City of Villa Hills, Kentucky v. Kentucky Retirement Systems ( 2021 )


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  •                                                    RENDERED: AUGUST 26, 2021
    TO BE PUBLISHED
    Supreme Court of Kentucky
    2019-SC-0434-DG
    CITY OF VILLA HILLS, KENTUCKY                                           APPELLANT
    ON REVIEW FROM COURT OF APPEALS
    V.                           NO. 2018-CA-809
    FRANKLIN CIRCUIT COURT NO. 17-CI-00706
    KENTUCKY RETIREMENT SYSTEMS                                               APPELLEE
    OPINION OF THE COURT BY CHIEF JUSTICE MINTON
    AFFIRMING
    We accepted discretionary review to consider the application of Kentucky
    Revised Statute (KRS) 61.598, sometimes referred to as the pension-spiking
    statute. Kentucky Retirement Systems assessed over $200,000 in actuarial
    costs to against the City of Villa Hills following the retirement of one of its
    employees. The Retirement Systems found that increases in that employee’s
    compensation over the five years preceding his retirement that was “not the
    direct result of a bona fide promotion or career advancement” and so shifted
    the added actuarial cost of the retiree’s pension benefits to the City.
    The City raises four primary objections to the assessment on appeal: (1)
    the Retirement Systems applied KRS 61.598 in an improperly retroactive
    manner to compensation paid to the employee before the effective date of the
    statute; (2) the burden of proof was improperly placed on the City to prove the
    existence of a bona fide promotion related to the pay raise; (3) the courts below
    erroneously concluded the assessment was supported by substantial evidence
    that the employee did not experience a bona fide promotion; and (4) that KRS
    61.598 is unconstitutional for being arbitrary, overbroad, an ex post facto law,
    and a law violating the Contracts Clause.
    The Court of Appeals resolved all the City’s issues in favor of the
    Retirement Systems, and we affirm that decision.
    FACTUAL BACKGROUND
    Joseph Schutzman was a police officer for the Villa Hills Police
    Department when he retired on January 31, 2014. Years before, in addition to
    his police work, Schutzman was an experienced building and code inspector
    operating under the business name Schutzman Inspection Services. He
    originally ran this side-business in his free time off-duty. The City was a client
    of his on a contractual basis.
    On November 29, 2010, the mayor of Villa Hills expanded the city’s police
    department to bring in-house the formerly outsourced responsibility of building
    inspection, code enforcement, and zoning administration. Because of his
    experience, this inspector role was in some way or another assigned to and
    fulfilled solely by Schutzman, who would perform these additional functions
    while continuing under the same rank and title he already held within the
    police department.1 On the same day in November 2010, the City of Villa Hill's
    1For brevity, we will refer to the role of building inspector, code enforcer, etc. as
    “inspection,” “inspection services,” or the like. Schutzman’s inspection duties
    2
    city council reviewed and adopted Civil Service Rules for Villa Hills by
    ordinance and conducted the first reading of pay scales by ordinance. The very
    next day, the mayor sent an email to the city administrative clerk approving an
    increase in Schutzman’s base pay of $28.35/hour to $38.35/hour. With his
    overtime-pay rate at the typical 1.5 times base-pay rate, he would earn
    approximately $57.25/hour while working overtime. Before December 2010,
    Schutzman had never reported overtime, but he began doing so when he
    undertook the police department’s new inspection functions. He reported his
    police overtime and his inspection overtime separately.
    His gross compensation in the last six fiscal years of employment was as
    follows:
    Fiscal Year            Gross Compensation           Increase Over the
    Prior Fiscal Year
    2008–2009                       $61,277.04                  n/a
    2009–2010                       $60, 026.40                 0%
    2010–2011                       $115,252.23                 92%
    2011–2012                       $164,681.55                 48.89%
    2012–2013                       $111,119.20                 0%
    2013–2014 (until Jan. 31)       $27,918.80                  0%
    In FY 2010–2011 Schutzman’s compensation attributable to his inspection
    included “building inspection, reviewing, approving, and denying zoning and building
    permits, inspecting properties under the building code, investigating code violations
    and complaints, issuing citations for violations, attending and testifying at hearings,
    conducting follow-up inspections, answering calls from contractors and citizens,
    reviewing building plans, and inspecting buildings during and after construction.”
    3
    duties was $48,586.87, and in FY 2011–2012 that amount was $91,675.48.
    Separate from the added inspection duties, the pay directly attributable to his
    police work would have been $66,665.67 in FY 2010–2011 and $73,006.07 in
    FY 2011–2012. His compensation attributable to overtime in FY 2010-2011
    was $39,728.59, and $78,809.25 in FY 2011-2012. The changes in gross
    compensation between these years constitute the “spikes” in question.
    In the meantime, the General Assembly sought to address a practice
    called “pension spiking”—the practice of increasing the pay of an employee in
    the years immediately leading up to retirement with the effect of increasing the
    employee’s pension benefits in retirement. To limit this practice, the General
    Assembly passed KRS 61.598, which went into effect on July 1, 2013.
    On January 31, 2014, Shutzman retired from the police department. On
    June 23, 2014, the Retirement Systems assessed $210,893.82 against the City
    for the increased actuarial costs resulting from Schutzman’s compensation
    increases in FYs 2010–2011 and 2011–2012.
