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In today’s technology-centered workplace, employees and employers have more options than ever before on how to communicate.  Calling, video-conferencing, and even texting amongst co-workers has become the norm.  And with the recent shift towards remote and hybrid work situations, many of these communications are happening from the comfort of employees’ homes.  With the lines between the home and workplace blurring, analyzing responsibility when misconduct occurs can be tricky.  Luckily, in the recent case of Atalla v. Rite Aid, the Court of Appeal made clear employers are not liable under harassment law for employees’ off-duty actions completely unrelated to work, even between a supervisor and subordinate.

Hanin Atalla and Erik Lund met in fall of 2017, when Atalla shadowed Lund at Rite Aid during her pharmacy school rotations.  When Atalla’s rotation at Rite Aid ended, she attended a celebratory dinner with Lund and his wife and the two kept in close touch.  Atalla later began work at Rite Aid as a graduate intern and then hourly staff pharmacist; Lund was her supervisor.  Atalla and Lund became close friends, celebrated a Friendsgiving, joked regularly, and frequently went to lunch.  They frequently texted on their personal cell phones about a range of personal matters, including travel and vacations, exercise, food, weight loss, restaurants and getting together for meals, family and relatives, birthdays, fashion, drinking and alcohol, work issues, their respective spouses, pets, and social media.  They also dined together as couples with their spouses, including once for Atalla’s birthday.

On a Friday night approximately one month after Atalla’s birthday, while Atalla was at home and Lund was at a hotel for personal business Lund began texting Atalla on their personal cell phones about the alcohol he was preparing to drink at the hotel.  Shortly thereafter, Lund texted her a “Live Photo” of him masturbating, followed by a text that said, “I am so drunk right now.”  He then texted, “Meant to send to wifey”, to which Atalla responded, “It’s ok, I deleted it before I end up in a divorce.”  Lund then sent several more texts stating, “Both of us” and “Race to the bottom” accompanied by a photo of his penis.  Atalla texted, “Erik, stop please,” to which he replied, “You are right.”  The exchange ended.  The following Monday, Atalla called in sick to work.  A few days later, Atalla’s counsel sent a letter to Rite Aid asserting a claim of sexual harassment.  When questioned by the Human Resources Leader, Lund admitted to sending the photos and videos Atalla mentioned in her letter.

Rite Aid promptly fired Lund and Atalla said she would not be returning to work.  She filed a claim for violation of the Fair Employment and Housing Act (FEHA) for sexual harassment, failure to prevent sexual harassment, and hostile work environment, among other things.  The trial court granted Rite Aid’s motion for summary judgment, and Atalla appealed.

The California Court of Appeal affirmed the trial court because Atalla had not raised a triable issue of material fact that Lund was acting in the capacity of a supervisor during the text exchange.  Rather, the Court agreed with the trial court and Rite Aid that Lund and Atalla had an extensive texting relationship that predated her employment, the exchange occurred outside the workplace and outside of work hours, and the exchange arose from their friendship (although it also ended it).  Moreover, Atalla admitted that she and Lund were friends before she worked at Rite Aid and their friendship was not connected to her work at Rite Aid.

Because Atalla could not make the fundamental showing that Lund was acting in a supervisorial capacity, the Court affirmed the trial court’s ruling and dismissed the case against Rite Aid.

Employers can take relief in this type of outcome, however, it highlights the importance of maintaining proper training and up-to-date policies on sexual harassment and fraternization in the workplace.  If Lund had been acting in his capacity as a supervisor, the employer could have been strictly liable for his conduct.  Also, Lund could have been personally liable for damages.  LCW offers comprehensive sexual harassment training tailored for both supervisors and employees that meet the minimum FEHA requirements.

