Public Employees Lose Again, as Supreme Court Upholds Suspension of Pension Cost of Living Adjustments

Berg v. Christie, 225 N.J. 245 (2016).  Today’s decision in this closely-watched case shows once again the importance of the standard of review applied.  In a 6-1 decision by Justice LaVecchia, the Court held that cost of living increases (“COLAs”) in pension payments are not “a non-forfeitable right to receive benefits as provided under the laws governing the [public] retirement system or fund,” N.J.S.A. 43:3C-9.5, and could lawfully be suspended by legislation.

Justice LaVecchia stated that because an interpretation of the non-forfeitable right statute that would include COLAs would limit a subsequent Legislature’s ability to exercise its powers, an intent to so limit future Legislatures “must be clearly and unequivocally expressed concerning both the creation of a contract as well as the terms of the contractual obligation.”  The majority found that “proof of unequivocal intent to create a non-forfeitable right to yet-unreceived COLAs” was lacking.  Accordingly, the Court reversed the Appellate Division, and reinstated the trial court’s decision that had granted summary judgment against plaintiffs.  Justice Albin was the lone dissenter.

Today’s decision was foreshadowed by Burgos v. State, 222 N.J. 175 (2015), discussed here.  There, in another opinion by Justice LaVecchia, a 5-2 majority of the Court ruled that the Contracts Clauses of the New Jersey and United States Constitutions did not preclude the Legislature from altering the amount of contributions to public pension funds even though prior legislation expressly stated that employees had “a contractual right to the annual required contribution amount.”  The same essential rationale– that a prior Legislature cannot generally tie the hands of a later Legislature– underlay that decision.  There, Justice Albin was joined in dissent by Chief Justice Rabner.  In today’s ruling, however, Chief Justice Rabner was in the majority.

Justice LaVecchia highlighted the significance of the standard of review issue early in the majority opinion.  Plaintiffs, who are retired public employees, asserted that “the standard for reviewing pension legislation,” which considers pension statutes “to be remedial in character and thus deserving of a liberal construction and administration in favor of the persons intended to be benefited thereby.”  The State, on the other hand, “relying on the general presumption against finding a contract that is created by statute,” argued for “a standard that requires the Legislature to express unequivocal intent to contract.”  Justice LaVecchia found the State’s view “unassailable.”  Because “there is a rule– in this state and elsewhere– that holds that because the effect of finding a statutory contract is so severe, only the clearest expression of statutory language and evidence of legislative intent for such creation will do.”

With that, it was game, set, and match for the State.  The remainder of the majority opinion demonstrated that the Legislature did not clearly demonstrate the required intent.  Plaintiffs argued that the fact that the Legislature had excepted medical benefits, but not COLAs, from the non-forfeitable right statute meant that COLAs were covered by that enactment.  Justice LaVecchia disagreed.  That statute protects only “benefits as provided under the laws governing the retirement system or fund,” the respective pension statutory schemes.  COLAs are established by a separate statute, the Pension Adjustment Act.  That fact, along with the fact that the only reference to “pension adjustment benefits” in the pension statutes themselves distinguished between those benefits and “basic retirement benefits,” supported the State’s position.

The parties made many other statutory arguments, which Justice LaVecchia found “reasonable.”  But she observed that the Court’s task here was not “to determine which textually based argument is more likely than not the actual intent of the Legislature.”  Rather, a ruling for plaintiffs required “unmistakable evidence of legislative intent to create a non-forfeitable right to COLAs”– the standard of review question again.  Plaintiffs also cited legislative history, but the majority rejected that on two bases.  First, having to resort to legislative history meant that “one is already outside the realm of unmistakeable clarity.”  Second, the legislative history itself did not rise to the level of providing evidence of unmistakable intent.  For example, the remarks of a single Senator were merely his “personal” and “preliminary” thoughts, not evidence determinative of legislative intent.

Finally, Justice LaVecchia rebuffed due process and estoppel arguments.  Because the statute did not make COLAs a non-forfeitable right, employees could not reasonably have relied on such payments for purposes of estoppel, and they had no vested right that was “taken” without due process.