    Responding to the assessment, the City filed with the Retirement System
    a Form 6481 Request for Post-Determination of Bona Fide Promotion or Career
    Advancement. The Retirement Systems examined the circumstances described
    by the City, and in its post-determination concluded that the City was
    responsible for the assessed actuarial costs because the pay increase was not
    the result of a bona fide promotion or career advancement.
    The City requested an administrative hearing to challenge the liability.
    The Hearing Officer issued an order on March 17, 2015, initially assigning the
    4
    burden of proof to the Retirement Systems to prove the alleged spike was not a
    result of a bona fide promotion. Then, on the Retirement Systems's motion,
    the Hearing Officer placed the burden of proof on the City instead, requiring it
    to prove by a preponderance of evidence that the alleged spike was a result of a
    bona fide promotion. A hearing was held on December 7, 2015, and on March
    14, 2017, the Hearing Officer issued a recommended order finding the
    Retirement Systems’s assessment proper under KRS 61.598. The City filed
    exceptions. The Retirement Systems’s Board of Trustees adopted the
    recommended order as its final order with minor modifications.
    The City then petitioned for judicial review of the final order. The
    Franklin Circuit Court reviewed motions and heard oral argument. On
    May 15, 2018, the court issued an opinion and order in which it held
    Retirement Systems properly applied KRS 61.598 retroactively, that the burden
    of proof was properly assigned to the City, and that substantial evidence
    supported the Systems’s spike determination. The City appealed. The Court of
    Appeals affirmed the circuit court on the same bases.
    At every stage of litigation and appeal thus far, the Retirement Systems
    has prevailed. The City sought discretionary review from this Court, which we
    granted.
    ANALYSIS
    To begin with an overview of the applicable law, KRS 61.598 affects the
    amount of a retiree’s monthly benefits and how the costs of such benefits are
    allocated between the Retirement Systems and a participant employer, like the
    5
    City. KRS 61.598 involves a statutory concept called “creditable
    compensation.” KRS 61.510(13)(a), in pertinent part, defines "creditable
    compensation” as:
    “[A]ll salary, wages, tips to the extent the tips are reported for
    income tax purposes, and fees, including payments for
    compensatory time, paid to the employee as a result of services
    performed for the employer or for time during which the member is
    on paid leave, which are includable on the member's federal form
    W-2 wage and tax statement under the heading “wages, tips, other
    compensation”. . . .
    Put simply, creditable compensation refers to an employee's gross income and
    compensation in a given fiscal year. To calculate an employee’s monthly
    retirement benefit and allocate any related actuarial costs between the
    participant employers and the Retirement Systems, the Retirement Systems
    must look to the last five fiscal years of the retiree’s employment and identify
    increases in creditable compensation exceeding 10% between any of the five
    fiscal years. Then, depending on the timing of earnings and the date of the
    employee’s retirement, the actuarial costs of an identified increase over 10% in
    any one or more of the five fiscal years must be assessed against the employer
    if the increase is not justified by a “bona fide promotion or career
    advancement” or otherwise excepted by statute. Implicit is that, generally, the
    Retirement Systems will bear the actuarial costs of a compensation increase up
    to 10% in a given year.
    KRS 61.598(2) defines the class of retiring employees for which the
    Retirement Systems must limit the retiree’s pension benefits based on
    compensation increases in the last five years of his employment that are not a
    6
    result of a bona fide promotion or career advancement. The legislature selected
    January 1, 2018, as the subsection’s effective date, meaning that only those
    retiring after this date would be subject to caps on creditable compensation
    increases exceeding 10% between any of the last five years of employment.
    Thus, KRS 61.598(2) concerns the amount of the retiree’s monthly benefits. It
    does not directly concern the payment of actuarial costs related to those benefit
    payments.
    Accordingly, KRS 61.598(3) applies that very same 10% limit only to that
    creditable compensation earned by a retiree after July 1, 2017. Significantly,
    subsection (3) was added by amendment in 2017 to read:
    In order to ensure the prospective application of the limitations on
    increases in creditable compensation contained in subsection (2) of this
    section, only the creditable compensation earned by the retiring employee
    on or after July 1, 2017, shall be subject to reduction under subsection (2)
    of this section. Creditable compensation earned by the retiring employee
    prior to July 1, 2017, shall not be subject to reduction under subsection
    (2) of this section.
    The emphasized “creditable compensation . . . reduction under subsection (2)”
    refers to that reduction “used to calculate the retiring employee’s monthly
    retirement allowance” under subsection (2).2 Thus, subsection (3) also simply
    concerns the calculation of an employee’s retirement benefits, evidently
    amended to provide prospective application of subsection (2) and limited to that
    purpose. Significantly, this prospectively phrased subsection (3) does not
    expressly refer to and thus does not concern which entity will ultimately pay
    2   (emphasis added).
    7
    the actuarial costs of compensation increases. Because Schutzman earned the
    creditable compensation in question before July 1, 2017, and having retired in
    January 2014, the amount of his retirement benefits is left untouched. But
    again, who pays for the increased actuarial costs of his pay increase is what
    remains the key substantive issue in this case, whether it is the City or the
    Retirement Systems that bears the costs of Schutzman’s increased
    compensation.
    KRS 61.598(5)(a) concerns just that. It reads:
    For employees retiring on or after January 1, 2014, but prior to July 1,
    2017, the last participating employer shall be required to pay for any
    additional actuarial costs resulting from annual increases in an
    employee's creditable compensation greater than ten percent (10%) over
    the employee's last five (5) fiscal years of employment that are not the
    direct result of a bona fide promotion or career advancement. The cost
    shall be determined by the retirement systems.
