Opinion
4954-04.
Decided April 4, 2005.
Roemer, Wallens Mineaux, Attorney For Petitioner, Albany, NY.
Eliot Spitzer, Attorney General, State of New York, Attorney For Respondent, The Capitol, Albany, New York, (Kate H. Nepveu, Assistant Attorney General of Counsel).
The above-captioned proceeding was commenced to review a determination of the respondent, made on April 19, 2004, with respect to how it calculated petitioner's five-year final average salary for purposes of determining his retirement pension under Article 11 of the Education Law. At issue is whether the sum of $53,159.52, paid to petitioner in his final year of employment, should be included in his final average salary.
Petitioner joined the New York State Teachers' Retirement System (hereinafter "Retirement System" or "respondent") as a Tier I member on September 1, 1970 when he was hired by the Hauppauge Union Free School District ("School District") as an Industrial Arts Teacher. Effective July 1, 1984 he was promoted to the position of Assistant Superintendent For Administration and Personnel. Petitioner remained in that position (and remained a member of the Retirement System) until he retired from the School District on August 2, 2002. As Assistant Superintendent petitioner was deemed a managerial employee, ineligible to be a member of any collective bargaining unit. As a consequence, petitioner and the School District entered into a series of contracts with respect to the terms and conditions of his employment. The most recent contract was for the period July 1, 1998 through June 30, 2002 (hereinafter "Employment Agreement"). As relevant here, the Employment Agreement entitled petitioner to 30 days of paid vacation leave per year; and contained a provision permitted him to accumulate up to 50 days of unused vacation.
It is uncontroverted that in February 2002 petitioner, who would attain age 55 on May 6, 2002, informed the School District that he planned to retire, effective June 30, 2002. At that time he indicated that he intended to utilize all unused vacation time, and that therefore he desired to cease working on March 1, 2002.
Petitioner indicates that during this same period of time the School District's central administration was in "considerable turmoil". Due to a number of staff changes petitioner was the only central office administrator with any significant experience. It is undisputed that, as a consequence, the School District requested petitioner to postpone his retirement until August 2, 2002. Petitioner agreed, and on February 26, 2002 petitioner and the School District entered into a contract to amend the Employment Agreement (hereinafter "Supplemental Agreement"). The Supplemental Agreement extended the Employment Agreement from June 30, 2002 to August 2, 2002. It provided, inter alia, that petitioner's annual salary be increased by 3.5%, effective July 1, 2002. Of particular significance here, it provided that upon retirement, petitioner would receive payment for all accumulated unused vacation days. It contained a calculation of unused vacation days from which it appeared (after deducting ten vacation days representing a cash payment due June 30, 2002) that petitioner would have 140 days of unused vacation time as of August 2, 2002. As a consequence, when petitioner retired in August 2002 he received a cash payment totaling $82,692.28 for all unused vacation leave.
The Supplemental Agreement recites that as of the date of the Agreement petitioner had accumulated 125 vacation days. Ten days were deducted for a cash payment due on or before June 30, 2002. 25 additional days were to be credited to petitioner on July 1, 2002, for a total of 140 days.
Petitioner submitted his retirement application to the respondent. In a preliminary determination dated October 22, 2003, respondent ruled that it would exclude the sum of $53,159.32, attributable to 90 unused vacation days, from the computation of petitioner's five-year final average salary. Respondent, in making this determination, noted that under the Employment Agreement, petitioner was allowed to accumulate up to 50 unused days of vacation time; and that the Supplemental Agreement increased this amount from 50 days to 140 days. Respondent took the position that the sum of $53,159.32 was paid in consideration of petitioner's retirement, rather than as compensation for his services as Assistant Superintendent. As noted, the preliminary determination was confirmed on April 19, 2004.
Throughout the petition, petitioner emphasizes that from his perspective, he intended to retire effective June 30, 2002, but only extended his employment at the specific request of the Board of Education. In his view, the payment of the sum of $53,159.32 is simply a part of his overall compensation package, and therefore is properly included in his five-year final average salary.
Respondent points out that the Supplemental Agreement (which respondent terms an "Exit" Agreement) was negotiated on the eve of petitioner's retirement. Respondent maintains that the additional $53,159.32 was paid by reason of petitioner's retirement, not as compensation for petitioner's services for the period covered by the agreement. Respondent places emphasis on that portion of the Supplemental Agreement which recites that the petitioner "[h]ereby submits his irrevocable resignation for purposes of retirement effective August 2, 2002, which the Board hereby accepts." In respondent's view, the Supplemental Agreement greatly expanded petitioner's entitlement to payment for unused vacation days (from 50 days to 140 days) while simultaneously reducing his employment responsibilities (including eliminating his responsibility for supervision of the Building and Grounds Department). Petitioner, at the same time, received a 3.5% salary increase effective July 1, 2002. Respondent argues that the extraordinary additional payment of $53,159.32, made on the eve of petitioner's retirement, was clearly linked to petitioner's resignation. For this reason, respondent contends that the payment did not qualify as "compensation earnable as a teacher" within the meaning of Education Law § 501 (11) (a).
Education Law § 501 (11) (a) recites as follows:
"Final average salary" shall mean the average annual compensation earnable as a teacher during the five years of service immediately preceding his date of retirement, or it shall mean the average annual compensation earnable as a teacher during any five consecutive years of state service, said five years to be selected by the applicant prior to date of retirement.
§ 5003.2 of the Rules of the New York State Teachers' Retirement System recite as follows:
§ 5003.2 Five-year final average salary for certain members who joined system prior to July 1, 1973
(a) A five-year final average salary is defined as the highest average annual salary earned by a member over a period covering five consecutive years of New York State service credit.
