Patricia Batista v. Office of Retirement Services

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to

revision until final publication in the Michigan Appeals Reports.

STATE OF MICHIGAN

COURT OF APPEALS

PATRICIA BATISTA, DAVID BRITTEN, FOR PUBLICATION

TIMOTHY DONAHUE, AARON GAFFNEY, August 12, 2021

JOHN HEWITT, RONALD KOEHLER, AMY 9:00 a.m.

SWANTEK, CHRIS THOMSON, and MICHIGAN

ASSOCIATION OF SUPERINTENDENTS AND

ADMINISTRATORS,

Plaintiffs-Appellants,

V No. 353832

Court of Claims

OFFICE OF RETIREMENT SERVICES, LC No. 19-000019-MZ

MICHIGAN PUBLIC SCHOOL EMPLOYEES

RETIREMENT SYSTEM, MICHIGAN PUBLIC

EMPLOYEES RETIREMENT SYSTEM BOARD,

PUBLIC SCHOOL EMPLOYEES RETIREMENT

SYSTEM BOARD MEMBERS, and EXECUTIVE

DIRECTOR OF RETIREMENT SERVICES,

Defendants-Appellees.

Before: HOOD, P.J., and MARKEY and GLEICHER, JJ.

MARKEY, J.

This case involves issues regarding the determination of reportable “compensation” under

the Public School Employees Retirement Act (the Retirement Act), MCL 38.1301 et seq., and the

Reporting Instruction Manual (the manual) prepared and implemented by defendant Office of

Retirement Services (ORS). Resolution of these issues has a bearing on retirement allowances or

pension payments for public school superintendents and administrators who work under personal

employment contracts, not collective bargaining agreements. The Court of Claims granted

summary disposition to defendants, and plaintiffs appeal by right. We reverse and remand for

entry of judgment in favor of plaintiffs.

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I. THE STATUTORY FRAMEWORK

To provide context to and an understanding of our discussion of the facts, the procedural

history of the case, and the parties’ arguments, we begin with a review of the relevant language

contained in the Retirement Act. The “Michigan public school employees’ retirement system

[was] created for the public school employees of this state.” MCL 38.1321. The retirement system

is intended to “be a qualified pension plan created in trust under section 401 of the internal revenue

code, 26 USC 401[.]” MCL 38.1408(1). In general, “upon [a] member’s retirement from service

. . ., a member shall receive a retirement allowance that equals the product of the member’s total

years, and fraction of a year, of credited service multiplied by 1.5% of the member’s final average

compensation.” MCL 38.1384(1) (emphasis added).1 A member’s “final average compensation”

is defined, in part, as “the aggregate amount of a member’s compensation earned within the

averaging period in which the aggregate amount of compensation was highest divided by the

member’s number of years, including any fraction of a year, of credited service during the

averaging period.” MCL 38.1304(12).

With respect to the term “compensation,” MCL 38.1303a(1) provides that it “means the

remuneration earned by a member for service performed as a public school employee.” MCL

38.1303a(2) states that “[c]ompensation includes salary and wages and all of the following . . . .”

MCL 38.1303a(2) then lists eight specific types of payments that constitute compensation, e.g.,

“[l]ongevity pay[,]” MCL 38.1303a(2)(d). MCL 38.1303a(3) lists types of payments that do not

constitute compensation, including the following:

(e) Remuneration paid for the specific purpose of increasing the final

average compensation.

(f) Compensation in excess of an amount over the level of compensation

reported for the preceding year except increases provided by the normal salary

schedule for the current job classification. In cases where the current job

classification in the reporting unit[2] has less than 3 members, the normal salary

1

A “member” is, with some exceptions, “a public school employee.” MCL 38.1305(1). There is

no dispute that the individual plaintiffs are members. The term “retirement allowance” is defined

as “a payment for life or a temporary period provided for in this act to which a retirant, retirement

allowance beneficiary, or refund beneficiary is entitled.” MCL 38.1307(5).