    Significantly, the 2017 amendment to KRS 61.589 merely added the language
    “but prior to July 1, 2017,” emphasized above, to the already existing
    unemphasized portion of subsection (5)(a). Using the same 10%-increase
    measure, the General Assembly determined that when a pay increase is not the
    result of a bona fide promotion or career advancement, the last participating
    employer is assessed the increased actuarial costs resulting from any
    compensation increases of 10% or more if that employee retired “on or after
    January 1, 2014, but prior to July 1, 2017. . . .” It also provides that the
    Retirement Systems will determine what that cost is. Again for clarity,
    subsections KRS 61.598(2) and (3) determine whether increases over 10% will
    be enjoyed by a retiree in calculating his monthly benefits, while by contrast,
    8
    subsection (5) simply allocates the cost of those increases depending on the
    date of an employee’s retirement.
    In this case, Schutzman retired on January 31, 2014, just inside the
    temporal window of applicability of subsection (5). Under the plain language of
    this statute, the increased actuarial costs identified and determined by the
    Retirement Systems are to be borne by the City unless it can demonstrate
    Schutzman’s compensation change was justified by a bona fide promotion or
    career advancement (“bona fide promotion,” hereafter in short).
    KRS 61.598(1) provides that a “bona fide promotion or career
    advancement” is:
    [A] professional advancement in substantially the same line of
    work held by the employee in the four (4) years immediately prior
    to the final five (5) fiscal years preceding retirement or a change in
    employment position based on the training, skills, education, or
    expertise of the employee that imposes a significant change in job
    duties and responsibilities to clearly justify the increased
    compensation to the member.
    There are two basic ways to find a “bona fide promotion,” either (a) in a
    promotion or professional advancement in substantially the same line of work
    as the last four years of employment, or (b) a change in employment position
    based on training, skills, education, or expertise that imposes a significant
    change in job duties and responsibilities clearly justifying the pay increase.
    9
    A. The Retirement Systems properly applied KRS 61.598.
    We engage in deferential review of an administrative agency’s decision to
    deny a benefit to a party carrying the burden of proof or persuasion.3 Where
    the burden of proof was properly assigned and the administrative agency found
    that burden was not sustained, this Court will accept the agency’s finding
    unless the evidence is so overwhelmingly in the burdened party's favor that the
    Court cannot accept the finding.4 Where the statute is properly applied and
    the finding below was supported by substantial evidence, we will affirm.
    In this case, KRS 61.598 was properly applied retroactively, the burden of
    proof was properly placed on the City, and the City simply failed to rebut the
    Retirement Systems’s determination that Schutzman did not receive a bona
    fide promotion. The Retirement System’s determination was supported by
    substantial evidence, and the record evidence does not compel a contrary
    determination. We affirm the Court of Appeals on all issues.
    1. KRS 61.598 applies to creditable compensation paid to an
    employee before the July 1, 2013, effective date.
    The City argues that the retroactive application of KRS 61.598 is improper
    as a matter of statutory interpretation and application, that the legislature did
    not intend for the statute to apply retroactively. The City also makes
    constitutional objections to this retroactive application, which we will settle
    shortly. We first conclude that KRS 61.598 directs the Retirement Systems to
    3 Ky. Ret. Sys. v. Ashcraft, 
    559 S.W.3d 812
    , 819–20 (Ky. 2018) (citing and
    adopting the standard in McManus v. Ky. Ret. Sys., 
    124 S.W.3d 454
    , 458
    (Ky. App. 2003)).
    4   
    Id.
    10
    apply the statute retroactively in some circumstances, that is, to calculate
    creditable compensation and assess costs for compensation paid before the
    statute took effect on July 1, 2013. We review de novo issues of statutory
    interpretation and application, and in doing so our duty is to effect the intent of
    the legislature.5 We affirm the Court of Appeals’ holding that retroactive
    application was proper as a matter of statutory interpretation and application.
    “A retrospective law is one which creates and imposes a new duty in
    respect to transactions or considerations already past.”6 For our purposes, the
    terms “retroactive” and “retrospective” refer to that part of KRS 61.598 that
    directs the Retirement Systems to look back over the preceding five years of
    creditable compensation paid, even that which was already paid to an employee
    before its effective date in 2013, in calculating possible assessments against
    the employer for increased actuarial costs.
    As previously explained, there are separate provisions under KRS 61.598
    for calculating the employee’s retirement benefits, governed under subsections
    (2) and (3), and for calculating possible assessments against employers, under
    subsection (5). All three subsections were amended in 2017, effective the same
    year. We may presume at the start that with these amendments the General
    Assembly considered the statute’s contents carefully, inserted clarifying
    5   Commonwealth v. Plowman, 
    86 S.W.3d 47
    ,____ (Ky. 2002).
    6   Peach v. 21 Brands Distillery, 
    580 S.W.2d 235
    , 236 (Ky. App. 1979).
    11
    language as it saw fit, and purposely left certain language substantively
    undisturbed.7
    The City attempts to capitalize on newly amended language under
    subsection (3), “In order to ensure the prospective application of the limitations
    on increases in creditable compensation contained in subsection (2). . .,”
    apparently to argue that the General Assembly intended the entire statute to
    apply only prospectively. But the language just quoted only applies specifically
    to subsection (2).
