issued a notice of ben-

efits to plaintiff which included a calculation for plaintiff’s

final average salary based on the last 36 months of salary.

For that calculation, PERS capped plaintiff’s January 2020

salary at $17,255.04. Plaintiff timely disputed that calcula-

tion, arguing that PERS could not apply the salary cap to

his lump-sum payment for vacation leave and comp-time,

which he argued were accrued balances attributable to ser-

vice provided to his employer before January 1, 2020. After a

review, PERS issued the order at issue here, in which PERS

determined that plaintiff’s benefit would be decreased by

$16.49 per month, because plaintiff’s January 2020 salary

was required to be capped at $16,249.94. In response to

plaintiff’s specific dispute, PERS stated that, as a Tier One

member of PERS, plaintiff’s lump-sum payment is included

as salary in the calculation of benefits, but PERS considered

that payment to be earned in 2020. Plaintiff sought judicial

review of PERS’s order in the circuit court, and, on cross-

motions for summary judgment, the circuit court entered

a judgment in favor of PERB, the governing authority of

PERS, ORS 238.630.

Plaintiff appeals, and under ORS 183.500, we

review the circuit court’s judgment “to determine whether

the circuit court correctly applied the standards of its review

under ORS 183.484.” Hoekstre v. DLCD, 249 Or App 626,

634, 278 P3d 123, rev den, 352 Or 377 (2012). One of those

standards requires the circuit court to determine whether

“the agency has erroneously interpreted a provision of law.”

ORS 183.484(5)(a). As a practical matter, where, as here,

728 Meister v. PERB

there are no disputes of fact and the issue presented is one of

law, we also review to determine whether PERS erroneously

interpreted a provision of law. Hoekstre, 249 Or App at 634.

On appeal, plaintiff asserts that PERS improp-

erly applied the salary cap to the lump-sum payment for

his accrued vacation leave and comp-time because he had

earned that leave before the effective date of the salary cap.

Plaintiff argues that his accrued vacation leave and comp-

time were part of his final average salary as part of his con-

tract with PERS, because those hours are included in the

definition of “salary” and “final average salary.” Thus, plain-

tiff asserts that PERS’s application of the salary cap was an

unconstitutional retrospective application to leave balances

that he had earned for work performed before January 1,

2020.

PERB responds that PERS’s application of the

salary cap to plaintiff’s retirement benefit was not a retro-

spective application because plaintiff’s vacation leave and

comp-time were not salary until the lump-sum payment

was paid to plaintiff. PERB reasons that, because plaintiff

did not receive a cash payout until after the effective date

of the salary cap, the application of the salary cap was not

retrospective.

As we understand it, plaintiff’s argument requires

us to determine whether PERS’s application of the salary

cap violated the Contract Clause of Article I, section 21,2

because, as applied, the salary cap retrospectively impaired

a retirement benefit plaintiff earned before January 1,

2020.3 There are two steps to determining whether legisla-

tion violates the Contract Clause of Article I, section 21:

“First, it must be determined whether a contract exists to

which the person asserting an impairment is a party; and,

second, it must be determined whether a law of this state

has impaired an obligation of that contract.”

2

The Contract Clause in Article I, section 21, provides, “No * * * law impair-

ing the obligation of contracts shall ever be passed[.]”

3

Plaintiff does not cite to Article I, section 21, or any other constitutional

provision is his briefing. However, we understand plaintiff’s arguments about his

“constitutional rights” and reference in the reply brief to the “Contract Clause” to

be based on Article I, section 21, and the case law interpreting that provision.

Cite as 334 Or App 725 (2024) 729

Hughes v. State of Oregon, 314 Or 1, 13-14, 838 P2d 1018

(1992) (citing Eckles v. State of Oregon, 306 Or 380, 396-97,

760 P2d 846 (1988), cert dismissed, 490 US 1032 (1989)).4 The

first step, in turn, requires us to answer three questions,

“(1) is there a state contract?; (2) if so, what are its terms?;

and (3) what obligations do the terms provide?” Strunk v.