Atalla v. Rite Aid (2023 S.O.S. 992): 

Sexual Harassment Training – Is Your Agency 2021 Ready?
Key Considerations For Employers When Developing An Anti-Harassment, Discrimination, And Retaliation Policy

On March 15, 2023, CalPERS issued Circular Letter 200-014-23, setting forth new requirements that contracting agencies must follow when determining whether local safety members are substantially incapacitated from performance of their usual duties for the purposes of a disability retirement.  Specifically, under Circular Letter 200-014-23, agencies are now required to submit additional documentation and information to CalPERS, including several newly created CalPERS forms, when certifying an application for disability retirement, industrial disability retirement, and re-evaluation for continuous eligibility for disability retirement.

For context, CalPERS previously required agencies to certify the following information when making a decision regarding a member’s application for disability retirement:

  1. A statement certifying under penalty of perjury that the agency made the determination based on competent medical opinion.
  2. A statement certifying under penalty of perjury that the agency did not use the determination as a substitute for the disciplinary process.
  3. A finding indicating the member’s substantial incapacitation from the performance of their usual duties.
  4. A statement confirming whether the member filed a Workers’ Compensation claim for their disabling condition(s), and if so, a statement as to whether the claim was accepted.
  5. A finding by the agency as to whether the member’s incapacity is industrial.
  6. A statement documenting the member’s last day on payroll.
  7. A statement as to whether there is the possibility of third party liability.
  8. A statement identifying the disability condition(s)/body parts.
  9. A statement supported by competent medical evidence that the duration of the disabling condition is expected to be permanent, last at least 12 consecutive months, or result in death.
  10. A statement identifying the monthly amount and beginning date of Advanced Disability Payments, if they have been or will be paid to the member.

Now, in addition to the above-requirements, agencies must provide more information to CalPERS regarding the member’s job duties and the medical support for the agency’s decision.  For example, agencies must complete a form detailing how often the member performs various physical activities such as interacting with others, lifting weight, sitting, standing, kneeling, and climbing in the course of their employment.  The form also requires agencies to indicate if the member has been through the reasonable accommodation process, and if so, requires the agency to submit the reasonable accommodation documentation to CalPERS.

Agencies must also submit a form, signed by a physician, that includes the physician’s findings and diagnosis and answers specific questions regarding whether the member is substantially incapacitated.  If the member is found substantially incapacitated, the physician must list the specific job duties the member is unable to perform due to incapacity, and whether the incapacity is permanent or will last longer than 12 months.

In order for CalPERS to process the application, agencies must provide the following forms and documentation:

  1. Physical Requirements of Position/Occupational Title (Local Safety) form.
  2. Job duty statement.
  3. Physician’s Report on Disability (Local Safety) form.
  4. Worker’s Compensation Carrier Request (Local Safety) form.
  5. All medical reports used in making the medical determination for Disability Retirement/Industrial Disability Retirement benefits including reevaluation.
  6. The determination resolution or certification.

All of these requirements are new, except for the determination resolution or certification. The determination resolution or certification must still include the previously required information described in items No. 1-10 above.  See the Circular Letter for the required CalPERS forms.

CalPERS states in the Circular Letter that this additional information is necessary to ensure that disability retirement and industrial disability retirement benefits are provided only to eligible members.  Additionally, CalPERS notes that the new requirements are necessary to adhere to Government Code sections 21232 and 21233, which in part, provide limitations on employment while a retiree is receiving disability retirement or industrial disability retirement benefits.

CalPERS cites Government Code sections 20221 and 21028 as its authority for implementing these changes.  Government Code section 20221 requires agencies provide to CalPERS any information concerning its members that CalPERS may require in the administration of its system.  Government Code section 20128 requires that members or beneficiaries provide information that CalPERS deems necessary to determine its liability with respect to an individuals’ entitlement to benefits.

Take-Away for Agencies

Although it is not yet clear how CalPERS intends to use the additional information, CalPERS appears to require this additional information to more closely scrutinize contracting agencies’ decisions regarding local safety members’ disability retirement and industrial disability retirement applications.  For example, many agencies rely solely on workers’ compensation reports, which may contain presumptions or prophylactic work restrictions that are inapplicable under the Public Employees’ Retirement Law.  Government Code section 21154 provides that contracting agencies, rather than CalPERS, are responsible for determining whether local safety members (other than school safety members) are incapacitated from their duties.  It is uncertain if these new requirements will change who decides whether an application is granted or how applications are processed.  However, agencies will have to provide additional documentation to CalPERS supporting the underlying application and may have to obtain more independent medical examinations as a result of the changes.

Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.

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Spring cleaning is a time-honored tradition that many people use to refresh and reorganize their homes and workplaces.  For employers, it is also a great opportunity to revisit and update your employee handbooks.  Maybe you had the best intentions of revamping your employee handbook at year end but the holidays came and went and your employee handbook is still on your to do list.  Don’t worry!  It’s not too late!  Spring cleaning is an ideal time to freshen up your employee handbook. 

An employee handbook is a document that outlines an organization’s policies, procedures, and expectations for its employees. It’s an important tool for communicating with and educating employees about their rights and responsibilities. However, as laws and regulations change, and as your agency’s needs evolve, it’s important to regularly review and update it.

Here are some tips for employers on how to update employee handbooks as part of your spring cleaning:

  • Compliance with laws and regulations: You should ensure that your handbooks are in compliance with all applicable federal, state, and local laws and regulations. This includes, for example, updating handbooks to reflect changes in labor and employment laws such as the Family and Medical Leave Act (FMLA) and the Americans with Disabilities Act (ADA). 
  • Agency policies and procedures: Review your existing policies and procedures to make sure they are still relevant and appropriate. You should also consider adding new policies and procedures as needed, such as a policy on remote work or an updated procedure for reporting harassment or discrimination.
  • Employee benefits: Review your employee benefits and make sure that the information in the handbook is accurate and up-to-date.  This is also a good time to consider making changes to benefits as needed, such as adding new options or increasing contributions.
  • Address any changes in the workplace: You should also review your employee handbooks to ensure they address any changes in the workplace, such as new technologies or remote work policies. This can include updating policies on the use of employer-provided equipment and software, as well as outlining the particular procedures for working remotely.
  • Ensure consistency: You should review your employee handbooks to ensure consistency across all policies and procedures – including any applicable MOUs. This includes ensuring that the language used is consistent and that the formatting is clear and easy to understand.
  • Communicate the changes: Once the employee handbook has been updated, you should communicate the changes to all employees.  This can be done through an agency-wide meeting, through an email, or through an intranet or employee portal.  You should also provide employees with the updated handbook and have them sign an acknowledgement form indicating that they have read and understand the new policies.
  • Regularly review: Lastly, you should make it a practice regularly to review and update your employee handbooks.  This can be done on a yearly basis as part of your annual Spring cleaning or as needed, depending on the organization and the changes in the workplace.

By regularly reviewing and updating your employee handbooks, you can ensure that your policies and procedures are current, that they are in compliance with laws and regulations, and that they are communicating effectively with employees.  This not only helps to protect your agency, as well as its employees, but also creates a more positive and productive work environment for everyone. 

If your employee handbook needs a spring-time refresh, trusted legal counsel can help!  Also, our Liebert Library has updated model policies available to help with review and update of handbooks. 

We are excited to continue our video series – Tips from the Table. In these videos, members of LCW’s Labor Relations and Collective Bargaining practice group will provide various tips that can be implemented at your bargaining tables. We hope that you will find these clips informative and helpful in your negotiations.

We are excited to continue our video series – Tips from the Table. In these videos, members of LCW’s Labor Relations and Collective Bargaining practice group will provide various tips that can be implemented at your bargaining tables. We hope that you will find these clips informative and helpful in your negotiations.

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The Public Safety Officers Procedural Bill of Rights Act contains a statute of limitations that commences with the discovery of misconduct by public safety officers in the employment setting. According to Government Code Section 3304(d)(1), an agency cannot discipline any officer “for any act, omission, or other allegation or misconduct” unless the agency completes its investigation and notifies the officer of the proposed discipline “within one year of the public agency’s discovery by a person authorized to initiate an investigation of the allegation of an act, omission, or other misconduct.” The Court of Appeal in the Third Appellate District for the State of California recently heard argument regarding how the statute of limitations ought to run for multiple instances of employee misconduct.