    Subsection (5)(a) separately concerns assessments to employers and did
    not have similar language added “in order to ensure prospective application.”
    Rather, the following emphasized language was inserted into (5)(a), with the
    rest of the subsection otherwise left substantively untouched: “For employees
    retiring on or after January 1, 2014 but prior to July 1, 2017,” increased
    actuarial costs shall be assessed to the last employer under the situations
    described. The language is unequivocal. As the Court of Appeals noted, it
    could not be clearer that for purposes of assessments against employers, the
    legislature intended this five-year look back, even to reach compensation paid
    before the 2013 effective date of the statute.
    The City also points to a provision allowing employers to seek
    predeterminations of agency treatment before increasing an employee’s
    compensation. We can dismiss this concern as being without merit, as seeking
    7   Util. Mgmt. Grp., LLC v. Pike Cnty. Fiscal Ct., 
    531 S.W.3d 3
    , 9 (Ky. 2017).
    12
    a predetermination is but an option for an employer by statute, with no
    meaningful due-process concerns, addressed shortly, between a
    predetermination and post-determination of agency action. This advisory
    option does not mandate the statute’s application in any particular temporal
    direction as the City argues.
    The City is correct that we adhere to a strong general presumption
    against retroactive application of statutes absent a clear expression of such
    intent within the statute, especially where new rights and duties are made to
    arise from actions already past.8 But this legislative intent requires no magic
    words, it need only “manifest [the General Assembly’s] desire that a statute
    apply retroactively.”9
    The five-year lookback pertaining to assessments against employers,
    effective in some form since its original enactment in 2013, demonstrates the
    intent of the General Assembly to apply the statute retroactively. The lookback
    is inherently and clearly retrospective and, therefore, is intended to apply
    accordingly. While the 2017 amendment clearly abrogated any retrospective
    interpretation as to the calculation of a retiring employee’s benefits, the General
    Assembly evinced a completely different intention for subsection (5)(a) by
    leaving alone, thereby practically reiterating, the five-year lookback applied to
    any employer of an employee retiring after January 1, 2014, only adding
    “January 1, 2017” as the other end of the currently applicable time frame. If
    8   
    Id.
    9   
    Id.
     (citing Baker v. Fletcher, 
    204 S.W.3d 589
    , 597 (Ky. 2006)).
    13
    the General Assembly intended a different application, it would have made that
    so using language of the same undeniable clarity. As a matter of statutory
    construction, KRS 61.598 properly applies retroactively according to its plain
    language. We affirm the Court of Appeals in that regard.
    2. It was proper to assign the City the burden of proving a bona fide
    promotion or career advancement.
    The Hearing Officer placed the burden of proof on the City to
    affirmatively prove Schutzman's pay increase was a result of a bona fide
    promotion. The City argues that this burden was improperly placed on it, that
    it should have been placed on the Retirement Systems. We disagree.
    KRS 13B.090(7) reads:
    “In all administrative hearings, the party proposing the agency take
    action or grant a benefit has the burden to show the propriety of the
    agency action or entitlement to the benefit sought. The agency has
    the burden to show the propriety of a penalty imposed or the removal
    of a benefit previously granted.”
    The City provides several dictionary definitions to assist the Court in applying
    this statute to the case at bar. Black’s Law Dictionary defines “penalty” as “a
    sum of money exacted as punishment for either a wrong to the state or civil
    wrong (as distinguished from compensation for an injured party’s loss).”10 A
    “civil penalty” is defined further as “a monetary assessment for a violation of a
    statute or regulation.”11 And “statutory penalty” is defined as one that imposes
    10   Black’s Law Dictionary 1247 (9thed.) (emphasis added by City).
    11   
    Id.
     (emphasis added by City).
    14
    “automatic liability on a wrongdoer for violation of a statute’s terms without
    reference to the actual damages suffered.”12
    These definitions only go to show the Retirement Systems’s assessment
    is not a penalty. As the City’s own definitions show, a penalty generally
    involves a forbidden act, like exceeding the speed limit on a public highway,
    hunting without a license required by law, or failing to conform to a building
    code, acts amounting to violations of law for which fines or citations might be
    assessed.
    It is not alleged that the City has committed any sort of infraction or
    breach, nor any violation of KRS 61.598 or derivative regulation. The statute is
    simply a mechanism of shifting the costs of an employment decision to the
    employer under predetermined formulae. Like a tax, it is not assessed to
    punish unlawful behavior or wrongdoing, though it perhaps disincentivizes
    certain actions. Increasing an employee’s pay is not forbidden, disallowed, or
    otherwise unlawful, nor is it deemed wrong. The assessment is simply the
    price the General Assembly placed on employer-participants in a state pension
    system who bear a primary responsibility of financially supporting the system.
    Nor is the City being deprived of a benefit previously granted by the
    Retirement Systems. The City was never guaranteed the right to engage in
    employment actions that place a greater burden on the pension system without
    paying a part of that cost. In reality, it is the City that is seeking to obtain a
    12   
    Id.
     (emphasis added by City).
    15
    benefit from the Retirement Systems and other participants, namely that
    others would pay for the increased actuarial costs of an employee paid
    enormous amounts of overtime with no corresponding net gain in the services
    rendered by the employee to the City. To avoid the costs of that employment
    decision at others’ expense would amount to an affirmative benefit to the City-
    employer. But even dubiously conceptualized as a benefit, it was never granted
    or guaranteed to the City.