2

MCL 38.1307(3) provides:

Except as otherwise provided in this subsection, “reporting unit” means a

public school district, intermediate school district, public school academy, tax

supported community or junior college, or university, or an agency having

employees on its payroll who are members of this retirement system. The reporting

unit shall be the employer for purposes of this act. . . . .

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schedule for the most nearly identical job classification in the reporting unit or in

similar reporting units shall be used.

MCL 38.1303a(5)(a) and (b) provide that the retirement board,3 based on information and

documentation provided by a member, shall determine “[w]hether any form of remuneration paid

to a member is identified in this section[,]” and “[w]hether any form of remuneration that is not

identified in this section should be considered compensation reportable to the retirement system

under this section.” Finally, MCL 38.1303a(6) states that “[i]n any case where a petitioner seeks

to have remuneration included in compensation reportable to the retirement system, the petitioner

shall have the burden of proof.”

II. BACKGROUND – OVERVIEW

Plaintiffs are current or retired public school superintendents and administrators who work

or worked under personal employment contracts, not collective bargaining agreements. 4 Pension

payments made to superintendents and administrators are calculated by taking into consideration

years of credited service and, relevant here, their “final average compensation.” Accordingly,

there must be a determination of the individual’s annual compensation during the years of

employment. MCL 38.1303a(3) makes clear that not all compensation is reportable for purposes

of ascertaining a member’s final average compensation. And annual increases in compensation in

excess of the normal salary schedule for a job classification are, effectively, nonreportable. MCL

38.1303a(3)(f).5 The Retirement Act does not define “normal salary schedule” or provide any

further elaboration on the phrase. This is where the ORS’s manual comes into play with respect

to superintendents and administrators.

The ORS, which is a division of the Department of Technology, Management and Budget,

administers the retirement system. The ORS’s manual, prepared annually, is designed to assist

payroll offices, working in unison with the ORS, in ensuring the accuracy of account information

and pension payments for members. The manual indicates that it is a summary of basic plan

provisions found in the Retirement Act and that the Retirement Act governs if there are any

discrepancies between the Retirement Act and the manual. The ORS creates normal salary

increase (NSI) schedules for superintendents and administrators. These schedules are then placed

in the manual. The following is an excerpt from the manual presented to the Court of Claims:

In cases where a job classification has fewer than three members

(superintendents, assistant superintendents, administrative assistants), ORS applies

a normal salary schedule for the most nearly identical job classification in similar

reporting units. To determine what constitutes a normal salary schedule for these

job classifications, ORS has aggregated salary data for each classification and has

3

The “retirement board” is “the board provided to administer th[e] retirement system.” MCL

38.1307(7).

4

Plaintiffs also include the Michigan Association of Superintendents and Administrators.

5

The ORS’s manual speaks in terms of “reportable” and “nonreportable” compensation.

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calculated the annual average increases, which resulted in the Normal Salary

Increase (NSI) percentage tables provided below.

For each of the respective job classifications, similar reporting units are

grouped into one of four categories based on payroll size. For each grouping, the

annual average salary increase percentage is calculated and doubled to allow a more

generous and flexible deviation of ‘normal.’ Annual increases in compensation for

a particular job classification are reportable if they are within the NSI percentages

for a given year. Increases in excess of the NSI are excluded.

Because the [Retirement Act] requires that all compensation increases fall

within a normal salary schedule, any portion of salary above the applicable NSI in

a given year will remain subject to the NSI in subsequent years. This is because the

NSI included for one year becomes the base salary upon which the next year’s

allowable increase is calculated. . . .

As indicated, the NSI schedules set forth annual allowable percentages with respect to

increases in compensation. Yearly compensation increases at or below a particular enumerated

percentage constitute reportable compensation that can be used for determining a member’s final

average compensation. But annual compensation increases above the percentage represent

nonreportable compensation that cannot be considered in calculating the final average

compensation. Plaintiffs received, in various forms, annual increases in compensation, not all of

which were taken into consideration for purposes of ascertaining their final average compensation.

In other words, a portion of the increase in compensation was characterized as nonreportable

compensation under the NSI schedules created by the ORS.