Summary of the Facts of the Case of Luis Garcia v. State Department of Developmental Services

Luis Garcia was a police officer for the State Department of Developmental Services starting in 2003. However, in 2018, the Department discovered Garcia had been manipulating his colleagues’ schedules in order to subvert the Department’s policy limitation on overtime accrual. As a result, Garcia received unnecessary overtime and the Office of Law Enforcement Support (OLES) investigated once the Department learned of his conduct. During the course of the investigation, which took place between June 2018 and February 2019, OLES discovered various other acts of misconduct unrelated to the original investigation. These other acts of misconduct occurred in February 2018, May 7, 2018, May 20, 2018, and between June 2017 and June 2018. On April 26, 2019, the Department issued a notice of adverse action, stating Garcia would be terminated effective May 3, 2019. The notice specified that the adverse action was due to Garcia improperly scheduling himself to work overtime, acting unprofessionally, threatening to retaliate against a sergeant, improperly ordering a subordinate to work overtime, and taking photographs of a workplace item for no legitimate reason. Garcia was released from employment on May 3, but the Department subsequently withdrew its adverse action as a result of Garcia’s appeal of the termination.

On September 26, 2019, the Department issued a second notice of adverse action to Garcia announcing an impending demotion effective on October 4, 2019. The notice stated that the adverse action was based on Garcia’s improper scheduling himself to work overtime, acting unprofessionally, improperly ordering a subordinate to work overtime, retaliation, unprofessional behavior, using an offensive slur, using his work computer for non-work purposes, and a plethora of other acts of misconduct. Garcia appealed the decision to the State Personnel Board (SPB) and filed a motion to dismiss the case, arguing the section 3304(d)(1)’s one year limitations period barred the action. He argued that since the Department asked OLES to investigate his overtime misconduct on or around May 24, 2018, the Department must have served its notice of adverse action within one year of that date.

The SPB rejected the argument that in matters of multiple acts of misconduct, the initiation of the investigation into one act triggers the one year limitations period for all acts of misconduct. Following this decision, Garcia filed a writ of mandate to the superior court and the court rejected Garcia’s challenge and entered judgment in the Department’s favor. Garcia appealed to the California Court of Appeal.

The Court of Appeal’s Reasoning

The Court reasoned that that language of Section 3304(d)(1) “makes plain that the date of discovery for each act, not the date an investigation is initiated for any one act, is the relevant consideration.” The Court of Appeal also cited case precedent that largely disagrees with Garcia’s argument, stating that the statute of limitations begins to run at the time of the discovery of each act of misconduct.

The Court rejected Garcia’s four separate arguments. First, he argued the statute did not carve out an exception for extending the 12-month statute when investigators discover new material in their investigation. The Court rejected this argument stating its focus is not on the exceptions but the text itself, which is plain and states that the one-year statute of limitations begins to run from the time the misconduct is discovered. Second, Garcia argued the Department was at fault for not initiating a new investigation each time it discovered a new act of misconduct. He put forth an argument that the text of the statute states that all acts of misconduct during a single investigation are subject to the same limitations period, however, the Court stated that no such requirement appears in the text.

Third, the Court stated that Garcia seemed to assume that because it is difficult for an employee to obtain facts to show an agency acted in an untimely way, that should be enough to state that the agency acted in an untimely manner. The Court disagreed and stated that the employee must prove all facts of the defense to satisfy each of its elements and it is not enough to simply allege the defense. Finally, Garcia relied on a 2018 case Ochoa v. County of Kern arguing that the case shows that the section 3304(d)(1) limitations period for each discovered act of misconduct begins to run once the agency initiates the investigation into any one of the officer’s improper acts. The Court of Appeal disagreed, stating that Ochoa held that “the investigation of the misconduct and requisite notification to the officer must be accomplished within one year of the public agency’s discovery by a person authorized to initiate an investigation.”

