MARKMAN, J.
We granted leave to appeal to address the constitutionality of 2012 PA 300, which modified the retirement benefits of current public school employees. Plaintiffs, which are various labor organizations representing such employees, raise three constitutional challenges: (1) whether the act violates the prohibitions of uncompensated takings in the Michigan and United States Constitutions, Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV; (2) whether the act impairs the obligation of contracts in violation of the Michigan and United States Constitutions, Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1; and (3) whether the act violates the guarantee of due process in the Michigan and United States Constitutions, Const. 1963, art. 1, § 17 and U.S. Const. Am. XIV, § 1. After considering each of these
Facing a budget shortfall in the state public school system in 2010, the Legislature enacted Public Act 75, which modified retirement benefits for current public school employees. The statute supplemented and altered the Public School Employees Retirement Act (Retirement Act), MCL 38.1301 et seq., which governs the Michigan Public School Employees' Retirement System (MPSERS). The most controversial provision of 2010 PA 75 was MCL 38.1343e, which required all current public school employees to contribute 3% of their salaries to the MPSERS to assist in funding retiree healthcare benefits for current and future public school retirees. Before the enactment of 2010 PA 75, public school employees had never been required to pay for these benefits. MCL 38.1343e directed school districts to withhold and remit this 3% amount to the state for deposit into a trust account from which current retirees' healthcare benefits would be paid.
Current public school employees, through their representative labor organizations, sued the state of Michigan and other state defendants in 2011, contending that MCL 38.1343e violated the aforementioned provisions of the Michigan and United States Constitutions. The Court of Claims held this provision unconstitutional as violative of the Takings Clauses of the Michigan and United States Constitutions, Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV, and the guarantees of due process in the Michigan and United States Constitutions, Const. 1963, art. 1, § 17 and U.S. Const. Am. XIV, § 1. The Court of Claims did not find any violation of the Contracts Clauses of the Michigan and United States Constitutions, Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1. The state appealed the Court of Claims' ruling, and in a split decision, the Court of Appeals affirmed in part. AFT Mich. v. Michigan, 297 Mich.App. 597, 616, 621, 627, 825 N.W.2d 595 (2012) (AFT Mich. I).
AFT Mich. I held that MCL 38.1343e effected a taking without just compensation because the state was forcibly taking possession of a portion of the school employees' salaries without affording them just compensation in return. The Court of Appeals focused on what it viewed as the confiscatory nature of the statute — requiring that current public school employees fund the healthcare benefits of current public school retirees absent any guarantee that the former would ever be eligible to receive healthcare benefits upon their own retirement. It concluded as a result that MCL 38.1343e violated the takings clauses of the Michigan and United States Constitutions. Id. at 621, 825 N.W.2d 595.
The Court of Appeals also held that MCL 38.1343e unconstitutionally impaired employment contracts between public school employees and employer school districts, notwithstanding the Court of Claims' conclusion to the contrary, because MCL 38.1343e effectively required the school districts to pay the employees less than their agreed-upon salaries. Although asserting that a contractual impairment does not always rise to the level of a constitutional violation, the Court concluded nonetheless that the state here had failed to demonstrate that the impairment was necessary to further its purpose in
Finally, the Court of Appeals held that MCL 38.1343e violated the employees' right to "substantive" due process. It concluded that the law arbitrarily forced one discrete group of individuals — current public school employees — to fund the retiree healthcare of a separate discrete group — current public school retirees. The Court recognized that, although the accrued pension benefits of public employees are expressly protected by Const. 1963, art. 9, § 24 as contractual obligations that can be neither diminished nor impaired, future healthcare benefits are not. Nonetheless, because the state did not prefund retiree healthcare benefits, current employees were contributing 3% of their salaries absent any guarantee that they themselves would ever receive healthcare benefits upon retirement. The Legislature could simply alter the law again and modify or even eliminate the retiree healthcare program before current employees retired. The state was thus requiring current employees to cover the state's own financial obligations, while merely undertaking an essentially empty promise that current employees would receive similar benefits when they retired. The Court believed that this scheme was unreasonable, arbitrary, and capricious, and that it violated the "substantive" due process guaranteed by the Michigan and United States Constitutions. Id. at 627, 825 N.W.2d 595.
Judge SAAD, who authored an opinion concurring in part and dissenting in part, would have reversed the judgment of the Court of Claims and held 2010 PA 75 constitutional. He began by noting that "legislative enactments are presumed to be constitutional absent a clear showing to the contrary," and then argued that an obligation merely to pay money cannot constitute a taking requiring just compensation, that 2010 PA 75 created an obligation between public school employees and the state that did not affect the employment contracts between the employees and their school district employers, and that the Court of Claims should not have granted relief on plaintiffs' "substantive" due process claim because it was a mislabeled claim essentially alleging an uncompensated taking, an argument that plaintiffs had separately raised. AFT Mich. I, 297 Mich.App. at 630-640, 825 N.W.2d 595 (SAAD, J., concurring in part and dissenting in part).