III. THE LITIGATION

In Count I of their amended complaint, plaintiffs alleged in pertinent part that the

Retirement Act does not authorize the ORS to create the NSI schedules and apply them to

plaintiffs. Plaintiffs asserted, therefore, that the ORS acted in violation of the Retirement Act by

imposing the NSI schedules on plaintiffs. In Count II, plaintiffs contended that the NSI schedules

violate Const 1963, art 9, § 24, which provides, in relevant part, that “[t]he accrued financial

benefits of each pension plan and retirement system of the state and its political subdivisions shall

be a contractual obligation thereof which shall not be diminished or impaired thereby.” In Count

III of the complaint, plaintiffs alleged a violation of the Administrative Procedures Act (APA),

MCL 24.201 et seq. Plaintiffs claimed that the NSI schedules, assuming their validity under the

Retirement Act, must be promulgated as “rules,” as defined in MCL 24.207, under the specific

procedures set forth in Chapter 3 of the APA, MCL 24.231 et seq., and that the failure to do so

constitutes a violation of the APA. In Count IV, plaintiffs maintained that their rights to procedural

due process under the Michigan and United States Constitutions had been violated. Plaintiffs

asserted that they had a property right to their compensation and pensions which entitled them to

notice and a hearing before their pensions were capped by the application of the NSI schedules,

and that the ORS had not provided them with pre-deprivation hearings or proper post-deprivation

reviews. In Count V of the complaint, mistakenly labeled Count IV, plaintiffs alleged that they

are entitled to civil damages under 42 USC 1983 for the violation of their due-process rights.

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Although plaintiffs did not request any type of relief with respect to each individual count,

at the conclusion or very end of the complaint, plaintiffs sought the following rulings and relief

from the Court of Claims:

(1) Issue declaratory ruling holding the NSI [schedules] as created by the

ORS and placed into the [manual] to be unlawful and stricken from the [manual]

and to no longer be used in application to the Plaintiffs and all other affected public

employees[;]

(2) Issue declaratory ruling holding that the application of the NSI

[schedules] to be unlawful and that any prior application of it to any Plaintiff or

other affected public employee to be stricken[;]

(3) Issue an order that ORS conduct a new review of compensation for any

Plaintiff or other affected public employee that has had their compensation reduced

through the usage of the NSI [schedules] and order that review to be conducted

without consideration of the NSI [schedules;]

(4) Issue an order granting back pay to any affected public employee that is

currently receiving a pension that was reduced in any manner because of the

application of the NSI [schedules;]

(5) Issue an order that ORS must follow the protocols and procedures of the

APA when adopting or amending portions of the [manual] that are used and applied

as rules by the ORS[;]

(6) Issue an order that a pre-deprivation hearing must be conducted prior to

reducing the reported compensation or [final average compensation] of a member

of the System[;]

(7) Issue an order granting reasonable costs and actual attorney fees to

Plaintiffs for bringing this matter and administrative proceedings leading to this

matter[;6]

(8) Appoint a Special Master for purposes of reviewing pleadings and

claims supporting the creation of a Class pursuant to MCL § 600.6419(1)(c) . . . [;

and]

(9) Any other relief that this Court deems proper.

6

The individual plaintiffs had previously pursued administrative relief by arguing to the retirement

board that the creation and application of the NSI schedules violated the Retirement Act. The

retirement board rejected the argument on the basis that the same argument regarding the NSI

schedules had been entertained by the retirement board many times in the past or on judicial review

and that all those challenges had been unsuccessful.

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Defendants moved for summary disposition, presenting a variety of arguments in support

of dismissal of plaintiffs’ lawsuit. The Court of Claims granted the motion for summary

disposition, except in regard to plaintiffs’ APA count, in an extensive written opinion and order.

The Court of Claims first addressed defendants’ contention that the Court lacked subject-matter

jurisdiction because plaintiffs had failed to exhaust their administrative remedies. The Court of

Claims ruled that to the extent that plaintiffs’ claims were challenging the validity of using the NSI

schedules in general, the claims were not barred by a failure to exhaust administrative remedies.