PERB, 338 Or 145, 170, 108 P3d 1058 (2005) (citing Hughes,

314 Or at 17-29); see also Moro v. State of Oregon, 357 Or

167, 195-231, 351 P3d 1 (2015) (applying that analysis). The

second step then focuses on whether the legislation changes

or eliminates the state’s obligation under that contract.

Strunk, 338 Or at 170 (citing Eckles, 306 Or at 399-400). “We

normally answer those questions by applying general rules

of contract law.” Moro, 357 Or at 194.

The first question of the first step of the inquiry—is

there a state contract?—is not at issue, because, as decided

in Hughes, “PERS was intended to be and is a contract

between the [public employer] and its employees[.]” 314 Or

at 25; see also, e.g., Strunk, 338 Or at 170. As the Supreme

Court has explained, “[t]he PERS contract is formed when

the employee accepts the offer. An employee ‘accept[s] the

offer by providing the services’ that his or her employer

sought, resulting in a unilateral contract. * * * And, because

the employee accepts the offer through performance, ‘a

member’s acceptance reaches only as far as the work that

the member has performed.’ ” James v. State of Oregon, 366

Or 732, 740, 471 P3d 93 (2020) (quoting Moro, 357 Or at 198,

201; internal citations omitted).

The second two questions—what are its terms?

and what obligations do the terms provide?—ultimately

are at the heart of this case. We first address the standard

we must apply to determine the contractual terms. “[T]he

4

In his reply brief, plaintiff asserts that ORS 238A.470 applies here.

However, contrary to plaintiff’s assertion, the Supreme Court recently reaf-

firmed that ORS 238A.470 does not apply to Tier One members, such as plaintiff,

or to Tier Two members. See James v. State of Oregon, 366 Or 732, 741 n 2, 471

P3d 93 (2020) (“That [Contract Clause] impairment-of-contract analysis applies

to all categories of PERS members, even though OPSRP members are subject to

a legislative reservation of rights that does not apply to Tier One and Tier Two

members.” (Emphasis added.)); see also Moro v. State of Oregon, 357 Or 167, 218,

351 P3d 1 (2015) (“[R]espondents rely on a reservation of rights provision, ORS

238A.470, that the legislature applied to OPSRP members but not to Tier One

and Tier Two members.”). Thus, we do not address that argument further.

730 Meister v. PERB

terms of the statutory PERS contract are a matter of legis-

lative intent and only statutory terms that ‘unambiguously

evince[ ] an underlying promissory, contractual legislative

intent’ become a part of the statutory PERS contract.” Arken

v. City of Portland, 351 Or 113, 136, 263 P3d 975, adh’d to

on recons sub nom, Robinson v. Public Employees Retirement

Board, 351 Or 404, 268 P3d 567 (2011) (quoting Hughes, 314

Or at 26 (second brackets in Arken)); see also Moro, 357 Or

at 202 (“[T]he standard of clear and unmistakable contrac-

tual intent applies to both the question of whether there is

an offer to form a contract and also to whether a particu-

lar provision is a term of that offer.”). Not every provision

in the PERS statutes is a term of the PERS contract, and

the Supreme Court has set out two principles to guide the

inquiry:

“First, because the PERS offer promises remunerative

pension benefits as compensation for employment, the offer

may include provisions that define the eligibility for bene-

fits or the scope of benefits. * * *

“* * * [T]he PERS offer does not necessarily include

those administrative aspects of PERS as compensation for

employment.

“Second, not all remunerative provisions are terms of

the PERS offer. Instead, a remunerative provision will

be a term of the offer only if it is mandatory, rather than

optional or discretionary.”

Moro, 357 Or at 204-05.

