This post was authored by Michael Youril.

On April 27, 2018, the California Public Employees’ Retirement System (“CalPERS”) issued Circular Letter No.: 200-021-18, which discusses limitations imposed on “out-of-class appointments” by Assembly Bill 1487, which added Government Code section 20480.  The Circular Letter also provides direction to employers for reporting hours for out-of-class appointments and attaches an Out-of-Class Appointment Employer Certification form  for employers to fill out.  Unfortunately, many ambiguities concerning the application of Government Code section 20480 and the reporting requirements remain.

Legal Requirements for Out-of-Class Appointments Under Government Code Section 20480

Under Government Code section 20480, “out-of-class appointments” to a “vacant position” are limited to 960 hours per fiscal year. The statute provides specific definitions for some key terms under the statue.  An “out-of-class appointment” is “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.”  A “vacant position” is defined as “a position that is vacant during recruitment for a permanent appointment.”  The definition of “vacant position” excludes a “position that is temporarily available due to another employee’s leave of absence.”

CalPERS agencies are required to track and report the number of hours worked in the “out-of-class appointment” and report the hours to CalPERS no later than 30 days following the end of the fiscal year. The compensation for the appointment must also be stated in a collective bargaining agreement or a publicly available pay schedule.

An employer that violates Government Code section 20480 must pay penalties to CalPERS in 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 out-of-class 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. The employer must also reimburse CalPERS for administrative expenses incurred by CalPERS in responding to the violation.  Although the statute did not provide the amount of administrative expenses, the Circular Letter states that the fee will be $200.  The penalties and fees are not credited to the employer or the employee’s individual account and the employer may not pass the penalties or fees onto the employee.

Employer’s Obligations Under the Circular Letter on Out-of-Class Appointments

The Circular Letter provides the following list of employer responsibilities under Government Code section 20480:

  • Tracking out-of-class hours worked in each vacant position per fiscal year.
  • Reporting hours worked in vacant position(s) to CalPERS by July 30. Until CalPERS makes system enhancements to allow online reporting, public agencies are to use the Out-of-Class Appointment Employer Certification form to submit the required information to CalPERS Employer Account Management Division.
  • Making timely payments for penalties generated in accordance with Government Code section 20480.
  • Ensuring that the out-of-class appointment is pursuant to a collective bargaining agreement or a publicly available pay schedule.

The Circular Letter also states that CalPERS will send two notification letters to CalPERS employers. An Annual Notice will be sent in June to provide the employer with a reminder of the July 30 reporting requirements for out-of-class appointments.  A Second Notice will be sent in September informing the employer that CalPERS has not received the Out-of-Class Appointment Employer Certification.  According to the Circular Letter, failure to report the information may result in penalties under Government Code section 20480 and notification to CalPERS Office of Audit Services to initiate an audit of the employer’s records.

Outstanding Issues Regarding the Out-of-Class Appointment Employer Certification

Agencies may encounter some ambiguities when completing their Out-of-Class Appointment Employer Certification. For example, Government Code section 20480 went into effect on January 1, 2018.  However, the statute says that the out-of-class appointment “shall not exceed a total of 960 hours in each fiscal year.”  The Out-of-Class Appointment Employer Certification also asks for the total hours worked in the fiscal year.  For CalPERS purposes, the fiscal year began on July 1, 2017, which predates the enactment of the law.  It is unclear whether, for this fiscal year, the employer is only required to report hours worked on or after January 1, 2018.  The Circular Letter does not address this ambiguity.  Moreover, since a certification form only needs to be completed for out-of-class appoints that exceed 960 hours in a fiscal year, it may be unclear whether a certification is even required.  This ambiguity leaves many employers wondering if they will be on the hook for penalties.

Under Government Code section 20480, in order to trigger the statute, the appointment must be to a “vacant” position “during recruitment for a permanent appointment.” The phrase “during recruitment” is not defined in Government Code section 20480 and is not further defined in the Circular Letter.  This leaves some uncertainty about when application of the statute begins.  For example, it is unclear whether the employer starts counting hours if an employee is appointed to a vacant position in March, but the employer does not actually post recruitment materials to fill the position until July.  What if the governing body authorizes a recruitment, but it is not implemented by staff for several more weeks?  The Out-of-Class Appointment Employer Certification form has a box for the employer to check that asks if the out-of-class appointment is “in a recruitment.”  The answer to that question may be “yes” on the date of the certification, but it is not clear whether hours before the “recruitment” began would be excluded.

Employers have three months before they are required to report the hours worked in qualifying out-of-class appointments to CalPERS. Absent further guidance from CalPERS, we suggest reviewing your out-of-class appointments to determine if they are of the type covered by the statute.  If so, the employer should consider making staffing changes now to avoid reporting obligations and potential penalties and expenses.

Please contact us if you have any questions about a particular appointment.