July 8, 2011
JOHN CATALANO, APPELLANT,
DEPARTMENT OF TREASURY, DIVISION OF PENSIONS AND BENEFITS, RESPONDENT.
On appeal from the Board of Trustees, Department of Treasury, Public Employees' Retirement System, PERS# 1073197.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted March 8, 2011 - Decided
Before Judges Payne and Koblitz.
Claimant, John Catalano, appeals the denial by the Board of the New Jersey Public Employees' Retirement System (Board or PERS, as applicable) of his request to purchase service credit for the period from April 1996 to June 1999 on the ground that, during the period at issue, he was the employee of an employer that was not eligible to participate in PERS, and thus he was barred from purchasing the credits by N.J.S.A. 43:15A-71 and N.J.A.C. 17:2-4.15. On appeal, claimant contends that the Board should have utilized the twenty-factor test originally set forth by the Internal Revenue Service (IRS) in Rev. Rul. 87-41, 1987-1 C.B. 296, 298-99,*fn1 to determine whether his public sector "employer" had sufficient control over him so that he should be considered an employee whose service and salary was creditable in PERS. We find the IRS control test applicable only to distinguish between independent contractors and employees when they are paid by a public entity and inapplicable to privately-paid employees. Therefore, we reject claimant's argument and affirm.
Claimant, an electrical engineer, was placed by Joule Technical Services, Inc. as a contract employee in the position of Construction Official with the Department of Community Affairs (DCA) on April 22, 1996. His temporary employment in that position was continued until June 4, 1999, at which time he was offered and accepted a permanent position in the same capacity by the DCA. He was placed on the DCA payroll and enrolled in PERS on June 5, 1999. Prior to that date, his salary was paid by Joule. However, claimant had no other contact with Joule, a temporary staffing service under contract with the DCA to provide "specially qualified employees to work for the Department of Community Affairs on a contract basis." See Request for Proposals 800311, 24 Temp. Empl. Const. Code Enf. Services (T-0311) (Revised), supplied on our request as evidence of the contract between the DCA and Joule.
On July 13, 2009, the Division of Pensions and Benefits received claimant's application to purchase service credit for the period of April 22, 1996 through June 4, 1999. The request was denied a day later on the ground that, during that period, claimant was working as an employee of Joule Technical Staffing, a private entity. On October 5, 2009, claimant's attorney again requested to purchase service credit for this period. A subsequent denial of that request was appealed to the PERS Board and considered at its December 10, 2008 meeting. The Board denied claimant's appeal, basing its denial on N.J.S.A. 43:15A-71, which exempts from the definition of "public agency or organization" a "privately owned . . . service," and on N.J.A.C. 17:2-4.15(a)4, which provides that "[m]embers will not be granted, nor may they purchase prior service or membership credit for . . . employment . . . [a]s an employee of an employer that is ineligible to participate in the PERS, but who provides services to an employer who participates in the PERS."
In a December 26, 2009 letter, claimant appealed the Board's denial and requested a hearing in the Office of Administrative Law. However, at the Board's meeting on January 20, 2010, the Board denied the request for a hearing, determining that the issue was solely a matter of law. In a final administrative determination dated February 18, 2010, the Board set forth the history of the matter and its basis for denial, again relying in that regard on N.J.S.A. 43:15A-71 and N.J.A.C. 17:2-4.15 and on the fact that claimant was being paid by Joule during the relevant time period. The decision stated:
The fact that you performed the same type of services, or remained subject to the rules, regulations and policies of the department, does not change the fact that you were employed by a private entity that had a contractual relationship with the State. Thus, in accordance with N.J.S.A. 43:15A-71 and N.J.A.C. 17:2-4.15, the Board has no authority to grant your request to purchase this period of employment as additional service credit in PERS. During the period in question, you received your paychecks from Joule and your earnings records identify Joule as your employer.
This appeal followed.
Finding the payment of salary by Joule and its contractual relationship with the State to be decisive in this case, we affirm. In reaching this conclusion, we are mindful of the principle that "[j]udicial review of an administrative agency action is limited" because we owe respect to the "'expertise and superior knowledge'" of the agency in the field in which it operates. Hemsey v. Bd. of Trs., Police & Firemen's Ret. Sys., 198 N.J. 215, 223 (2009) (quoting In re License Issued to Zahl, 186 N.J. 341, 353 (2006)). We generally defer to the interpretation given by a state agency to its governing statutes and implementing regulations unless the agency's interpretation is "plainly unreasonable." Francois v. Bd. of Trs., Pub. Emp. Ret. Sys., 415 N.J. Super. 335, 347 (App. Div. 2010). We adhere to the principle that "'[w]ithout a "clear showing" that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the record, an administrative agency's final quasi-judicial decision should be sustained, regardless of whether a reviewing court would have reached a different conclusion in the first instance.'" Id. at 347-48 (quoting Circus Liquors, Inc. v. Middletown Twp., 199 N.J. 1, 9 (2009)). Nonetheless, we are not bound by an agency's determination of a purely legal issue. Id. at 348.