The state sought leave to appeal the Court of Appeals' ruling in AFT Mich. I. That application is currently pending before this Court and has been held in abeyance for the resolution of the instant case. AFT Mich. v. Michigan, ___ Mich. ___, ___, 846 N.W.2d 57, 58 (2014).
The instant case arises from legislation enacted in response to the Court of Appeals' decision in AFT Mich. I. On September 4, 2012, the Governor signed into law 2012 PA 300, which further modified the Retirement Act. Current public school employees, once again through their representative labor organizations, have challenged provisions of this statute. In doing so, they raise many of the same constitutional challenges that were asserted with regard to 2010 PA 75 in AFT Mich. I.
Concerning the pension benefits offered by the MPSERS, 2012 PA 300 alters the manner in which public school employees accrue these benefits. Before 2012 PA 300, public school employees generally fell into one of two groups. Those hired before January 1, 1990 belonged to what was commonly called the "Basic Plan." These employees historically made no contributions to assist in funding their pensions. Those hired on or after January 1, 1990, automatically belonged to the "Member Investment Plan" (MIP) and contributed varying percentages of their salaries in the process of accruing pension benefits. MCL 38.1343a, as amended by 2007 PA 11. Members of both plans became fully vested in their benefits after 10 years of service, MCL 38.1381(1)(b); MCL 38.1343b, and monthly benefits were calculated using identical formulas. An employee's final average salary — that is, the mean salary of the employee's last three years of employment — was multiplied by the number of years served, and then further multiplied by 1.5%. MCL 38.1384.
2012 PA 300 increased the amount that all current public school employees must contribute in order to continue accruing pension benefits at the existing rate. Members of the Basic Plan, who have never before been required to contribute to their pensions, must now contribute 4% of their salaries to the MPSERS for this purpose. MCL 38.1343g(1)(a). Members of the MIP must now contribute 7% of their salaries to the MPSERS. MCL 38.1343g(1)(b). Employees who do not wish to make the additional contributions may decline to do so, but those employees will only accrue future pension benefits calculated using a 1.25% multiplier, instead of the existing 1.5% multiplier. MCL 38.1384b. Employees may also choose to discontinue accruing future pension benefits entirely and instead participate in a 401(k)-style retirement account called a "Tier 2" account. MCL 38.1384b(3, 4). No matter which retirement plan an employee chooses, the pension benefits that the employee has already accrued are calculated using a 1.5% multiplier. MCL 38.1384b. 2012 PA 300 alters only the manner in which employees accrue future pension benefits, i.e., those arising after the effective date of 2012 PA 300; it has no effect on pension benefits that have previously accrued.
Public school employees, through their representative labor organizations, asserted numerous constitutional challenges to the validity of 2012 PA 300 in the Court of Claims. However, unlike its ruling in the challenge to 2010 PA 75, the Court of Claims ruled in favor of the state on all claims, holding that the provisions of the
Plaintiffs appealed, and the Court of Appeals affirmed the Court of Claims. AFT Mich. v. Michigan, 303 Mich.App. 651, 846 N.W.2d 583 (2014) (AFT Mich. II). As did the Court of Claims, the Court of Appeals held that contributions to the retiree healthcare program would be made voluntarily and were therefore free of constitutional infirmity. The Court also assessed plaintiffs' challenges to the pension modification and, again as did the Court of Claims, concluded that 2012 PA 300 did not affect any obligation of contracts between the state and public school employees in this regard because the state is not obligated to provide future pension benefits to public school employees. Plaintiffs sought leave to appeal in this Court, which we granted. AFT Mich. v. Michigan, 495 Mich. 1002, 846 N.W.2d 544 (2014).
This case is an appeal from summary disposition in favor of defendants involving issues of constitutional, statutory, and contractual interpretation. This Court reviews de novo all such issues. Nat'l Pride At Work, Inc. v. Governor, 481 Mich. 56, 63, 748 N.W.2d 524 (2008); Archambo v. Lawyers Title Ins. Corp., 466 Mich. 402, 408, 646 N.W.2d 170 (2002); Oakland Co. Bd. of Co. Rd. Comm'rs v. Mich. Prop & Cas. Guaranty Ass'n, 456 Mich. 590, 610, 575 N.W.2d 751 (1998).
