Arizona Public Pension Changes Found Unconstitutional Under Contracts Clause

Last year, I published a piece in the Hofstra Labor and Employment Law Journal titled: Constitutional Contract Clause Challenges in Public Pension Litigation.  The premise of the paper was that Wisconsin and other states risked having their law seeking to reduce public employes ruled unconstitutional under the contracts clause of the federal and states' constitutions.

Now there is a case in point.  On February 1st, a trial court in Arizona found unconstitutional under the federal and state constitution contracts clause an Arizona law which sought to increase employee pension contributions under the state retirement system for public employees. In Barnes v. Arizona State Ret. Sys., Ariz. Super. Ct., No. CV-2011-011638, 2/1/12, the Arizona court said that an Arizona law that altered te proportionate share of state employer/employee retirement contributions was unconstitutional, at least as applied to those workers who were already paying into the system.  This was so because law breached the contract with the state without sufficient cause.  Budgetary problems alone are not considered sufficient reason for breach such a contract.

More specifically, “[t]he Court [found] that such an interference with the Plaintiffs' contractual relationship is unconstitutional pursuant to the contract clause of the Arizona and U.S. Constitution. The unilateral contract modification effectuated by S.B. 1614 not only violates the U.S. and Arizona Constitutions, but also runs afoul of well-established legal precedent unique to our State,” the judge wrote.

Although such rulings are still specific to the peculiarities of state constitutional law and also based on prior public pension litigation, this Arizona case should service notice to state legislators around the country who believe that they can balance state budget deficits by undermining public employees' public pensions.

PS