The California Legislature recently passed AB 1487, which is now codified as Government Code section 20480.  The new law applies only to CalPERS agencies and limits the amount of time that an employee can work in an “out-of-class appointment” to 960 hours per fiscal year.

What is an “Out-of-Class” Appointment?

Section 20480, subdivision (f), defines an “out-of-class appointment” as “an appointment of an employee to an upgraded position or higher classification by the employer or governing board or body in a vacant position for a limited duration.”  Subdivision (g) then defines “vacant position” as “a position that is vacant during recruitment for a permanent appointment.

According to the definitions, an agency can appoint an employee into a higher level position without restrictions if the incumbent is on a leave of absence, e.g., a medical leave or a paid administrative leave.  It is only when the agency has a position that is “vacant during recruitment for a permanent appointment.”  Based on the language of the statute, it is unclear whether the 960-hour limitation applies when the agency is not actively recruiting for a permanent appointment.

In reviewing the legislative history of the bill, it appears the lawmakers intended the 960-hour limitation to avoid employees from working in higher level positions for extended periods of time without officially promoting into those positions.  Thus, there is a risk of violating the law if an agency were to try to circumvent Section 20480 by not actively recruiting for the vacant position.  Please seek legal counsel if your agency is considering an out-of-class assignment into a position for which the agency is not recruiting.

What Happens if an Agency Violates Section 20480?

An employer that violates Section 20480 must pay penalties to CalPERS according to the following: (1) an amount equal to three times the employee and employer contributions that would otherwise be paid to CalPERS for the difference between the compensation paid for the appointment and the compensation paid and reported to CalPERS for the member’s permanent position for the entire period the member serves in the out-of-class appointment; and (2) reimbursement for administrative expenses incurred by CalPERS in responding to the violation.

What Should Public Agencies Do in Response?

First, review your rules and policies to determine whether your agency makes “out-of-class appointments,” as defined by the new law.  Your rules and policies may not use the term “out-of-class appointment,” but terms such as “out-of-class pay,” “acting pay,” or “temporary assignment pay” may be the type of appointments that are limited by this new law.

Second, if your agency makes “out-of-class appointments,” Section 20480, subdivision (c), requires that the compensation for an “out-of-class appointment” shall be pursuant to a collective bargaining agreement or a publicly available pay schedule.  In reviewing your rules and policies, ensure that the compensation of an “out-of-class” assignment is in an MOU or some other publicly available pay schedule.

Third, your agency will need to track the hours worked by an employee to make sure that the employee is not working over 960 hours.  (Section 20480(b).)  For your reference, an employee working 40 hours per week can work in an out-of-class appointment for approximately 24 weeks per fiscal year.  This will help your agency avoid the penalties associated with violating this law.

Finally, it is not enough to simply track the hours.  Section 20480, subdivision (b), also requires the agency to report the out-of-class service to CalPERS within 30 days following the end of each fiscal year.

Possible Challenges

The new statute appears to be aimed at the period in which an employee may be appointed to a higher classification rather than the issue of reportable compensation.  Temporary upgrade pay (compensation for acting in a higher position) is not pensionable compensation for new members, while it remains compensation earnable for classic members.  The statute’s purpose may be a legislative penalty on employers because of the legislature’s own enactment of PEPRA, but yet the statute applies to both classic and new members.  It remains to be seen whether it could be subject to legal challenges for overreaching on the employer’s prerogative to appoint employees to positions. Such limits are not otherwise within the scope of the Public Employees’ Retirement Law, except in cases of hiring retired annuitants.

LCW will be covering AB 1487 and other legislation in its 2018 Public Agency Legislative Update Webinar.  For more information on the webinar and for registration, please click here.