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CalPERS Proposal to Make Board Decision Precedential

Last week, CalPERS distributed a letter to member agencies seeking comments on a recent decision of the Board. The decision involved Cambria Community Services District and Tracy Fuller. In this decision, the Board ruled that an employee of a third-party independent contractor was a common-law employee of a CalPERS-contracting agency, requiring that contributions be paid into the CalPERS system on behalf of the worker. The decision has significant implications for every local government agency that uses independent contractors to deliver any services. CalPERS proposes to make the decision precedential, allowing it to be cited in other administrative hearings and by the courts, and converting it into “case-made law” with the same effect as regulations adopted by the Board.

According to the letter, CalPERS states that precedential decisions should (1) contain a significant legal or policy determination of general application that is likely to recur or (2) include a clear and complete analysis of the issues in sufficient detail so that interested parties can understand why the findings of fact were made, and how the law was applied.

The decision does not qualify to be made into a regulation under the two considerations listed in the letter. It suffers from substantial deficiencies both in its summary of the applicable law and in its review of the facts of the case. It failed to consider evidence supporting a conclusion that the worker involved was an employee of the consultant even under the version of “the common law test” that the administrative law judge decided to apply. The administrative law judge did not consider other articulations of the same test and simply decided that alternative tests were “irrelevant” even though the courts and IRS have recognized them. Consequently, the decision would likely result in confusion and bias against independent contractors, rather than providing clarity for either member agencies about how to structure their independent contractor services or for future decision makers about how to adjudicate these same issues.

We believe that CalPERS should also consider a third issue: that such consequential new regulations should be developed through an open rulemaking process in which local government agencies can fully participate. The decision at issue could potentially reshape the way that cities, counties, and special districts deliver services. Such rules should therefore allow for those voices to be included in the rulemaking to ensure that their interests are considered. Local governments have the legal right to contract for services, and in fact, do rely on wide range of contracted services to meet the needs of California’s communities. It is inappropriate for the CalPERS Board to make rules and regulations with such potentially significant impacts without a full and frank discussion of the issues with member agencies.

Regional Government Services Authority will be submitting comments on the proposed decision requesting that the Board not make the decision precedential. We encourage other public agencies and contractors to review the proposed decision and submit comments to CalPERS.

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