The California First District Court, in Martinez v. Pub. Employees’ Ret. Sys., 2019 Cal. App. LEXIS 311 (1st Dist. Apr. 4, 2019), affirmed a trial court’s denial of a petition for mandate relief challenging the denial of a former State agency employee’s application for disability retirement from state service. The Court, agreeing with precedent, concluded that the employee’s voluntary resignation under a settlement to avoid a pending termination for cause was tantamount to a dismissal that completely severed the employer-employee relationship.
In 1985, Linda Martinez started her career as a California State employee. She worked for the State Department of Social Services (“DSS”) starting in 2001. In 2014, DSS sought to terminate Martinez’s employment based on several grounds. In September 2014, the parties agreed to a settlement. Under the settlement terms, Martinez agreed to voluntarily resign from her position and to never reapply or accept any employment position with DSS in the future.
Martinez filed a disability retirement application. The application was denied by the Board of Administration of the California Public Employees Retirement System (“CalPERS”). The Board cited Haywood v. American River Protection Dist., Smith v. City of Napa, and a previous CALPERS decision applying the two cases entitled “In the Matter of Application for Disability Retirement of Vandergoot” (“Vandergoot”) in support of its decision. The Board explained that Martinez’s application was denied because she had been “dismissed from employment for reasons which were not the result of a disabling medical condition. Additionally, the dismissal does not appear to be for the purpose of preventing a claim for disability retirement. Therefore, you are not eligible for disability retirement.”
Joined by her union, Service Employees International Union, Local 1000 (“SEIU”), Martinez appealed the denial to the Board. Martinez and SEIU challenged the soundness and continued validity of Haywood and Smith, especially as extended in Vandergoot. An Administrative Law Judge hearing her appeal concluded CALPERS had correctly cancelled Martinez’s disability retirement application. The CALPERS Board adopted the judge’s proposed decision and denied Martinez’s petition for reconsideration.
Martinez and SEIU next petitioned for a writ of mandate seeking an order to the Board to set aside and reverse its decision, and asking the trial court to “overrule” Vandergoot and “disavow” Haywood and Smith. However, the trial court concluded that Haywood and Smith “set out the relevant law” and were binding as precedential cases. The trial court also concluded that Vandergoot was a reasonable extension of Haywood and Smith, and, moreover, was entitled to “substantial weight” as an administrative decision interpreting statutes and case law within “the agency’s area of expertise.” An appeal followed.
The California First District Court of Appeal observed that courts had traditionally given “great weight to CalPERS’s construction of California’s Public Employees’ Retirement Law.” The Court explained that Government Code section 21156 had always equated disability with a state employee being “incapacitated physically or mentally for the performance of his or her duties.” Generally, a governmental employee loses the right to claim disability benefits if terminated for cause. However, Haywood, Smith, and the Board’s precedential Vandergoot decision produced exceptions to this general rule. The Court then discussed these three decisions, challenged by Martinez and SEIU (“Appellants”).
The First District explained that the key to the Haywood court’s analysis was Section 21156’s language “pegging disability to an employee being ‘incapacitated physically or mentally for the performance of his or her duties.’” The Haywood court said that while termination of an unwilling employee for cause results in a complete severance of the employer-employee relationship, disability retirement laws contemplate the potential reinstatement of that relationship if the employee recovers and no longer is disabled (upon which disability allowance would terminate). Firing for cause, said that court, constituted a total severance of the employer-employee relationship, thus “eliminating a necessary requisite for disability retirement—the potential reinstatement of his employment relationship.” However, Haywood established an exception, holding that a terminated-for-cause employee can still qualify for disability retirement when the conduct which prompted the termination was the result of the employee’s disability.
Smith provided the second and third exceptions to the general rule. Smith held that a terminated employee may qualify for disability retirement if he or she had a “matured right” to a disability retirement prior to the conduct which prompted the termination. The court in Smith explained that a right to a disability retirement is “mature” once the pension board authority approves the disability application. Smith further recognized that there might be instances where “a court, applying principles of equity, will deem an employee’s right to a disability retirement to be matured and thus survive a dismissal for cause.” (Smith at pp. 206–207.) This provided the third exception.
Applying Haywood and Smith in Vandergoot, the CALPERS Board concluded that, when an employee settles a pending termination for cause and agrees not to seek re-employment, this is “tantamount to a dismissal,” thus precluding a disability retirement. Vandergoot involved an employee fired for cause and prohibited from reinstatement under a settlement agreement, similar to Martinez here. In reaching this decision, the Board there explained that “Haywood makes it clear that a necessary requisite for disability retirement is the potential reinstatement of the employment relationship … . Such is not possible here.” The employee’s severed relationship and preclusion from reinstatement under the settlement agreement, declared the Board, were circumstances “wholly inconsistent with the policy behind and rationale for disability retirement.” The Board also concluded that Martinez did not have a matured right to a disability retirement, the exception permitted by Smith.