    Finally, assigning the burden of proof to the City makes practical sense.
    The City is in the best position to gather evidence pertaining to an employee or
    a purported promotion. Under the express language of KRS 13B.090(7), the
    burden of proof was properly assigned.13
    3. The evidence does not compel a finding that the employee
    experienced a bona fide promotion.
    After the Hearing Officer properly assigned the burden of proof and made
    a post-determination in favor of the Retirement Systems, the Board found the
    City had not carried its burden of proving a bona fide promotion by a
    preponderance of the evidence. Whether there was a bona fide promotion is a
    factual matter found under circumstances generally defined by statute and
    13 Cf. City of Louisville, Div. of Fire v. Fire Serv. Managers Ass’n ex rel. Kaelin,
    
    212 S.W.3d 89
     (Ky. 2006) (concerning an employment-status matter, holding the
    burden of proof was properly placed on the employer fire-department to prove a
    district chief was an employee and thus entitled to time-and-a-half overtime pay);
    Special Fund v. Francis, 
    708 S.W.2d 641
    , 643 (Ky. 1986) (where a claimant sought
    disability benefits from the Retirement Systems, held burden of proof was properly
    assigned to the claimant to prove his disability did not preexist membership in the
    system or reemployment).
    16
    refined by regulations.14 We defer to the Hearing Officer’s findings adverse to
    the party bearing the burden of proof.15 So long as the application of the
    statute was proper as a matter of law, we will only reverse the agency's finding
    if the evidence of record so overwhelmingly favored the City that it compels a
    contrary conclusion.16 “Evidence that would have supported but not compelled
    a different decision is an inadequate basis for reversal on appeal.”17
    The City argues the absence of substantial evidence to support the
    Retirement Systems’s determination the pay increase was not a result of a
    bona fide promotion. It asserts the Retirement Systems based this
    determination solely on two facts: first, that Schutzman’s formal rank and title
    within the police department did not change in 2010 despite his additional
    responsibilities within the police department; and, second, that he was already
    doing practically the same inspection work for the City before the purported
    promotion. The City also claims the Retirement Systems improperly refused to
    consider as evidence of a bona fide promotion the gross pay increase
    attributable largely to overtime hours. The City avers all of this was improper
    “cherry-picking” of the facts on the Hearing Officer’s part. We hear but
    ultimately reject each of these contentions. The evidence does not compel the
    14   See KRS 61.598(1).
    15 Ky. Ret. Sys. v. Ashcraft, at 817–18 (citing Ky. Ret. Sys. v. Brown, 
    336 S.W.3d 8
    , 14 (Ky. 2011)); Ky. Ret. Sys. v. Wimberly, 
    495 S.W.3d 141
     (Ky. 2016)).
    16   See Wilkerson v. Kimball Int’l, Inc., 
    585 S.W.3d 231
    , 236 (Ky. 2019).
    17 Gaines Gentry Thoroughbreds/Fayette Farms v. Mandujano, 
    366 S.W.3d 456
    ,
    461 (Ky. 2012).
    17
    conclusion that Schutzman enjoyed a bona fide promotion. We, therefore,
    affirm the Court of Appeals in all respects on this issue.
    The City is correct that the first two facts may not always be per se
    dispositive of the “bona fide promotion” determination, because promotions
    and career advancements might take on various forms and manifestations; and
    the circumstances of each case should be examined, as was done here. Still,
    even the City must concede that they are factors to consider, and it must
    understand that there is more to this evidence than meets the eye in light of
    the other evidence of record. That is, for whatever reason, City officials decided
    to merge those services Schutzman was already doing off-duty as an
    independent contractor with his existing duties as a full-time detective while
    increasing his hourly pay by 35%, not even considering his overtime rate was
    double his original hourly rate. In this context, the two factors substantially
    prove there was no “bona fide promotion” of Schutzman.
    First, we must reject the City’s implied premise that Schutzman’s
    inspector role was in the same line of work as his police work. The inspector
    role is only tangentially related to the traditional law-enforcement functions
    Schutzman fulfilled in his role as a police officer. To suppose the inspection
    role is substantially in the “same line of work” under KRS 61.598(1)(a) is a
    stretch, perhaps as much as it would be to say that a police officer and a
    prosecuting attorney, both tasked with law enforcement in some broad sense,
    are in the same line of work. The code-inspecting, investigation, and citation-
    writing aspects of Schutzman’s inspection role bear a vague similarity to his
    18
    general law-enforcement role as a police officer, which involves patrolling,
    investigation, and citation issuance of a different sort. But the inspection role
    is not what we would call “law enforcement” in the same policing sense.
    Placing the code-inspector role in the police department strikes us as an odd
    fit, however justified, especially considering this was a special position for
    which Schutzman was deemed “uniquely qualified” within the police
    department, according to witness testimony at the administrative hearing.
    Under the circumstances we regard the two roles as different lines of work for
    purposes of determining whether a purported promotion or career
    advancement is “bona fide.”
    The City relies more on the second form of “bona fide promotion,"
    characterizing the merger of Schutzman’s roles as a municipal employee as a
    more general change in employment position based on training and skill
    imposing a significant change in job duties clearly justifying the increased
    compensation. The Retirement Systems must have found Schutzman’s lack of
    formal promotion and the pre-existence of his inspector services as a
    contractor for the City significant because Schutzman’s purportedly augmented
    role for the department would reasonably appear to be merely a formal change.