We have observed that an important goal of the public pension system is to "'induce able persons to enter and remain in public employment, and to render faithful and efficient service while so employed.'" Id. at 349 (quoting Geller v. N.J. Dept. of Treasury, Div. of Pensions & Annuity Fund, 53 N.J. 591 (1969)). As a consequence, we have held that pension statutes should be liberally construed in favor of those intended to be benefited. Ibid.
However, "[i]n spite of liberal construction, an employee has only such rights and benefits as are based upon and within the scope of the provisions of the statute." "[A] potential adverse impact on the financial integrity" of the pension fund and the ordinary meaning of the words of a statute may counsel against too broad an application of a pension statute in favor of a petitioner. Thus, "pension statutes are [also] to be construed so as to preserve the fiscal integrity of the pension funds."
Moreover, while a person "eligible for benefits" is entitled to a liberal interpretation of the pension statute, "'eligibility [itself] is not to be liberally permitted.'" An inappropriate allowance of benefits tends "to place a greater strain on the financial integrity of the fund in question and its future availability for those persons who are truly eligible for such benefits. [Id. at 349-50 (citations omitted).]
In this regard, it is clear that "only employees of entities that have joined PERS can earn PERS credit." Id. at 350. Such employers include the State and, pursuant to N.J.S.A. 43:15A-65, public agencies and organizations that have consented to participation in PERS by their employees. As previously noted, the word "public agency or organization" has been defined to exclude a "privately owned . . . service." N.J.S.A. 43:15A-71. Thus, Joule and its employees are not members of PERS. Claimant, nonetheless, seeks a determination that Joule was not his employer during the relevant time period by use of the IRS control test. However, we have limited the use of that test to circumstances in which a person received a salary or other payment from a member of PERS, but a question existed as to that person's status as an employee or independent contractor.
In Stevens v. Board of Trustees of the Public Employees' Retirement System, 309 N.J. Super. 300 (App. Div. 1998) (Stevens II), we approved the use of the control test by PERS to determine that the claimant was "employed again" as a tax assessor for the Township of Bridgewater, rather than as an independent contractor, and thus he was again eligible for PERS membership and ineligible for a pension. Id. at 303-04. We also held in that case that use of the Revenue Ruling did not violate the Administrative Procedure Act, N.J.S.A. 52:14B-1 to -25 because it was utilized by the PERS Board to adjudicate the legal rights of the one person before it, not to declare a rule of general applicability. Id. at 304.
In Hemsey v. Board of Trustees, Police & Firemen's Retirement System, 393 N.J. Super. 524, 542 (App. Div. 2007), rev'd on other grounds, 198 N.J. 215 (2009), we again found "no legal impediment to the Board's use of the twenty-factor IRS test for determining whether a person is serving as an employee or an independent contractor" id. at 542, in affirming a decision by the Police & Firemen's Retirement System (PFRS) that Hemsey was re-hired by the Trenton Police Department following his retirement, and thus he was required to re-enroll in the PFRS system and repay benefits.*fn2
In Francois, the issue was whether claimant, an employee of the New Jersey Economic Development Authority who continued to be paid by that entity while on mobility assignment as the Director of the Real Estate Department of the Port Authority of New York and New Jersey, was entitled to service credit for the time spent with the Port Authority. Significantly, in that case, we discussed the IRS control test, but then observed: "the control test was not applied by the Board in this case, undoubtedly because the test, which was designed to determine whether a person was an independent contractor or an employee would not be helpful or relevant to the peculiar facts and issues involved." Francois, supra, 415 N.J. Super. at 351 (citations omitted). In Francois, we concluded that the issue of employment should be determined by looking to the "'direct and immediate payroll source,'" id. at 352 (quoting Rokos v. N.J. Dep't of Treasury, Div. of Pensions, Pub. Emp. Ret. Sys., 236 N.J. Super. 174, 182 (App. Div. 1989)), because that test "is easily applied and gives clear notice to employees and government units. Such clarity is of paramount importance in the public pension field." Ibid.
After reviewing the precedent on the issue presented, we are satisfied that it was proper to look to the source of claimant's salary to establish his ineligibility for the purchase of service credits during the time that his salary was being paid by Joule. To hold otherwise would be contrary to the language of N.J.A.C. 17:2-4.15(a)4 and would cause "a potential adverse impact on the financial integrity" of the pension system, id. at 349 (quoting Chaleff v. Teachers' Pension & Annuity Fund Trs., 188 N.J. Super. 194, 197 (App. Div.), certif. denied, 94 N.J. 573 (1983)), that was entirely unanticipated by the State when it entered into a contract with Joule for the procurement of qualified employees to work for the DCA on a contract basis. The State should not be foreclosed from obtaining contract employees in a volatile area of employment by the threat of future pension liability as the result of those contracts. As we have also previously noted, "while a person 'eligible for benefits' is entitled to a liberal interpretation of the pension statute, "'eligibility [itself] is not to be liberally permitted."'" Id. at 350 (quoting Krayniak v. Bd. of Trs., Pub. Emp. Ret. Sys., 412 N.J. Super. 232, 242 (App. Div. 2010) (quoting Smith v. State, Dep't of Treasury, Div. of Pensions & Benefits, 390 N.J. Super. 209, 213 (App. Div. 2007)). Here, we find, such eligibility was properly denied.