Having reviewed the challenged precedents, the First District here next turned to Appellants’ argument. Appellants asked the Court to hold that “Haywood and Smith both have been superseded by legislation, are inconsistent with subsequent case law, and declare that Vandergoot is no longer precedential authority.” Section 21156 was amended to add subdivision (a)(2). Appellants argued that this one-sentence subdivision should be interpreted to mandate that determinations of eligibility for disability retirement can only be made on the basis of competent medical opinion. Appellants argued that because this amendment occurred after the Haywood and Smith decisions, subdivision (a)(2) therefore “superseded” the cases, and also consequently invalidated Vandergoot.
Addressing Appellants argument, the First District explained that the subdivision (a)(2) was “but a single sentence in a single statute, and cannot be examined to the exclusion of the entirety of the Public Employees Retirement Law.” (See Mendoza v. Nordstrom, Inc. (2017) 2 Cal.5th 1074, 1084 [“‘We do not construe statutory language in isolation, but rather as a thread in the fabric of the entire statutory scheme of which it is a part’”].) After reviewing the legislative history of the amended portion and finding it “modest in scope,” the Court found “nothing in the legislative history of subdivision (a)(2) suggesting the terminated employee may then apply for a disability retirement.” The Court determined that “in the language of Haywood, Martinez’s voluntary resignation ‘constituted a complete severance of the employer-employee relationship, thus eliminating a necessary requisite for disability retirement—the potential reinstatement of [her] employment relationship.’” The Court thus rejected Appellants’ contention that Haywood and Smith were “superseded” by the subdivision. Finding no support for Appellants’ arguments in their cited cases, the First District also concluded that Haywood and Smith were not “inconsistent with subsequent case law,” and rejected Appellants’ request to consider the cases superseded by the subdivision.
Observing that “[a] long-standing principle is that “the Board’s interpretation of the Public Employees Retirement Law is accorded great weight unless clearly erroneous,” the Court explained that Vandergoot was designated as a precedential decision because the Board believed it had “a significant legal or policy determination of general application that is likely to recur.” Here, Martinez was prohibited from returning to her former job per the terms of her settlement after she agreed to voluntarily resign and never thereafter apply for or accept employment with DSS. The Court determined that “[f]rom this perspective, Vandergoot is eminently logical: resignation in these circumstances does indeed appear to be ‘tantamount to a dismissal,’” thus precluding a disability retirement pursuant to Haywood. The First District therefore refused to deny Vandergoot’s standing as precedent and applicability here. The First District accordingly affirmed the judgment denying the writ of mandate.
HOW THIS AFFECTS YOUR AGENCY
The First District commented that it was not compelled to follow its sister court’s decisions in Haywood and Smith, or to disavow them to undermine the Board’s Vandergoot decision. However, “we ordinarily follow the decisions of other districts without good reason to disagree.” Wolfe v. Dublin Unified School Dist. 56 Cal.App.4th 126, 137 (1st Dist. 1997). This case thus reinforces the precedential strength of Haywood and Smith, and the CalPERS Board’s Vandergoot decision. Resignation of a CalPERS member who settles a pending termination for cause by resignation is “tantamount to a dismissal” that completely severs the employer-employee relationship. Disability retirement is not applicable under such circumstances.
If your agency is effecting an employee separation by an in lieu resignation, it would seem advisable to include the element of ineligibility for future application or employment, thus making clear that such an agreement would be analyzed under the holding in Martinez.
As always, if you wish to discuss this matter in greater detail, please feel free to contact James R. Touchstone at (714) 446–1400 or via email at firstname.lastname@example.org.
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 67 Cal.App.4th 1292 (3rd Dist. 1998).
 120 Cal.App.4th 194 (3rd Dist. 2004).
 CalPERS Precedential Dec. No. 12-01 (2013).
 Beckley v. Board of Administration etc., 222 Cal.App.4th 691, 697 (1st Dist. 2013).
 Haywood, supra, 67 Cal.App.4th 1292, 1297.
 City of Fremont v. Board of Administration, 214 Cal.App.3d 1026, 1033 (3rd Dist. 1989).
 A state agency “may designate as a precedent decision a decision or part of a decision that contains a significant legal or policy determination of general application that is likely to recur.” Cal Gov Code section 11425.60.