Friday, September 19, 2014
The Eleventh Circuit ruled this week in Taylor v. City of Gadsden that a city's increase in the mandatory contribution paid by public employees to the city's pension fund did not violate the Contract Clause of the U.S. or Alabama Constitutions.
The case arose when the City of Gadsden increased the mandatory contribution rate to the city pension fund by city firefighters from 6 percent of their salary to 8.5 percent of their salary in order to cover some of the city's pension shortfall. The city took the action pursuant to a state law that allowed, but did not require, cities to increase the mandatory contributions of public employees to their pension funds. Firefighters sued, claiming that the increase violated the Contract Clause of the U.S. Constitution and the parallel provision in the Alabama Constitution (interpreted in lock-step with the federal constitutional provision).
The Eleventh Circuit ruled that the Contract Clause didn't even apply to the city, because the city's act was not "an exercise of legislative power"; instead, it was merely a "particular item of business coming within [its] official cognizance . . . relating to the administrative business of the municipality," a "creature of state statute," but not exercising the legislative power of the state. Because Gadsden wasn't "passing any 'law,'" it "was, at bottom, 'doing nothing different than what a private party does,'" and was not subject to the Contract Clause.
The court said that even if Gadsden was subject to the Contract Clause, there was no violation here. That's because there was no contract, and relevant statutory provisions did not create an obligation not to raise the contribution rate. (Any statutory obligation went to the benefits under the pension plan, not the contributions to it.) Finally, the court said that "at most . . . the City has breached a contract, not impaired one." And "[b]ecause no state action has denied plaintiffs the possibility of a damages remedy, 'it would be absurd to turn [the] breach of contract . . . into a violation of the federal Constitution.'"