Court Awards Michigan Teachers Wage Refunds

(CN) — Michigan must refund wages deducted from public school employees' paychecks used to pay employer contributions to their retirement system, a divided state appeals court ruled.

In 2010, the Michigan Legislature significantly revised the Public School Employees Retirement Act to require all current public school employees to contribute 3 percent of their salaries to the employees' retirement system. These contributions were classified as "employer contributions" to a non-vesting benefit program.

The American Federation of Teachers Michigan and dozens of other public school employee unions challenged the constitutionality of the amendment as a violation of the Fifth Amendment's Takings Clause.

Two years later, the Legislature again substantially altered the law. This time it allowed employees hired before September 2012 to opt out of the retiree health care system entirely. Those who chose to opt out were not subject to the 3 percent mandatory deduction.

State lawmakers also substantially reduced benefits to those who chose to remain in the retiree health care system, and eliminated retirement health benefits for all new employees.

The Michigan Supreme Court upheld the second round of amendments because employees' contributions under the new regimen are voluntary.

But the state's appeals court ruled on remand June 7 that all affected teachers must be refunded for the two-year period when the state deducted 3 percent of their salaries without giving them the option to opt-out.

"There is no doubt that during the relevant time frame, 3 percent of plaintiff employees' wages were 'taken' in the dictionary-definition sense of the word," Judge Douglas Shapiro wrote for a three-judge panel. "The state does not dispute that the school districts were taking possession of wages that, by contract, belonged to plaintiffs and sending them to state-mandated funds as employer contributions." (Emphasis in original.)

The panel said employees have a contract-based property right in their own wages, so the confiscation of money, as opposed to physical property, can still constitute a taking.

The judges also ruled that the wage deduction for the payment of health care benefits cannot be compared to workers' compensation assessments.

"It is a question of various levels of government meeting their own fiscal obligations," Shapiro said. "Defendants posit no evidence or even argument to suggest that the funding of these retirement benefits could not have been satisfied by measures that do not raise due process concerns."

The 16-page opinion ordered the state to return the deducted wages, with interest, to the affected employees.

Judge Jane Beckering joined Shapiro in the majority ruling.

Judge Henry Saad dissented in part, finding that the deductions were constitutional.

A spokesman for Michigan Gov. Rick Snyder said in local news reports that his office is reviewing the decision "to determine next steps."

In a post on its website, the Michigan Education Association urged members to contact state officials and ask them to not continue the case.

"With all hands on deck, we can apply political pressure to stop Snyder and [Attorney General Bill] Schuette from appealing the decision handed down this week," the union said. "They have 40 days left to decide whether to drag out court wrangling or accept the ruling issued Wednesday for a third time."

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