Here, the parties generally agree that the PERS

contract with plaintiff, a Tier One member of PERS, included

a term that his lump-sum payment for vacation leave and

comp-time would be included as salary for the purposes of

calculating plaintiff’s final average salary to determine his

retirement benefit.5 See ORS 238.435(1) (For persons who

established PERS membership after January 1, 1996, as

provided in ORS 238.430, “[PERB] shall not include any

lump sum payment for accrued vacation pay made to the

member during the last 36 calendar months of membership

5

Neither plaintiff nor PERB has suggested that plaintiff’s comp-time pay-

ment is required to be treated any differently than his vacation-leave payment.

As a result, we do not distinguish those payments in our analysis.

Cite as 334 Or App 725 (2024) 731

* * *.”); OAR 459-005-0001(32)(b)(B) (“For a Tier One mem-

ber, a lump sum payment for accrued vacation pay is consid-

ered salary: * * * In determining final average salary for the

purpose of calculating PERS benefits.”). Plaintiff, however,

asserts further that the contract term is that his accrued

vacation leave and comp-time itself is part of the definition

of “salary” for purposes of calculating his PERS benefits.

Plaintiff does not explain how he arrives at that conclusion,

and as explained below, we reject it.6

We start with a discussion of the statutes at issue,

because they define the terms of the PERS contract with

plaintiff. See, e.g., Moro, 357 Or at 205, 210 (analyzing the

wording of the PERS statutes to determine the contract

terms). The plain text of the definition of “salary” in ORS

238.005(26)(a) does not support plaintiff’s assertion that

“salary” included his accrued vacation leave and comp-time.

Instead, the definition of salary includes only “renumeration

* * * in cash.” (Emphasis added.) That statute provides, as

relevant here:

“ ‘Salary’ means the remuneration paid an employee

in cash out of the funds of a public employer in return

for services to the employer, plus the monetary value, as

determined by the Public Employees Retirement Board, of

whatever living quarters, board, lodging, fuel, laundry and

other advantages the employer furnishes the employee in

return for services.”

ORS 238.005(26)(a).7 That definition of salary has been in

place since before plaintiff’s hire date in 1991. See former

6

Two of the cases cited by plaintiff do not assist his argument, because those

cases concerned the terms contained in an employment contract and not the

terms of the PERS contract as expressed in the PERS statutes. Furthermore,

those cases addressed circumstances not at issue here. See Harryman v. Roseburg

Fire Dist., 244 Or 631, 420 P2d 51 (1966) (holding that an employer could not

revoke a contract term that had allowed payout of unused accumulated sick leave

upon termination of employment with respect to already earned leave); Brett v.

City of Eugene, 130 Or App 53, 880 P2d 937 (1994), rev den, 320 Or 507 (1995)

(holding that an employer could apply a prospectively unilateral modification

that capped the number of hours of leave an employee could accrue). With respect

to Oregon State Police Officers’ Assn. v. State of Oregon, 323 Or 356, 918 P2d 765

(1996), abrogated by Moro v. State of Oregon, 357 Or 167, 351 P3d 1 (2015), the

Supreme Court disavowed the reasoning employed by that case it its entirety, and

we will not rely on it here. See Moro, 357 Or at 225.

7

For the first time at oral argument, plaintiff asserted that “other advan-

tages” could include plaintiff’s vacation leave or comp-time. We reject that

732 Meister v. PERB

ORS 237.003(8)(a) (1991), renumbered as ORS 238.005 (1995).

When plaintiff accepted the offer of the PERS contract by

working, plaintiff was accepting the offer that any renumer-

ation in cash that he received for his public service would

be “salary.” For Tier One members, that includes lump-sum

payments made by public employers to their employees for

accrued leave, because such a payment is “remuneration

paid an employee in cash,” and is not subject to the exclusion

that applies to Tier Two members under ORS 238.435(1).

At no time did the statutory definition of salary contain a

contract offer to plaintiff that his accrued vacation leave

and comp-time would be considered salary before they were

paid out in cash to plaintiff. That is, plaintiff’s accrued leave

itself was not a retirement benefit.

