A number of California transit agencies, as well as cities and counties that operate and maintain transit systems, are in legal limbo over whether the Public Employees’ Pension Reform Act of 2013 (“PEPRA”) applies to mass transit employees.  The State of California prevailed in its legal challenge against the United States Department of Labor (“DOL”), which threatened to withhold federal grants to agencies complying with the PEPRA.  Under the plain language of the PEPRA, this should have put the issue to rest and agencies could rest assured that PEPRA applied to their mass transit employees. The DOL, however, has made seemingly contradictory statements to California’s public employers indicating that it may continue to adhere to its legal position that compliance with PEPRA is inconsistent with the collective bargaining rights of mass transit employees protected under the Urban Mass Transportation Act (“UMTA”) – often referred to as section 13(c) rights.  To better understand where California transit agencies stand today, the following is a brief history of PERPA / UMTA conflict that has brought us to this point:

  • Under the UMTA, public agencies operating mass transit systems are eligible for federal grant funds to support operations and infrastructure. In accordance with section 13(c), financial assistance is conditioned on protections for transit employees under arrangements the Secretary of Labor concludes are “fair and equitable,” including a preservation of collective bargaining rights.  The DOL must certify that a transit system has “fair and equitable” arrangements in place before the U.S. Department of Transportation can act on applications for grant funds.
  • PEPRA went into effect on January 1, 2013. Among its provisions, PEPRA establishes a lower pension formula for all “new members,” as defined by PEPRA, and requires “new members” to pay one-half of the normal cost of the pension benefit.
  • The DOL issued an administrative determination asserting that PEPRA was inconsistent with section 13(c)’s mandate to preserve pension benefits under existing collective bargaining agreements and mandate to ensure the continuation of collective bargaining rights. The DOL thus determined that PEPRA precluded it from providing 13(c) certification to California transit agencies subject to PEPRA. This resulted in a withholding of $1.6 billion dollars in federal aid to California agencies operating public transit systems.
  • On October 4, 2013, the State of California, and the Sacramento Regional Transit District (“SacRT”), filed a complaint against the DOL in the U.S. District Court for the Eastern District of California (“District Court”) for refusing to certify the California Department of Transportation and SacRT on the basis that PEPRA conflicted with section 13(c).
  • On October 4, 2013, Governor Brown approved urgency legislation, under Assembly Bill 1222 (extended by AB 1783), to specifically exempt specified transit employees from PEPRA until the District Court ruled that the United States Secretary of Labor erred in determining that the application of PEPRA precludes certification under the UMTA, or until January 1, 2016, whichever occurred sooner.
  • On December 30, 2014, the District Court determined that the DOL acted in excess of its authority in denying federal transit grants, and that the DOL’s determination that PEPRA interfered with collective bargaining rights was arbitrary and capricious. The court “remanded” the matter to the DOL for further proceedings “consistent with” its order.
  • On February 25, 2015, the California Public Employees’ Retirement System (“CalPERS”) issued a circular asserting that transit employees hired on or after January 1, 2013 would now be subject to PEPRA. CalPERS explained that the recent federal district court decision (State of California v. U.S. Dept. of Labor, D. Cal., Dec. 30, 2014, 2:13-CV-2069 KJM DAD) 2014 WL 740947) ended the AB 1222 transit worker exemption. CalPERS also clarified that transit employees appointed on or after January 1, 2013 through December 29, 2014 (i.e. after PEPRA, but prior to court’s decision), would retain their “classic” retirement benefits for that period of time.
  • On March 3, 2015, the DOL filed appeal in the Ninth Circuit Court of Appeals.
  • In late March / early April, 2015, the DOL sent letters to various California public employers, stating its opinion that it considered the AB 1222 PEPRA exemption to still be in effect, taking the position that the District Court’s decision did not determine that it had erred, but merely remanded the matter to the DOL. The DOL has stated it may continue to withhold transit funds from California agencies that comply with PEPRA.
  • On April 27, 2015, the DOL filed a motion to dismiss its appeal voluntarily. The State has opposed this motion on concerns that the DOL will strategically attempt to challenge the District Court’s order on remand, causing the need to re-litigate issues currently before the Court of Appeals.
  • In the interim, the DOL has issued various determinations with individual agencies, but has not announced any formal administrative direction. In some cases the DOL certified funds for the period during which the AB 1222 exemption was in effect, i.e. prior to January 1, 2015. In another instance, the DOL certified transit grants on condition that the agency restore pre-PEPRA bargaining rights “if” the DOL adheres to its prior legal position on remand, and if (assuming the DOL adheres to its position), the DOL’s position is not challenged – or is challenged but upheld after all appeals are finally exhausted or the time for filing appeals finally expires.

California transit agencies hang on the potentially-evolving position of the DOL, and there is a good deal of uncertainty as to whether the DOL will continue to adhere to its prior legal position that PEPRA precludes certification under section 13(c); whether the DOL will issue a new administrative decision subject to new judicial challenges; or perhaps, whether the DOL will issue a determination that is wholly consistent with the language of the District Court’s decision. LCW is watching this issue closely and will update employers as the matter progresses.