With respect to claims seeking a recalculation of the pension benefits for individual plaintiffs, the

Court of Claims proceeded on the assumption that those claims were not precluded by a failure to

exhaust administrative remedies.7

The Court of Claims next determined that claims involving the pension benefits of

individual plaintiffs were barred for failure to strictly comply with the notice requirements of MCL

600.6431(1),8 even if there were actual notice and regardless whether prejudice was incurred. The

Court of Claims agreed with defendants’ contention that the claims of the individual plaintiffs

accrued on June 30, 2017;9 therefore, because the complaint was filed more than a year later, any

effort to revisit the calculation of their pension benefits was essentially time-barred under MCL

600.6431(1). The Court of Claims noted that “plaintiffs have not even argued that they complied

with MCL 600.6431, nor have they challenged defendants’ assertions about the accrual dates of

their respective claims.” Given the failure to meaningfully refute defendants’ argument under

MCL 600.6431(1), the Court of Claims concluded that plaintiffs’ claims seeking re-visitation or

recalculation of individual pension benefits were time-barred by operation of MCL 600.6431(1).

The Court of Claims determined that the same reasoning applied to the claims alleging state and

federal due-process violations, the claim seeking relief under 42 USC 1983, and the claim asserting

a violation of Const 1963, art 9, § 24. Accordingly, pursuant to MCR 2.116(C)(7), the Court of

Claims summarily dismissed Counts II, IV, and V of plaintiffs’ complaint.

The Court of Claims ruled, however, that MCL 600.6431(1) did not preclude plaintiffs’

claims for declaratory relief. With respect to Count I of plaintiffs’ complaint, the Court of Claims

addressed whether the ORS’s creation and use of the NSI schedules were authorized by the

7

Earlier in its discussion, the Court of Claims acknowledged that the individual plaintiffs had

sought agency review and were rebuffed by the retirement board. The Court of Claims also

indicated that plaintiffs had “presented a compelling argument as to why further administrative

review—were it required—would have been futile[.]”

8

MCL 600.6431(1) provides:

Except as otherwise provided in this section, a claim may not be maintained

against this state unless the claimant, within 1 year after the claim has accrued, files

in the office of the clerk of the court of claims either a written claim or a written

notice of intention to file a claim against this state or any of its departments,

commissions, boards, institutions, arms, or agencies.

9

In the fact section of its written opinion and order, the Court of Claims stated that “plaintiffs have

not disputed the notion that all of OSR’s discrete decisions that purportedly harmed[] the

individual plaintiffs were made on or before June 30, 2017.”

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Retirement Act. The Court of Claims stated that MCL 38.1303a(5) grants the retirement board,

and thus the ORS, the authority to review forms of remuneration paid to members in order to assess

whether it is reportable compensation. The Court of Claims then focused its attention on MCL

38.1303a(3)(f), which, as indicated earlier, excludes from compensation the following:

Compensation in excess of an amount over the level of compensation

reported for the preceding year except increases provided by the normal salary

schedule for the current job classification. In cases where the current job

classification in the reporting unit has less than 3 members, the normal salary

schedule for the most nearly identical job classification in the reporting unit or in

similar reporting units shall be used.

The Court of Claims agreed with defendants that MCL 38.1303a(3)(f) gives the ORS the

authority to create the NSI schedules for superintendents and administrators because those

individuals are not subject to a normal salary schedule that would typically be found in a collective

bargaining agreement. The Court of Claims also opined that the exclusions from compensation in

MCL 38.1303a(3) apply to all members, which would necessarily include superintendents and

administrators. The Court of Claims observed that “there is no support for the proposition that

administrators and superintendents were intended to be excluded from any exception.” The Court

of Claims further explained:

While . . . superintendents and administrators are not subject to a typical

salary schedule like other public school employees might be, MCL 38.1303a(3)(f)

expressly anticipates members—like superintendents and administrators—who are

not subject to a normal salary schedule. The statute does so by allowing the ORS

Board to use, in the case of small reporting units not subject to a salary schedule,

“the normal salary schedule for the most nearly identical job classification” in the

school district or similar school districts. . . . Stated otherwise, the plain language

of the statute, consistent with recognizing the authority of the ORS Board to review

all forms of remuneration, unambiguously gives the ORS Board authority to ensure

that all salary increases—without exception—are in line with a “normal salary

schedule” for the type of job classification at issue. The ORS Board’s interpretation

of MCL 38.1303a(3)(f) as authorizing the creation of the NSI is not in conflict with

the plain language of the [Retirement Act].