The Court did not address any of the Department’s arguments in favor of the Court’s ruling, due to Garcia’s four arguments having failed. As a result, the Court held unequivocally that section 3304(d)(1)’s one year limitations period runs on an act of misconduct from the time it is discovered, regardless of whether the act is discovered as part of an investigation of another act of misconduct.

How does this ruling affect employers?

The employee all but threw the kitchen sink at the Court of Appeal in an attempt to convince the Court to hold that the statute of limitations begins upon the discovery of the first act of misconduct. However, despite these creative attempts, the Court did not budge. This is good news for public agency employers as it does not require employers to adhere to a one year statute of limitations upon the initiation of investigation, regardless of when the misconduct is discovered. As a result, employers can rest easy in the sense that they will not need to expedite procedural due process with respect to misconduct discovered late in the investigation. However, they are also not out of the woods. As mentioned in the case, workplace investigations are complex and it is common that an investigation will uncover unanticipated acts of misconduct.

This will require diligence from both the employer and from the investigator, whether internal or external—as exact dates of discovery will be critical in order to track the statute of limitations in an investigation that discovers multiple acts of misconduct. It would behoove employers to have a discussion with investigators to track discovery of misconduct that is not within the scope of the investigation and to record the date of that discovery. This will allow employers specifically to track each discovery of each act of misconduct, and thus have high accuracy in tracking the statute of limitations.

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The 2023 legislative session is well underway, and a number of bills have been introduced that could significantly impact California employers if they become law. 

However, we anticipate that at least some of these bills will undergo substantial amendment as they work their way through the Legislature, meaning that, if these bills pass, the new laws may have very different provisions than those discussed below.

Assembly Bill 524 – FEHA Protection for Family Caregivers

Assembly Bill (“AB”) would add “family caregiver status” to the list of protected classifications enumerated in the Fair Employment and Housing Act (“FEHA”), which also includes race, sex, sexual orientation, and others. 

Specifically, AB 524 would amend the FEHA to prohibit discrimination and harassment against an employee on the basis of their “family caregiver status” meaning their status as “a person who is a contributor to the care of one more family members.”

The bill defines the term “family member” broadly to include an employee’s spouse, child, parent, sibling, grandparent, grandchild, domestic partner, or “any other individual related by blood or whose association with the employee is the equivalent of a family relationship.”

You can read the full text of AB 524 here.

Assembly Bill 518 – Expansion of Paid Family Leave

Currently, employees who pay into the Unemployment Compensation Disability Fund may receive up to 8 weeks of wage replacement benefits in order to take time off work to care for a seriously ill family member, meaning the employee’s child, spouse, parent, grandparent, grandchild, sibling, or domestic partner.

AB 518 would amend the Unemployment Insurance Code to expand the definition of “family member” to include any “individual related by blood or whose association with the employee is the equivalent of a family relationship.”

You can read the full text of AB 518 here.

This bill follows recent legislation, which took effect on January 1, 2023, that expanded the California Family Rights Act to allow eligible employees to take leave to care for a “designated person” meaning “any individual related by blood or whose association with the employee is the equivalent of a family relationship.”  The same legislation also allows employees to take paid sick leave pursuant to the California Paid Sick Leave Law to care for a “designated person,” which means a person identified by the employee at the time the employee requests paid sick days.  Click here to read more about this legislation.

Assembly Bill 1100 – Four-Day Workweek

AB 1100 states only, “It is the intent of the Legislature to subsequently amend this measure to include provisions that would establish a four-day workweek.”  It is unclear how the four-day workweek will be defined once the bill is amended.  However, a previous iteration of the bill provided that employees would be entitled to be compensated at an overtime rate (1.5 times the employee’s regular pay rate) for all hours worked beyond 32 in a given workweek. 

You can read the full text of AB 1100 here.

Senate Bill 616 – Paid Sick Leave Increase

Senate Bill (“SB”) 616 would amend the Labor Code to increase the amount of paid sick leave employees are entitled to accrue, use, and carry over for use in subsequent years.