    The only significant difference between Schutzman’s work pre-2010 and post-
    2010 was the extent and mode of compensation and the benefits he earned
    from his work for the City in both roles. In a strictly legal sense, before 2010
    he was both a city employee as a police officer and an independent contractor
    working for the city as a code inspector. The only change was that he became
    19
    an employee in performing both services under the same official umbrella of his
    peculiarly assigned police-department duties, since he was no longer an
    independent contractor for the City. His actual service to the City did not
    fundamentally change. The change of his employment relationship with the
    City does not compel the finding that the change in position was “bona fide”
    under KRS 61.598.
    Further, the City asserts the Retirement Systems and the lower tribunals
    interpreted the definition of “bona fide promotion” improperly to exclude
    overtime pay from consideration in that determination. More directly, this is
    an objection to the Retirement Systems’s regulation, 105 KAR 1:140, Section
    7(6), which excludes overtime pay, by definition, from consideration. As
    applied to this case, the City objects to this lack of consideration, given
    Schutzman’s enormous increase in gross overtime compensation. We find the
    City’s objection lacking.
    The statute does not require consideration of overtime pay in determining
    the existence or authenticity of a promotion. Overtime pay generally is not in
    and of itself evidence, certainly not conclusive evidence, of a bona fide
    promotion. Overtime compensation is, just as the term describes,
    compensation for fulfilling essentially the same job duties in a given role but in
    a number of hours exceeding, “over,” the standard expected time working a job
    in a given period, typically about 40 hours a week. The employee working
    overtime may, as here, get paid more per hour, often “time and a half,” or 1.5
    times the employee’s wage. But this extra compensation is based on the
    20
    quantity of work done in a given week, not for a greater type or quality of work.
    As a general matter, we read “bona fide promotion or career advancement” to
    pertain to a change in type, quality, or tier of an employee’s responsibility, not
    a change in the quantity of work performed.
    The reviewing circuit court aptly concluded that common sense must not
    be a stranger in a court of law. Overtime may be excluded from consideration
    by the Retirement Systems in these determinations because overtime pay is not
    in any practical sense qualitatively attributable to bona fide job promotions.
    Further, the Retirement Systems is at liberty to weigh the probative value of
    such evidence and find it lacking, as overtime will tend to be, and consider it
    little if any contributing factor to an employer-favorable determination.18 We
    affirm the Court of Appeals’ holding that the factfinder did not err in
    disregarding the extent of Schutzman’s overtime pay.
    At this point, we have no need to inquire deeply into the City officials’
    decision to arrange Schutzman’s official job duties to incur additional
    retirement benefits and compensation for essentially the same work in an
    ostensibly new or altered position tailored specifically to Schutzman. We need
    only accept as supported by substantial evidence under a highly deferential
    standard that, in substance, Schutzman’s pay increase from both overtime and
    increased retirement benefits was not a result of a bona fide promotion or
    18  Ky. State Racing Comm’n v. Fuller, 
    481 S.W.2d 298
    , 308 (Ky. 1972) (“For it
    must be borne in mind that it is the exclusive province of the administrative trier of
    fact to pass upon the credibility of witnesses, and the weight of the evidence.”).
    21
    career advancement, that, although his official job duties as a city employee of
    the local police department were augmented in the most diaphanous sense, it
    was not on account of a true promotion.
    So in summary response to the City’s arguments concerning the
    sufficiency of evidence, Schutzman’s lack of change of formal title and the
    congruence of his job responsibilities were not totally dispositive per se, at least
    not alone. The Retirement Systems’s conclusion was reasonable and aimed
    properly at substance over form, and we are inclined and obligated under the
    applicable standard of review to accept its substantially evident conclusion that
    there was no bona fide promotion justifying a 92% increase in FY 2010–2011
    and then a 42.5% increase from that increase the very next fiscal year. The
    City cannot seriously contend that a near-net-triple increase in Schutzman’s
    compensation from $60,026.40 to $164,681.55 in two years is “clearly
    justified” by a formal role change. What the City did in Schutzman’s case is its
    prerogative, but it must bear part of the cost to the extent required by statute.
    B. KRS 61.598 is not arbitrary, capricious, or overbroad in violation of
    Section 2 of the Kentucky Constitution, either in principle or in
    application.
    The City asserts KRS 61.598 is unconstitutional as arbitrary and
    overbroad, and that it has been interpreted and applied by the tribunals below
    in violation of its due-process rights. The Retirement Systems argues Section 2
    of the Kentucky Constitution does not even apply to the City as a government
    entity, that it is not a “freeman” entitled to security in life, liberty, and property.
    The Retirement Systems further argues that even if Section 2 did apply to
    22
    protect the City, no violation occurred because the City was afforded adequate
    procedural due-process in the administrative and judicial systems, and that it
    made its decision according to statutory mandate.