The Court of Claims additionally remarked that “[i]f the Legislature had intended to

exclude administrators and superintendents from the reach of MCL 38.1303a(3)(f), it could have

expressly done so.” The Court of Claims also indicated that the ORS’s construction of MCL

38.1303a(3)(f) was entitled to respectful consideration. The Court of Claims granted summary

disposition in favor of defendants under MCR 2.116(C)(8) with respect to Count I of plaintiffs’

complaint.

In regard to Count III of the complaint pertaining to the alleged APA violation, the Court

of Claims declined to address the matter because defendants had not actually presented an

argument for summary dismissal of that count in their brief. The Court of Claims later denied

plaintiffs’ motion for reconsideration relative to the counts that had been dismissed.

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Subsequently, the parties filed competing motions for summary disposition on the issue of

the alleged APA violation in Count III of the complaint. The Court of Claims noted that the issue

before it was whether the NSI schedules reflected rulemaking by the ORS without honoring the

required APA procedures for rule promulgation. The Court of Claims ruled that the NSI schedules

merely explain reportable and nonreportable “compensation,” including when a job classification

in a reporting unit has fewer than three members. According to the Court of Claims, the NSI

schedules do not add requirements or terms to the statutory meaning of “compensation.” The

Court of Claims further indicated that the manual itself provides that it is merely a summary of the

Retirement Act and is simply meant to assist schools in determining reportable compensation. The

Court of Claims viewed the manual as an interpretive statement or guideline, not a rule, opining

that there was “ample caselaw wherein explanatory manuals did not constitute ‘rules’ under the

APA.” Ultimately, the Court of Claims concluded that there was no genuine issue of material fact

that the NSI schedules found in the manual are not administrative rules. Therefore, the APA’s

rulemaking procedures did not apply. The Court of Claims granted defendants’ motion for

summary disposition under MCR 2.116(C)(10), denied plaintiffs’ motion for summary disposition,

and dismissed the case. Plaintiffs appeal by right.

IV. ANALYSIS

A. PLAINTIFFS’ ARGUMENTS ON APPEAL

On appeal, plaintiffs present four broad arguments. First, they contend that the Court of

Claims erred by ruling that the NSI schedules defendants created and administered do not violate

the Retirement Act. Second, plaintiffs maintain that the Court of Claims erred by concluding that

the NSI schedules do not violate the APA and its rulemaking procedures. Third, plaintiffs assert

that the Court of Claims erred by determining that the claim of an alleged violation of Const 1963,

art 9, § 24, was time-barred with respect to broad declaratory relief under the notice requirements

of MCL 600.6431(1). Fourth, and finally, plaintiffs argue that the Court of Claims erred by ruling

that the claims alleging due-process violations were time-barred in regard to broad declaratory

relief under the notice requirements of MCL 600.6431(1).

B. STANDARD OF REVIEW

We review de novo a trial court’s decision on a motion for summary disposition. Hoffner

v Lanctoe, 492 Mich 450, 459; 821 NW2d 88 (2012). This Court additionally reviews de novo

issues of statutory interpretation. Estes v Titus, 481 Mich 573, 578-579; 751 NW2d 493 (2008).

We also review de novo questions of constitutional law. Adair v Michigan, 497 Mich 89, 99; 860

NW2d 93 (2014).