Currently, employers must provide employees with, and allow them to use, no fewer than 24 hours (or 3 days) of paid sick leave per year (subject to the accrual cap discussed below).  SB 616 would increase that amount to not fewer than 56 hours (or 7 days) and would also allow eligible employees to carry over 56 hours (or 7 days) of paid sick leave into the next year of employment (whereas employees may currently carry over 24 hours or (3 days). 

Finally, existing law allows employers to cap employees’ accrual of paid sick leave at 48 hours (or 6 days), meaning that, if an employee has accrued 48 hours (or 6 days) of paid sick leave, the employee will not accrue more paid sick leave until they use some that has already accrued.  SB 616 would raise this accrual cap to 112 hours (or 14 days).

You can read the full text of SB 616 here.

Senate Bill 731 – Remote Work as a Reasonable Accommodation

SB 731 would amend the FEHA to authorize an employee with a qualifying disability to initiate a renewed reasonable accommodation request to perform their work remotely if certain requirements are met. 

Under SB 731, a “qualifying disability” means “an employee’s medical provider has determined that the employee has a disability that significantly impacts the employee’s ability to work outside their home.”  If an employee who has such a qualifying disability renews a previous request to work remotely, the employer would be required to grant that request if all of the following requirements are satisfied: (1) the employee requested and was denied remote work as a reasonable accommodation before March 1, 2020; (2) the employee performed the essential functions of their job remotely for at least 6 of the 24 months preceding the renewed request; and (3) the employee’s essential job functions have not changed since the employee performed their work remotely.  However, the employer is not required to provide remote work as a reasonable accommodation if the employee can no longer perform all of their essential job functions remotely.

SB 731, if enacted, would be a significant departure from the standard interactive process in which employers engage with employees seeking a reasonable accommodation.  Employers are currently not obligated to choose any particular accommodation or the accommodation preferred by the employee.

You can read the full text of SB 731 here.

We will continue to monitor these bills as they make their way through the Legislature and potentially to the Governor’s desk.  Please check LCW’s blog for updates, which we will provide as soon as they become available.

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The Public Employees’ Retirement Law (PERL) and State Teachers’ Retirement Law (STRL) provide defined benefit retirement plans administered by CalPERS or CalSTRS, respectively, for eligible employees of participating public agencies (“employers”).  To fund these plans, public education agency employers report member compensation to either CalPERS or CalSTRS directly, or through their county offices of education.  Within these retirement systems, a complex scheme of governing statutes, regulations, and administrative guidance sometimes leads to unintended compensation reporting errors.  In addition, because the specific items of compensation at a given public agency are often the product of collective bargaining or other negotiations, the negotiating parties sometimes inadvertently agree to terms that result in certain items of compensation becoming non-reportable to the applicable retirement system on technical grounds. 

Over the last two years, the state of California has signed two bills into law, Senate Bill (SB) 278 (CalPERS) and Assembly Bill (AB) 1667 (CalSTRS), which impact how CalPERS and CalSTRS will collect on overpayments made to retirees as a result of compensation reporting errors.  While both Bills address overpayments of pension benefits, AB 1667 goes further, and includes additional transparency measures in an effort to promote collaboration between CalSTRS and public education agencies and ensure proper reporting before issues (and large invoices!) arise.  

CalPERS Employers: SB 278 shifted financial liability from retirees to their employing agencies for misreporting employee compensation

If your agency is a CalPERS agency, your HR and payroll teams should already be aware of SB 278, which became effective January 1, 2022.  Prior to SB 278’s effective date, if CalPERS determined that it calculated a retiree’s final compensation to include a nonpensionable item, the retiree would have to repay CalPERS for the amount that CalPERS overpaid them as a result of any over-calculation, and prospectively reduce their monthly pension benefit based on the corrected reporting. 