    KRS 13B.150(2)(a) requires a court to reverse and remand a case if the
    final order is “[i]n violation of constitutional or statutory provisions[.]” Section
    2 of the Kentucky Constitution reads: “Absolute and arbitrary power over the
    lives, liberty and property of freemen exists nowhere in a republic, not even in
    the largest majority.” We have held that Section 2 applies to protect non-
    persons, such as corporations.19 As to whether this provision applies to the
    City as a municipality, we are similarly satisfied that it enjoys certain Section 2
    rights against arbitrary deprivation of property or economic interests. But
    when the courts review an allegedly arbitrary administrative action affecting an
    economic or property right, the Court simply ensures an alleged deprivation of
    non-fundamental economic or business rights has a rational basis in
    furtherance of a legitimate government interest,20 that the affected party was
    afforded adequate procedural due process, and that the decision was informed
    by substantial evidence of record.21
    19 Elk Horn Coal Corp. v. Cheyenne Res., Inc., 
    163 S.W.3d 408
    , 411 (Ky. 2005),
    overruled on other grounds by Calloway Cnty. Sheriff’s Dept. v. Woodall, 
    607 S.W.3d 557
     (Ky. 2020).
    20   Stephens v. State Farm Mut. Auto. Ins. Co., 
    894 S.W.2d 624
    , 627 (Ky. 1995).
    21   Kaelin v. City of Louisville, 
    643 S.W.2d 590
    , 591 (Ky. 1982).
    23
    1. The General Assembly’s passage and the Retirement System’s
    implementation of KRS 61.598 were supported by a rational
    basis.
    The General Assembly unquestionably has the authority to establish and
    pass legislation concerning the administration of retirement pensions for state
    employees, absent limited exceptions inapplicable in this case. The General
    Assembly established the Retirement Systems to administer the programs and
    delegated authority to the Retirement Systems to pass and implement
    regulations consistent with statute. We have already established that the
    Systems properly applied the statute as written in this case and that its
    regulation was consistent with KRS 61.598. The City’s qualms are
    fundamentally directed at the statute, arguing the assessment was arbitrarily
    applied to the City. It argues the arbitrariness is compounded by what it
    regards as the previous payment of these actuarial costs via its regular
    employer contributions and because it made these payments to Schutzman
    before the bill that became KRS 61.598 even reached the floor of the General
    Assembly.
    In light of alleged historic mismanagement of the general pension fund,
    funds that were to be held in trust to the employee-members, the General
    Assembly found it necessary to place upper-limits on pay increases given to
    member-employees retiring between January 1, 2014, and July 1, 2017. The
    General Assembly shifted certain costs of such pay increases away from the
    general retirement funds, contributed to and paid out of by various government
    employers and employees, and placed those costs on the employers, who have
    24
    greater direct discretion over employee compensation. This cost-shifting was
    meant to alleviate the financial distress the pension system was under. Thus,
    KRS 61.598 is meant to be a bloat-limiting balancing measure.
    KRS 61.598 is written to serve that purpose, and it authorizes the
    Retirement Systems to pass regulations and take certain prescribed actions to
    assess increased actuarial costs attributable to employee compensation
    increases. By concentrating part of some larger actuarial costs on the
    participant-employers, the General Assembly shifted the costs to employers.
    This statute affects all employers similarly and only under the specified
    circumstances, and it is reasonably designed to rehabilitate and preserve the
    Commonwealth’s pension system. KRS 61.598 still permits a 10% increase
    allowance before the Retirement Systems inquires into pension costs at all, and
    beyond that, an assessment can still be avoided by demonstrating a bona fide
    promotion. Pension costs are determined by actuarial formulae, which we have
    no reason to think are being applied arbitrarily, assuming they are premised on
    factors one would predict such as the life expectancy of participants, the age of
    the work force, and anticipated contribution needs. Neither the rationale nor
    the implementation of this statute is arbitrary, random, or speculative, as the
    City suggests. There is a thread of logic running through this statute
    supporting a legitimate interest properly under the government’s domain. It is
    not arbitrary, much less capriciously aimed at the City.
    The City may object to either the generals or particulars of how the
    General Assembly addressed the problems in the pension system, and it may
    25
    argue it is surprised and finds unfair the amount of money it has been
    assessed to meet that end. But KRS 61.598 is not arbitrary on its face or as
    applied.
    2. The City was afforded adequate procedural due process.
    The other aspect of arbitrariness is the procedural due process afforded to
    the claimant. The City asserts the Retirement Systems’s decision was reached
    without considering evidence of a bona fide promotion, only “by reference to
    mathematical tables.” It has argued that the assessment was made contrary to
    statutory mandate, that the Retirement Systems improperly assessed the costs
    of pay increases before it made a factual determination as to changes in
    Schutzman’s official duties, a change that the City asserts amounts to a bona
    fide promotion. The City thus considers itself deprived of the opportunity
    properly to challenge the assessment.
    Here, there is no doubt the City was afforded and has enjoyed adequate
    procedural due process. The requisite procedural elements are notice, a
    hearing, the taking and weighing of evidence, a finding of fact based upon an
    evaluation of the evidence, and conclusions supported by substantial
    evidence.22 The City was first allowed to object to the initial notice of
    assessment by filing a Form 6481 to initiate reconsideration by the agency,
    then it was able to appeal the unfavorable determination to the Board of
    Trustees of the Retirement Systems for review, and it has since been afforded
    22   Kaelin, 
    643 S.W.2d 590
    , 591 (Ky. 1982).
    26
    three levels of judicial review. The City was given ample opportunity to put on
    evidence that Schutzman’s 92% and 48.89% raises across two years were the
    result of a bona fide promotion, yet no tribunal has been convinced. We have
    already addressed how there was substantial evidence supporting the finding
    unfavorable to the City. The City was afforded adequate procedural due
    process.