C. PRINCIPLES OF SUMMARY DISPOSITION UNDER MCR 2.116(C)(7), (8), AND (10)

In RDM Holdings, Ltd v Continental Plastics Co, 281 Mich App 678, 687; 762 NW2d 529

(2008), this Court set forth the principles governing a motion for summary disposition brought

pursuant to MCR 2.116(C)(7):

Under MCR 2.116(C)(7) . . ., this Court must consider not only the

pleadings, but also any affidavits, depositions, admissions, or other documentary

evidence filed or submitted by the parties. The contents of the complaint must be

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accepted as true unless contradicted by the documentary evidence. This Court must

consider the documentary evidence in a light most favorable to the nonmoving

party. If there is no factual dispute, whether a plaintiff’s claim is barred under a

principle set forth in MCR 2.116(C)(7) is a question of law for the court to decide.

If a factual dispute exists, however, summary disposition is not appropriate.

[Citations omitted.]

MCR 2.116(C)(8), which provides for summary disposition when a “party has failed to

state a claim on which relief can be granted,” tests the legal sufficiency of a complaint. Beaudrie

v Henderson, 465 Mich 124, 129; 631 NW2d 308 (2001). The trial court may only consider the

pleadings in rendering its decision under MCR 2.116(C)(8). Id. All factual allegations in the

complaint are accepted as true. Dolan v Continental Airlines/Continental Express, 454 Mich 373,

380-381, 563 NW2d 23 (1997). “The motion should be granted if no factual development could

possibly justify recovery.” Beaudrie, 465 Mich at 130.

MCR 2.116(C)(10) provides that summary disposition is appropriate when, “[e]xcept as to

the amount of damages, there is no genuine issue as to any material fact, and the moving party is

entitled to judgment or partial judgment as a matter of law.” A motion brought pursuant to MCR

2.116(C)(10) tests the factual support for a party’s action. Pioneer State Mut Ins Co v Dells, 301

Mich App 368, 377; 836 NW2d 257 (2013). “Affidavits, depositions, admissions, or other

documentary evidence in support of the grounds asserted in the motion are required . . . when

judgment is sought based on subrule (C)(10),” MCR 2.116(G)(3)(b), and such evidence, along

with the pleadings, must be considered by the court when ruling on the (C)(10) motion, MCR

2.116(G)(5). “When a motion under subrule (C)(10) is made and supported . . ., an adverse party

may not rest upon the mere allegations or denials of his or her pleading, but must, by affidavits or

as otherwise provided in this rule, set forth specific facts showing that there is a genuine issue for

trial.” MCR 2.116(G)(4). “A trial court may grant a motion for summary disposition under MCR

2.116(C)(10) if the pleadings, affidavits, and other documentary evidence, when viewed in a light

most favorable to the nonmovant, show that there is no genuine issue with respect to any material

fact.” Pioneer State, 301 Mich App at 377. “A genuine issue of material fact exists when the

record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon

which reasonable minds might differ.” West v Gen Motors Corp, 469 Mich 177, 183; 665 NW2d

468 (2003). The trial court is not permitted to assess credibility, weigh the evidence, or resolve

factual disputes, and if material evidence conflicts, it is not appropriate to grant a motion for

summary disposition under MCR 2.116(C)(10). Pioneer State, 301 Mich App at 377. “Like the

trial court’s inquiry, when an appellate court reviews a motion for summary disposition, it makes

all legitimate inferences in favor of the nonmoving party.” Skinner v Square D Co, 445 Mich 153,

162; 516 NW2d 475 (1994). A court may only consider substantively admissible evidence actually

proffered by the parties when ruling on the motion. Maiden v Rozwood, 461 Mich 109, 121; 597

NW2d 817 (1999); see also MCR 2.116(G)(6).

D. STATUTORY CONSTRUCTION

In Slis v Michigan, 332 Mich App 312, 335-336; 956 NW2d 569 (2020), this Court recited

the well-established rules of statutory construction:

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This Court’s role in construing statutory language is to discern and ascertain

the intent of the Legislature, which may reasonably be inferred from the words in

the statute. We must focus our analysis on the express language of the statute

because it offers the most reliable evidence of legislative intent. When statutory

language is clear and unambiguous, we must apply the statute as written. A court

is not permitted to read anything into an unambiguous statute that is not within the

manifest intent of the Legislature. Furthermore, this Court may not rewrite the plain

statutory language or substitute its own policy decisions for those decisions already

made by the Legislature.