SB 278 shifts this financial exposure for overpayments from retirees to the employer if certain conditions are met, including that the nonpensionable compensation reported to CalPERS was an item to which the employer agreed in an MOU or CBA.  Specifically, under SB 278, local agencies subject to the PERL must pay CalPERS the full cost of any overpayment received and retained by the retiree, in addition to a twenty percent (20%) penalty equal to the present value of the projected lifetime and survivor benefits.   Under recent cleanup legislation to SB 278, AB 1824, retirees receive 100 percent of the penalty.  Liebert Cassidy Whitmore previously discussed SB 278 here and here.

AB 1667 takes a page from SB 278’s playbook by adopting similar cost-shift provisions, but adds additional transparency and due process protections for employers, exclusive representatives, and retirees

AB 1667, which largely became effective on January 1, 2023, is the most significant update to the STRL since 2015.  AB 1667 contains four primary components:

  1. Implementation of Updated Audit Procedures and Member Due Process Protections (Effective: January 1, 2023)

Effective January 1, 2023, AB 1667 modified CalSTRS’s audit process.  These modifications include,

  1. CalSTRS must now send an engagement letter to a public education agency employer alerting them of an impending audit.  The engagement letter must include information regarding the audit’s purpose and scope.  The engagement letter will also request that the employer provide the names and email addresses of all exclusive representatives that represent the employer’s CalSTRS members whom the audit could affect.  Once CalSTRS is in receipt of this information, it will provide the exclusive representatives with a copy of the engagement letter.
  2. Like CalSTRS’s pre-AB 1667 audit process, CalSTRS will continue to issue preliminary audit findings to the audited agency.  Now, however, CalSTRS will also issue the preliminary findings to the exclusive representatives.  The preliminary findings will include a list of the members that CalSTRS knows will be affected by the findings (which is usually the members who were part of the audit sample).  Both the employer and exclusive representatives will have 60 days to review the draft audit findings and provide CalSTRS with written responses to the draft findings.  CalSTRS will consider the responses prior to finalizing its audit report. 
  3. Under AB 1667, CalSTRS will issue the final audit report to the audited agency employer and the exclusive representatives.  Notification to the audited agency employer of the final audit report will trigger:
    1. A 60-day window from the date of the final audit report for the employer to submit a complete list of members affected by the audit (“affected members”); and
    1. A 90-day window from the date of the final audit report for the employer to appeal the audit findings and request an administrative determination.  Exclusive representatives do not have appeal rights; only members have such rights, as discussed below.    

Once CalSTRS receives the list of impacted members, CalSTRS will notify them of the final audit findings, and provide all affected members with appeal rights, whether or not the affected members were part of the audit sample.  This additional due process protection for all affected members is a new right conferred by AB 1667.  Prior to AB 1667, CalSTRS only provided this due process protection to members who were part of the audit sample.  Affected members will have 90 days to appeal the audit findings from the date they receive a copy of the final audit report. 

  • Implementation of Benefit Overpayment Clawback (Effective: January 1, 2023, but certain payments won’t be recouped from employers until July 1, 2024)

Similar to CalPERS’s pre-SB 278 process of recouping overpayments, prior to AB 1667’s effective date, STRS would generally deduct any pension overpayments made to retirees by (a) seeking reimbursement of certain overpayments from the retirees themselves and (b) reducing future monthly pension benefits after adjusting the retiree’s final compensation to account for the mistaken overpayments.  In other words, retirees, and not the employers, would bear the financial burden of overpayments, whether or not the retiree’s own conduct caused the mistake. 

As a result of AB 1667, effective January 1, 2023, the party responsible for the reporting error will be the primary person or entity responsible for repaying pension overpayments made due to such error.  As AB 1667 is intended to apply prospectively, this means that this new provision will apply only where CalSTRS notifies the retiree of the overpayment after January 1, 2023. 

It is likely that under these amendments to the STRL, employers will be responsible for reimbursing CalSTRS for overpayments in most cases.  This is because, in practice, CalSTRS has identified employer-made errors as the most common source of misreported income.  However, unlike SB 278, AB 1667 does not impose a 20 percent penalty on top of reimbursement of the overpaid benefits. 

