The state Supreme Court ruled today in favor of employees who sued the DeKalb County School District for suspension of payments into supplemental retirement accounts during the recession.
It could be a very expensive ruling for DeKalb, which has been fighting this case for eight years.
In 2011, two employees sued after the school board suspended payments two year earlier to a tax-sheltered annuity plan created as an alternative to Social Security. The employees contended DeKalb Schools was required to give two years' warning before halting payments.
The school board decided in 1979 to opt out of Social Security and instead pay into the annuity plan. A board policy stated the system would notify employees two years prior to canceling payments, which it did not do when it stopped paying in July 2009. The board suspended the payments due to the recession that dramatically slashed state support of public education.
The promised district contribution was between 5 percent and 6 percent of each teacher's salary. In the 2009-2010 school year, the district's contribution would have added up to around $25 million.
In its defense, the district argued there was no contractual obligation to pay into the supplemental retirement fund, but the attorney for the teachers claimed board policy was tantamount to a contract.
The Georgia Court of Appeals ruled for the employees in 2015, but the district went to the state Supreme Court.
Here is the official summary of the high court’s ruling today:
In an opinion today, the Supreme Court of Georgia has ruled in favor of DeKalb County teachers and school employees who sued the DeKalb County School District and Board of Education for breaching an agreement to provide two years’ advance notice prior to suspending contributions to their Tax Shelter Annuity (TSA) plan accounts.
With today’s opinion, written by Chief Justice Harold D. Melton, the high court has upheld a decision by the Georgia Court of Appeals, the state’s intermediate appellate court, which concluded that the two-year notice provision had become a part of employees’ contracts.
“Though we disagree with the Court of Appeals’ analysis, we agree with the court’s ultimate conclusion,” the opinion says. “Accordingly, we affirm” the decision.
Until 1979, the DeKalb County School District participated in the Social Security System based on a “§ 418 agreement” with the federal government. That agreement provided Social Security retirement benefits to school district employees. In 1977, the DeKalb County Board of Education notified employees that it was considering withdrawing from the Social Security System in favor of an alternative retirement plan.
In May 1979, the Board passed a resolution reaffirming its intent to withdraw from Social Security and establish an alternative plan for its employees. In the resolution, the Board stated it would give a two-year notice to employees before reducing or terminating funding for any alternative plan.
Subsequently, the Board pursued an alternative employee benefits plan with a private insurance company. In June 1982, the Board amended its bylaws and policies concerning the Alternative Plan to Social Security, again including “a two-year notice to employees before reducing the funding provisions of the Alternative Plan to Social Security.”
In July 1983, the Board voted to establish its own DeKalb County Tax Sheltered Annuity plan (TSA). The purpose of the TSA plan was “to provide a written standard procedure under which retirement benefits to serve in lieu of Social Security are provided and administered on behalf of Eligible Employees.” The TSA plan stated that, “This Plan may be amended or terminated by the Employer at any time. No amendment or termination of the Plan shall reduce or impair the rights of any Participant or Beneficiary that have already accrued.” In 2003, the Board approved a restatement of the 1983 TSA plan.
In July 2009, during the “Great Recession,” Georgia’s governor announced a 3 percent reduction in state funding for all Georgia school systems. To try to manage the anticipated loss of $20 million in state funding, the Board voted to temporarily suspend the TSA plan, which would “suspend all legally-allowable contributions [toward the retirement plan] from August 2009-June 2010.”
It gave no prior notice to employees before voting to “temporarily suspend” the TSA plan. In June 2010, the Board amended its by-laws and policies to remove the two-year notice provision adopted in 1982.
In March 2011, Elaine Ann Gold and three other current or former employees of DeKalb County schools sued the school district and board for breaching the agreement to provide two years’ advance notice prior to reducing funding to their Tax Shelter Annuity (TSA) plan accounts.
Following a hearing, the DeKalb County Superior Court ruled in favor of the district and board, finding that the employees had “failed to establish the existence of an enforceable, valid contract that was breached by the School District when it suspended certain contributions to” the TSA plan. The employees appealed to the Court of Appeals, arguing that because the promise to provide two years’ notice “was adopted as Board Policy, it became part of the employees’ employment contracts, protected by Georgia’s prohibition on retroactive laws and impairment of contracts.” They argued that because the notice provision has the force of statutory law, it cannot be amended by the TSA plan documents, which are “subordinate” to it.
The Court of Appeals agreed and reversed the trial court’s ruling on the issue of liability, voided the remainder of the court’s order, and sent the case back to the trial court with direction. The Court of Appeals found that because the notice policy was legislatively enacted, it became a substantive part of the employees’ contracts of employment, and the district’s admitted breach of that policy and its attempt to repeal it retroactively violated the Impairment Clause (also called the Contract Clause) of the Georgia Constitution. The school district and school board then appealed to the Georgia Supreme Court.
“The salient issue to be resolved in this case is whether the two-year notice provision in the 1982 Amendment became a part of an employment contract between Appellants [i.e. school district and board] and Appellees [employees],” today’s opinion says.
“Here, the record shows that Appellants offered their employees a retirement benefits plan, and also promised to provide two years’ notice before reducing any of the funding provisions of the benefits plan. In exchange, the employees agreed to begin to work or continue to work for Appellants, and to wait until their retirement to collect these funds. That bargain contemplated the necessary consideration flowing from both parties, thus making the two-year notice provision a part of Appellees’ employment contracts.”
In conclusion, “we agree with the Court of Appeals, albeit for somewhat different reasons, that the trial court erred in granting Appellants’ motion for summary judgment and in denying Appellees’ motion for summary judgment on the issue of liability for breach of contract,” the opinion states.
Attorneys for Appellants (District): Allegra Lawrence, Leslie Bryan, Lisa Haldar, Thomas Bundy, III, Josh Belinfante
Attorneys for Appellees (Gold): Michael Terry, Jason Carter, Naveen Ramachandrappa, Roy Barnes, John Salter
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