Judicial construction of a statute is only permitted when statutory language

is ambiguous. A statute is ambiguous when an irreconcilable conflict exists

between statutory provisions or when a statute is equally susceptible to more than

one meaning. When faced with two alternative reasonable interpretations of a word

in a statute, we should give effect to the interpretation that more faithfully advances

the legislative purpose behind the statute. [Quotation marks and citations omitted.]

An agency’s construction of a statute that the agency is charged with executing is entitled

to respectful consideration, and there must be cogent reasons for overruling the agency’s

interpretation of the statute. In re Complaint of Rovas Against SBC Mich, 482 Mich 90, 103; 754

NW2d 259 (2008). “Furthermore, when the law is ‘doubtful or obscure,’ the agency’s

interpretation is an aid for discerning the Legislature’s intent.” Id. But an agency’s construction

is not binding on the courts, and the interpretation cannot conflict with the intent of the Legislature

as expressed in the plain language of the statute at issue. Id.

E. DISCUSSION AND HOLDING

We hold that the Retirement Act does not authorize the ORS to create and implement NSI

schedules and apply them to superintendents and administrators under the plain and unambiguous

language of the statutory scheme. In light of our ruling, it is unnecessary to address the additional

arguments plaintiffs pose in this appeal.

As indicated earlier, reportable compensation does not include “[c]ompensation in excess

of an amount over the level of compensation reported for the preceding year except increases

provided by the normal salary schedule for the current job classification.” MCL 38.1303a(3)(f).

This is the first of two sentences in Subdivision (f) of the statute, each of which we will separately

analyze. Again, the Legislature did not define the terminology “normal salary schedule.” We find

it abundantly clear from the Legislature’s references to “the” normal salary schedule and “the”

current job classification that the Legislature was necessarily alluding to schedules and

classifications that were familiar to school personnel and already in place or existence in the

particular contextual setting of collective bargaining. The language “normal salary schedule” for

a “job classification” plainly pertains to salary schedules contained in collective bargaining

agreements. See Kalamazoo City Ed Ass’n v Kalamazoo Pub Sch, 406 Mich 579, 590-591; 281

NW2d 454 (1979) (“The second finding entailed defendant’s failure to observe the automatic

salary progression schedule traditionally incorporated into each collective bargaining agreement

between the parties.”); Ranta v Eaton Rapids Pub Sch Bd of Ed, 271 Mich App 261, 270; 721

NW2d 806 (2006) (“The Court held that where the collective bargaining agreement required all

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teachers to be placed at a step level applicable to his or her experience, the petitioner’s placement

on the salary schedule involved a labor dispute and presented an issue of contract interpretation.”);

Martin v East Lansing Sch Dist, 193 Mich App 166, 169; 483 NW2d 656 (1992) (“the 1983-1986

collective bargaining agreement . . . contained a step-scale salary schedule”). The language in the

initial sentence of MCL 38.1303a(3)(f) simply does not invite or authorize the creation of salary

schedules and classifications by the ORS. Superintendents and administrators such as plaintiffs

are not compensated pursuant to normal salary schedules; rather, they perform their duties and

functions pursuant to personal employment contracts that by definition are distinct and tailored to

particular individuals.

To justify the creation of the NSI schedules by the ORS, defendants rely on the second

sentence of MCL 38.1303a(3)(f), which provides that “[i]n cases where the current job

classification in the reporting unit has less than 3 members, the normal salary schedule for the most

nearly identical job classification in the reporting unit or in similar reporting units shall be used.”

Indeed, the heart of this case involves the construction of this provision. The second sentence of

MCL 38.1303a(3)(f) clearly concerns the same setting as and is a continuation of the preceding

sentence, except that it addresses a situation where the job classification has fewer than three

members—no other deviation is involved or contemplated. The plain language of the sentences

does not reflect a jump from addressing employees subject to salary schedules and collective

bargaining agreements to a focus on employees who work under personal employment contracts.