Likewise, “final average salary” for purposes of com-

puting retirement benefits includes “salary” that is “paid” to

the employee. Final average salary is defined as the greater

of:

“(a) The average salary per calendar year paid by one

or more participating public employers to an employee who

is an active member of the system in three of the calendar

years of membership before the effective date of retirement

of the employee, in which three years the employee was

paid the highest salary. * * *.

“(b) One-third of the total salary paid by a participat-

ing public employer to an employee who is an active mem-

ber of the system in the last 36 calendar months of active

membership before the effective date of retirement of the

employee.”

ORS 238.005(9). Here, PERS applied ORS 238.005(9)(b)

as the provision providing the greatest benefit to plaintiff.

Under that provision, retirement benefits are computed

by determining the “salary paid by a participating public

employer” to the PERS member during the relevant time

frame. That statute does not contain an offer to include

accrued vacation leave or comp-time in the PERS retirement

argument both because it was not timely raised and because it conflicts with our

long-standing case law. See Oreg. Fire/Police Retire. v. PERB, 62 Or App 777, 783,

662 P2d 729, adh’d to on recons, 65 Or App 465, 671 P2d 729 (1983), rev den, 296

Or 464 (1984) (“other advantages” refers to like-kind consumable items to “living

quarters, board, lodging, fuel, laundry”).

Cite as 334 Or App 725 (2024) 733

benefit calculation that is not paid as salary, as that term is

defined in ORS 238.005(26).

Having identified the contract term, we turn to iden-

tifying the precise obligation that term imposes, because

“[i]t is those obligations that set the conditions that the leg-

islature may not in the future alter without consequences.”

Strunk, 338 Or at 201. Here, the obligation is straightfor-

ward based on the foregoing discussion: PERS was obligated

to include plaintiff’s January 2020 lump-sum payment as

“salary” in calculating his final average salary. PERS did

that. However, plaintiff argues that the salary cap cannot

apply, because the lump-sum payment was attributable to

work he performed before January 1, 2020. The problem with

plaintiff’s argument is that it does not grapple with the pre-

cise contours of the PERS contract term at issue here, which

was that plaintiff was entitled to have lump-sum payments

for accrued leave (that was paid to plaintiff during the rele-

vant time) included as salary for purposes of calculating his

retirement benefits. There was no salary to include in the

calculation until plaintiff earned the salary—that is, until

plaintiff earned the lump-sum payment—by terminating

his employment while he had accrued unused leave that his

employer had agreed would be paid out to plaintiff upon ter-

mination. The employer here fulfilled that agreement with

plaintiff and paid out that leave on January 31, 2020. And,

as provided by the contract term, PERS included that pay-

ment as salary in the calculation of his final average salary

as salary paid to plaintiff in January 2020.

As we see it, the only remaining question in this

case is whether the contract term included an obligation

to not apply the January 2020 definition of salary to that

January 31, 2020, lump-sum payment. The Supreme Court

answered that question in the negative in James. In that case,

the court addressed a facial challenge under Article I, sec-

tion 21, to the salary cap. After determining that the salary

cap applied only prospectively, the court addressed whether

the pre-amendment definition of salary was an irrevocable

term of the PERS contract. The court concluded that it was

not, because a final average salary is not a type of benefit

offer that takes time to complete the acceptance; rather, it is

734 Meister v. PERB

a benefit “which ‘accrues incrementally as a PERS member

renders additional service to his or her employer.’ ” James,

366 Or at 755 (quoting Moro, 357 Or at 224). Plaintiff has

not asserted an argument that would lead us to a different

result than the one reached in James.

In sum, we conclude that PERS’s application of the

salary cap to plaintiff’s January 2020 salary, which included

a lump-sum payment for accrued vacation leave and comp-

time, was not an impairment of contractual obligations in

violation of Article I, section 21.

Affirmed.