(b) In the case of members who joined the system prior to June 17, 1971, termination pay, provided it constitutes compensation earned as a teacher, is includable in the computation of final average salary.
(c) In the case of members who joined the system on or after June 17, 1971, salary earned shall exclude termination pay and any earnings in excess of 120 percent of the earnings for the preceding year of service credit. (Termination pay as defined in section 5001.1(d) of this Chapter.)
(d) If the member has fewer than five years of service credit, then his final average salary shall be computed over the actual period of service.
(e) Any member of the system who is a discontinued member under the provisions of the optional retirement program, and who became such a discontinued member prior to July 1, 1969, is restricted to a five-year computation of his final average salary.
(f) The five-year final average salary is not applicable to those members joining on and after July 1, 1973.
It is well settled that "[t]ermination pay is includable in the computation of the final average salary provided that it constitutes compensation earned as a teacher' rather than consideration for an agreement to retire" ( Matter of Hall v New York State Teachers' Retirement System, 266 AD2d 638 [3rd Dept., 1999], at p. 639 lv denied 94 NY2d 759, citing 21 NYCRR 5003.2 [b]). Conversely, "[p]ayments that are over and above the compensation to which an administrator would otherwise be entitled and given to induce his or her resignation are excludable" ( Matter of Van Haneghan v New York State Teachers' Retirement System, 6 AD3d 1019 [3rd Dept., 2004], at p. 1021, citing Matter of Horowitz v New York State Teachers' Retirement System, 293 AD2d 861 [3rd Dept., 2002] lv to app denied 98 NY2d 614 and Hall v New York State Teachers' Retirement System, supra).
The Court observes that because the instant determination was made without a hearing the standard of review is limited to whether the determination was arbitrary and capricious or without a rational basis ( see Matter of Moraghan v New York State Teachers' Retirement System, 237 AD2d 703 [3rd Dept., 1997]).
As noted, the Supplemental Agreement provided that petitioner would be paid for 140 days of unused vacation. It is significant, however, that as of February 26, 2002 petitioner was entitled to 125 days of vacation, which the School District acknowledged. This, in the Court's view, was a valuable right, earned by petitioner during his years of employment, which petitioner was entitled to utilize prior to his retirement.
While the Court is aware that the Employment Agreement recites that petitioner may only accumulate up to 50 days of unused vacation time, the same Agreement also mentions that accumulated vacation time prior to 1988 was to be included. In this instance, petitioner has alleged that he had accumulated his vacation leave over a period of 32 years. Notably, the Supplemental Agreement acknowledged and confirmed that petitioner had accumulated 125 days of vacation as of February 26, 2002.
The Court is mindful that the Employment Agreement provided that petitioner could not take more than five consecutive weeks of vacation without School Board approval. Petitioner has indicated that he was fairly confident that he could have obtained such approval. But even if this was not the case, petitioner could easily have consumed a great portion of his unused vacation during the period between March 1, 2002 and June 30, 2002 by simply taking it in five week increments, with short intervals in between.
It is uncontroverted that in February 2002 petitioner was requested by the School District to forego vacation rights which he had previously earned. Instead of leaving work on March 1, 2002 by using accumulated annual leave (with the actual effective retirement date of June 30, 2002), he was asked to work continuously to August 2, 2002, retire immediately, and relinquish all rights to earned vacation. To be able to induce the petitioner to work right up to and including his retirement date of August 2, 2002, it was necessary for the School District to enter into an agreement to provide an incentive to the petitioner to compensate him for the vested vacation rights he was being requested to give up. The Court is of the view that the benefits which petitioner received under the Supplemental Agreement took the form of a negotiated exchange for rights which petitioner had previously earned under the original Employment Agreement. In other words, it is clear that the cash payment was in the nature of a quid pro quo for petitioner's vested vacation rights, fashioned at the request of the School District, in order to address the School District's short-term staffing needs. The Court concludes that the $53,159.52 cash payment qualifies as "compensation earned by a teacher".
In addition, the Court is of the view that the record reflects that overriding purpose and intent of the Supplemental Agreement was not to induce the petitioner to retire (a decision which he had already made) but rather to delay his retirement for the benefit of the School District. This situation has similarities to that found in Van Haneghan v New York State Teachers' Retirement System ( 6 AD3d 1019 [3rd Dept., 2004]) where a school district administrator had filed her notice of intention to retire in order to take advantage of a $25,000 retirement incentive. The administrator subsequently agreed to delay her retirement for one year at the request of the superintendent of the school district because the superintendent could not recruit a replacement. There was an oral agreement that the administrator would remain eligible for the $25,000 retirement incentive. The Appellate Division found that the $25,000 retirement incentive should be included in the administrator's five-year final average salary.
In view of the foregoing, the Court finds that the determination of the respondent, made on April 19, 2004, is arbitrary and capricious and irrational, and must be vacated. The Court concludes that the petition should be granted.
Accordingly, it is
ORDERED and ADJUDGED, that the petition be and hereby is granted; and it is
ORDERED and ADJUDGED, that the determination dated April 19, 2004 be and hereby is vacated and annulled insofar as it failed to include the sum of $53,159.32 in petitioner's final five-year average salary for purposes of computing petitioner's retirement; and it is
ORDERED and ADJUDGED, that respondent is directed to recalculate petitioner's five-year final average salary so as to include the additional sum of $53,159.32.
This shall constitute the decision, order and judgment of the Court. All papers are returned to the attorney for the petitioner who is directed to enter this Decision/Order/Judgment without notice and to serve all attorneys of record with a copy of this Decision/Order/Judgment with notice of entry.