    3. The statute is not overbroad.
    The City merely asserts that KRS 61.598 is overbroad, offering little in the
    way of explanation. A statute is overbroad when, “in an effort to control
    impermissible conduct, the statute also prohibits conduct which is
    constitutionally permissible.”23 “Where conduct and not merely speech is
    involved, the overbreadth effect of a statute must not only be real, but
    substantial as well, and judged in relation to the law's plainly legitimate
    sweep.”24
    The overbreadth doctrine typically applies to intervene where government
    action unduly burdens or regulates constitutionally protected actions.25 The
    decision to raise an employee's compensation is not constitutionally protected,
    like speech, religion, or interstate travel, and we have already concluded that
    KRS 61.598 reasonably “regulates” that behavior for a legitimate reason. Even
    if the assessment amounts to a regulation of protected conduct, we have
    23   Commonwealth v. Ashcraft, 
    691 S.W.2d 229
    , 232 (Ky. App. 1985).
    24   Hendricks v. Commonwealth, 
    865 S.W.2d 332
    , 337 (Ky. 1993).
    25 See Commonwealth v. Kash, 
    967 S.W.2d 37
    , 42 (Ky. App. 1997); Ashcraft,
    
    691 S.W.2d at 232
    .
    27
    already found this conduct is not prohibited by the statute or otherwise
    impinged. While no statute is perfectly limited in application, the parameters
    of KRS 61.598 are reasonably tailored to the purported end. We are not
    otherwise offered any sound description of how the statute unduly punishes or
    burdens conduct unrelated to the sustainability of the pension fund. The
    statute is not overbroad.
    C. KRS 61.598 does not violate Section 19(1) of the Kentucky
    Constitution prohibition against ex post facto laws or the state or
    federal Contracts Clauses.
    We turn now to the City’s constitutional objections to the statute’s
    retroactive effect, namely that KRS 61.598 is an ex post facto law and that it
    violates the federal and state Contracts Clauses. Section 19(1) of the Kentucky
    Constitution reads: “No ex post facto law, nor any law impairing the obligation
    of contracts, shall be enacted.”
    An ex post facto law is any law, which criminalizes an act that was
    innocent when done, aggravates or increases the punishment for a crime
    as compared to the punishment when the crime was committed, or alters
    the rules of evidence to require less or different proof in order to convict
    than what was necessary when the crime was committed. . . . The key
    inquiry is whether a retrospective law is punitive.26
    We have already determined that the statute may apply retroactively to prior
    acts, even to the City’s payment of compensation to Schutzman before 2013.
    We then settled why this law is not punitive in nature because it does not
    26 Buck v. Commonwealth, 
    308 S.W.3d 661
    , 664–65 (Ky. 2010) (emphasis
    added) (citing Purvis v. Commonwealth, 
    14 S.W.3d 21
    , 23 (Ky. 2000), and Martin v.
    Chandler, 
    122 S.W.3d 540
    , 547 (Ky. 2003)).
    28
    impose a punishment for committing a forbidden, unlawful, or wrongful act.
    The same premises apply to this analysis.
    KRS 61.598 is also not unconstitutional as an ex post facto law, because,
    although the statute operates retroactively, the assessment is not a
    punishment for a criminal act. Ex post facto laws apply only to criminal or
    penal matters, not generally to civil or private matters.27 This assessment is a
    civil assessment incurred for non-criminal actions. Again, the assessment was
    to redistribute actuarial costs according to statute, not to punish the City for a
    lawful employment decision.
    The Contracts Clauses are not implicated either. The relationship
    between the City and the Retirement Systems is one purely of statute, not
    contract.28 And the relationship between the City and Schutzman, that is, the
    rights and obligations owed between them, is left completely unaffected. KRS
    61.598 establishes a separate financial obligation to the Retirement Systems
    given the City’s participant status. The statute does not affect any employer-
    employee obligations between the City and Schutzman, especially now that the
    employment relationship no longer exists by virtue of Schutzman’s retirement.
    We find no violation of the Contracts Clause, as no contractual relationship of
    the City’s was affected.
    27 Nicholson v. Jud. Ret. & Removal Comm'n, 
    562 S.W.2d 306
    , 308 (Ky. 1978);
    Henderson & N.R. Co. v. Dickerson, 
    56 Ky. 173
    , 177 (Ky. 1856) (“It is not an ex post
    facto law, for such laws relate exclusively to offenses against the public, and not to
    private wrongs and injuries.”).
    28 See Ky. Emps. Ret. Sys. v. Seven Cnties. Servs., Inc., 
    580 S.W.3d 530
    , 546
    (Ky. 2019).
    29
    IV. CONCLUSION
    For the reasons stated, we affirm the decision of the Court of Appeals.
    Minton, C.J., Hughes, Keller, Conley, VanMeter and Lambert, JJ., sitting.
    All concur. Nickell, J., not sitting.
    COUNSEL FOR APPELLANT:
    Mary Ann Stewart
    Bryce C. Rhoades
    Adams Law, PLLC
    COUNSEL FOR APPELLEE:
    Anne Caroline Bass
    Kentucky Public Pensions Authority
    30
    

Document Info

Docket Number: 2019 SC 0434

Filed Date: 8/25/2021

Precedential Status: Precedential

Modified Date: 8/26/2021