Moreover, the second sentence of MCL 38.1303a(3)(f) in no form or manner authorizes the

creation of a normal salary schedule or an NSI schedule as described in the ORS’s manual.

Instead, it merely directs the use of an existing normal salary schedule for another job classification

in the reporting unit or a similar reporting unit. Because the plain and unambiguous language does

not authorize the creation of the NSI schedules, we need not entertain plaintiffs’ arguments

regarding legislative history or their uncontested assertion that some reporting units have three or

more assistant superintendents, yet the NSI schedules are applied to them.

MCL 38.1303a(5)(a) and (b) provide that the retirement board, based on information and

documentation provided by a member, shall determine “[w]hether any form of remuneration paid

to a member is identified in this section[,]” and “[w]hether any form of remuneration that is not

identified in this section should be considered compensation reportable to the retirement system

under this section.” The plain and unambiguous language of MCL 38.1303a(5) does not provide

broad authority to the ORS or any of the defendants to create NSI schedules for superintendents

and administrators. MCL 38.1303a(5) authorizes the retirement board to make individual

compensation determinations. See Dignan v Mich Pub Sch Employees Retirement Bd, 253 Mich

App 571, 576-577; 659 NW2d 629 (2003) (Retirement Act empowers the retirement board to

determine what remuneration is to be considered a retiree’s reportable compensation under MCL

38.1303a[5], with the petitioner having the burden of proof in the setting of a contested case).

Moreover, MCL 38.1303a(5) confines the retirement board’s decision-making authority to

ascertaining whether a “form” of remuneration received by a member constitutes reportable

compensation. There does not appear to be any dispute that the form of remuneration received by

the individual plaintiffs was generally reportable compensation under MCL 38.1303a(1) and (2).

Finally, to be clear, we are not ruling that superintendents and administrators such as

plaintiffs are not otherwise subject to the provisions of MCL 38.1303a; as members, MCL

38.1303a generally applies to them. We are only holding that MCL 38.1303a(3)(f) does not govern

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members who work pursuant to personal employment contracts because in such cases normal

salary schedules and collective bargaining agreements are not involved. MCL 38.1303a(3)(f) does

not authorize the ORS to create NSI schedules for superintendents and administrators.

In sum, the ORS had no statutory authority under MCL 38.1303a to create the NSI

schedules. Moreover, even assuming that the NSI schedules were merely interpretive statements

or guidelines, as urged by defendants, and not rules, we find they were still challengeable and are

invalid. See Chonlara, Inc v State Bd of Ed, 442 Mich 230, 243; 501 NW2d 88 (1993) (interpretive

statements that go beyond the scope of the law may be challenged and an interpretation

unsupported by the enabling statute or act constitutes an invalid interpretation).

In light of our holding that the NSI schedules were not lawfully created and are invalid, we

need not address plaintiffs’ argument that the NSI schedules violated the APA’s procedural

requirements with respect to rulemaking. Plaintiffs also argue that the trial court erred by

summarily dismissing the constitutional claims in Counts II and IV because the claims not only

concerned the individual plaintiffs, they also constituted broad facial challenges seeking

declaratory relief that would impact a whole class of individuals who were not employed under

collective bargaining agreements.10 Given that we have invalidated the NSI schedules because

their creation exceeded the authority of the ORS, we need not assess whether they were also

unconstitutional. See Int’l Business Machines, Corp v Dep’t of Treasury, 496 Mich 642, 662 n

67; 852 NW2d 865 (2014) (we will not reach constitutional issues when unnecessary to do so to

resolve an appeal).

We reverse and remand for entry of judgment in favor of plaintiffs with respect to

declaratory relief and the invalidity of the NSI schedules under the Retirement Act. We do not

retain jurisdiction. We decline to award taxable costs under MCR 7.219.

/s/ Jane E. Markey

/s/ Karen M. Fort Hood

/s/ Elizabeth L. Gleicher

10

Plaintiffs do not challenge the dismissal of Count V that sought civil damages under 42 USC

1983.

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