CalSTRS will continue to hold retirees responsible for overpayments only if the retiree reported inaccurate or untimely information or failed to submit information, thus causing the error, or in instances of fraud or intentional misrepresentation.  Additionally, the new law makes clear that where CalSTRS is at fault for the error that resulted in the overpayment, the State will pay 85 percent of the cost of overpayments, with the employer responsible for the remaining fifteen percent (15%).

CalSTRS intends to begin billing employers for employer-caused overpayments no earlier than May 1, 2023, and will issue such invoices on a quarterly basis.  CalSTRS will not begin billing employers for CalSTRS-caused overpayments until July 1, 2024.  The law requires employers to pay invoices within 30 days of receipt; failure to do so could result in the State withholding certain funds intended for appropriation to the education agency responsible for the payment.   

  • Employers and Exclusive Representatives May Request Advisory Letters from CalSTRS (Effective: July 1, 2023)

Effective July 1, 2023, public education agency employers and exclusive representatives may request from CalSTRS formal written guidance regarding their questions about compensation that either is or may be included in a written contractual agreement (e.g., CBA, MOU, employment agreement).  In response, CalSTRS will issue an advisory letter that addresses the proper reporting (or non-reporting) of that item of compensation. 

Once issued, the advisory letter will provide guidance upon which the requesting employer or exclusive representative (on behalf of a member) may rely to determine reportable compensation.  If the guidance in the advisory letter is later determined to be incorrect, CalSTRS will attribute any resulting overpayments to CalSTRS under the 85%/15% split described above.  An employer may not rely on advisory letters issued to other agencies.  In other words, if an officer of an agency is in receipt of an advisory letter directed to a colleague at another agency, the officer cannot rely on that letter in disputing a determination made by CalSTRS regarding the officer’s own agency. 

CalSTRS will develop a specific form on which to submit the request for an advisory letter.  Employers and exclusive representatives should generally expect CalSTRS to issue an advisory letter within 30 days of the date CalSTRS has all supporting documents it needs to complete its review, although it can extend that timeline for good cause.

  • CalSTRS Must Provide Interpretative Resources (Available: By July 1, 2023)

In addition to specific advisory letters, AB 1667 mandates that CalSTRS must develop and update interpretative resources on an annual basis that clarify the applicability of creditable compensation and creditable service laws, as well as regulations promulgated under those laws.  Like the advisory letters, if the guidance provided in these interpretive resources is later determined to be mistaken, recovery will follow the 85%/15% State/employer split described above.  However, unlike the advisory letters – on which only the requesting employer may rely  – all employers that report to CalSTRS may rely on the guidance in the interpretive resources. 

Additionally, CalSTRS must issue notice when adopting new or different interpretations before those interpretations can take effect.  New or different interpretations in these resources, regulations, employer information circulars, or similar items  will not apply retroactively to compensation reported prior to the notice, unless state or federal law or an executive order of the Governor expressly requires retroactive application.  However, this lack of retroactivity does not appear to apply to situations where CalSTRS takes the position that its guidance only clarified existing law.  It also does not appear to apply to unofficial guidance from CalSTRS, e.g. guidance issued over the phone or in emails from CalSTRS staff members. 

Responding to AB 1667 and SB 278

To avoid these unanticipated costs of employer-generated reporting errors arising from SB 278 and AB 1667, employers should examine their current reporting practices and determine if their reporting is compliant with the STRL or PERL, their implementing regulations, and retirement system guidance.  On the CalSTRS side, agencies should certainly take advantage of the new advisory letter system and timely review CalSTRS’s anticipated official interpretive guidance resources. 

Agencies should also be sure not to overpromise during negotiations.  This includes not agreeing to a CBA, MOU, or employment contract provision that guarantees that certain items of compensation are pensionable, particularly if the employer has not received express guidance from the retirement system. 

LCW is continuing to monitor implementation of these bills and will host a free webinar on SB 278 and AB 1667, on March 9, 2023, to discuss the scope of these laws, what risks they present, and how agencies can take proactive steps to mitigate against their impacts.  You can sign up for the webinar here.