A state appeals panel has agreed California’s public employee pension system was within its rights to adjust benefits for former government finance professional, who retired but then took contracted positions for several local governments through a public staffing agency.
Tarlochan Sandhu worked in public finance and accounting positions from 1989 through 2011, during which he belonged to the California Public Employees Retirement System. He retired in September 2011 and his CalPERS retirement allowance started that December.
The root of his ongoing legal dispute began in February 2015 when he took a job with Regional Government Services, which matches former public sector employees with agency openings. The company classified him as an “at will” employee and assigned him to jobs in Capitola, then Los Altos Hills, Alameda and Union City, ending in May 2016. RGS paid Sandhu an hourly rate while the government entities paid RGS a larger hourly rate.
California Third District Appellate Justice Laurie Earl
| Office of the Governor of California
CalPERS started investigating Sandhu’s work with the cities in February 2018, ultimately determining he was a common law employee in violation of postretirement employment rules. According to published reports, CalPERS sent Sandhu a letter informing him he could owe as much as $660,000, if he did not again retire. If he retired again, he could still owe $92,000 for performing improper work on behalf of public employers while he was drawing pension benefits as a retiree.
Sandhu appealed that ruling, but an administrative law judge upheld the decision. Sandhu then took the issue to Sacramento County Superior Court, where Judge James Arguelles again agreed with the initial CalPERS finding.
Sandhu then appealed to the Third District California Appellate Court.
Justice Laurie Earl wrote the panel’s opinion, filed Feb. 14; Justices Shama Mesiwala and Justice Rebecca Wiseman concurred. Wiseman is retired from the Fifth Appellate District Court but was assigned to the panel for this litigation.
On appeal, Sandhu argued his situation is not one in which a test for common law employment applies and, even if it did, Judge Arguelles’ decision was in error. He also argued Arguelles should’ve found the CalPERS decision to be, at least partially, based on underground regulations.
Earl opened the discussion by noting Sandhu’s appellate briefs contain 95 footnotes, many with arguments not found in the textual body, and as such the panel wouldn’t consider those arguments. She also noted Sandhu did not present at the superior court level his argument that the common law test was abrogated by other code sections. She said this could result in forfeiture, but agreed with all parties the panel has the discretion to address legal questions.
The prevailing precedent, Earl explained, comes from a California Supreme Court opinion on a “purely legal” question in Metropolitan Water District v. Superior Court. In that instance, the court ruled the state’s Public Employees’ Retirement Law “incorporates common law principles into its definition of a contracting agency employee and that the PERL requires contracting public agencies to enroll in CalPERS all common law employees except those excluded under a specific statutory … provision.”
The panel rejected Sanhu’s abrogation argument because while those codes do allow municipalities to contract with experienced professionals in several areas, “the fact that cities are authorized to contract for special services says nothing about whether the person providing those services is an independent contractor or an employee,” Earl wrote. “Contracting for special services is perfectly compatible with finding the person providing those services is an employee. Indeed, Sandhu was hired by RGS pursuant to a contract that identifies him as an employee, and RGS thus both contracted for Sandhu’s services and employed him.”
That left only the question of whether Sandhu was a common law employee, with the panel saying Judge Arguelles came to the decision he was through review of substantial evidence. Among those factors were that the cities could control Sandhu’s work and terminate his services without cause, that Sandhu routinely met directly with government employees to discuss his work, and that he assumed tasks usually the purview of city employees, such as acting as interim city finance director.
Rather than look at the initial CalPERS decision, the panel reviewed the superior court ruling and rejected Sandhu’s insistence to give no deference to either proceeding. Although almost all the evidence is undisputed, Earl wrote, it can give rise to multiple conclusions or inferences, and since substantial evidence supported Arguelles’ conclusion, the panel would not overturn.
Despite a “long line of authority, Sandhu’s position appears to be that if the contracts between RGS and the cities state he is an employee of RGS rather than the cities, then CalPERS is bound by that designation,” Earl wrote. “He cites no authority for that proposition, and we are aware of none.”
Regarding the allegation of “underground regulations,” Earl said Sandhu provided no explanation when raising the point in superior court, thus Aguelles didn’t address the matter and the appellate panel could determine he forfeited the claim.
Renne Public Law Group filed a brief supporting Sandhu on behalf of the League of California Cities and California Special Districts Association.
The CalPERS board is represented by Matthew Jacobs, Renee Salazar, Elizabeth Yelland and Preet Kaur.
“CalPERS is pleased with the Court of Appeals’ decision,” Jacobs said in an email. “The court correctly applied the common law employment test in determining whether Mr. Sandhu was employed by the four agencies he worked for after retiring.”
Sandhu is represented by Scott Kivel and Redwood Public Law.
“In our view, the appellate court in the Sandhu case committed three errors,” Kivel said in a statement. “The court ignored the plain language of section 37103, substituting its judgment for that of the Legislature by imposing a common law employment analysis requirement on a specialized services contract. It also gave CalPERS new rights to override the express authority and intent of local legislatures and executives to structure how they operate. Finally, if the court maintains that the common law employment test is relevant for such contracts, it improperly excluded contracted firm RGS from its determination of who is the employer, arriving at a result that is contrary to the clear and specific language of this legislation.”
RGS Executive Director Sophia Selivanoff also provided a statement, saying: “Given the enormous public policy ramifications of this decision, we are petitioning the Supreme Court of California for review. We seek a refinement of its 2004 Cargill analysis within the context of the unambiguous cited legislative authority under which these cities contracted with Regional Government Services for Mr. Sandhu’s critical special services.”