Plaintiffs raise three clearly articulated arguments before this Court against 2012 PA 300. First, they argue that the statute violates the Takings Clauses of the Michigan and United States Constitutions, Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV, by allowing the state to retain a significant amount of the interest that will accrue on public school employees' retiree healthcare contributions. Second, plaintiffs argue that 2012 PA 300 violates the Takings Clauses for the additional reason that it unconstitutionally coerces public school employees into waiving their rights under those constitutional provisions. Third, they argue that 2012 PA 300 "breaches" contracts between the state and public school employees guaranteeing employees that they will continue accruing pension benefits at a specific rate.
Although plaintiffs frame their third argument as a "breach of contract" claim, we understand them essentially to be raising a constitutional challenge to the pension modifications under Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1, which prohibit laws impairing the obligation of contracts. An action for breach of a contract and an action alleging that a law impairs the obligation of a contract are distinct claims. Thompson v. Auditor General, 261 Mich. 624, 634, 247 N.W. 360 (1933). A refusal to perform in compliance with a valid contract amounts to a breach of a contract and may entitle the other party to damages or other forms of relief; however, a breach does not affect the contract's fundamental validity. Id. In contrast, a contract is "impaired" when a
Plaintiffs also make a broad and unsupported argument that "2012 PA 300 does not repair the defect found in 2010 PA 75. [The act] is still unconstitutional because it permits an extraction with no guarantee of benefit and provides for a refund of contributions which itself is unconstitutional." Plaintiffs elaborate that "[the retiree healthcare contributions] now made still lack any certainty that the individual paying in MPSERS will actually receive post employment retiree health care. Further, the provision for a refund of payments is so unreasonable as to be itself a violation of the individual's right to substantive due process."
By arguing that 2012 PA 300 is "still" unconstitutional, plaintiffs appear to be reasserting the arguments that prevailed with respect to 2010 PA 75 in AFT Mich. I. But to the extent that plaintiffs expressly raise these same arguments, they do so in an inconsistent and ambiguous manner. Plaintiffs' brief on appeal, for example, states: "[MCL 38.1343e] is a deprivation of the right of substantive due process for the same reasons expressed to this Court, and the Court of Appeals, in [AFT Mich. I]." Contradictorily, however, plaintiffs' reply brief states: "Defendant incorrectly asserts that Plaintiffs have somehow argued that 2012 PA 300 deprives members of their right to substantive due process." We are therefore left somewhat confused about the appropriate manner by which to evaluate these arguments.
In the interest of a thorough and complete adjudication for the numerous persons whom plaintiffs represent, we believe that the most appropriate solution is to conclude that by arguing that "2012 PA 300 does not repair the defect found in 2010 PA 75," plaintiffs are essentially arguing that 2012 PA 300 is unconstitutional for the same reasons that the Court of Appeals deemed 2010 PA 75 to be unconstitutional. In other words, we believe plaintiffs continue to argue that 2012 PA 300 violates the Contract Clauses and any "substantive" due process guarantees of the Michigan and United States Constitutions for the same reasons that the Court of Appeals deemed these provisions to have been violated by 2010 PA 75.
Finally, we note that although plaintiffs raise challenges under both the Michigan and United States Constitutions, they have not argued with any specificity, or by reference to, the decisions of the courts of this state that a particular provision of the Michigan Constitution affords greater or distinct protections than its federal counterpart. Rather, plaintiffs have simply left it to this Court to identify such differences in meaning if and where these exist. Although this Court on numerous occasions has interpreted a Michigan constitutional provision differently than its federal counterpart,
We have sought to examine closely plaintiffs' constitutional arguments, and for the reasons set forth we conclude that they do not warrant the invalidation of 2012 PA 300. We preface our analysis leading to this conclusion, however, by noting that this Court is obligated to uphold all laws that do not infringe the state or federal Constitutions and invalidate only those laws that do so infringe. We do not render judgments on the wisdom, fairness, or prudence of legislative enactments. See Lansing Mayor v. Pub. Serv. Comm., 470 Mich. 154, 161, 680 N.W.2d 840 (2004). Legislation is presumed to be constitutional absent a clear showing to the contrary. Caterpillar, Inc. v. Dep't of Treasury, 440 Mich. 400, 413, 488 N.W.2d 182 (1992). In the present case, this Court is not oblivious to the fact, as reflected by the sheer breadth of the class of plaintiffs, that many public school employees intensely dislike the policies instituted by 2012 PA 300 and believe that the healthcare and pension choices imposed on them are unfair and unsatisfactory. However, decisions concerning the allocation of public resources will often leave some parties disappointed. Recourse and correction must be pursued through those bodies authorized by our Constitution to undertake such decisions — typically the legislative branch — and not through bodies, such as this Court, that are charged only with comparing the provisions of the law with the prohibitions of our Constitution and deciding whether they are compatible. Const. 1963, art. 3, § 2.
We also note at the outset that all public employees must contend with a variety of future uncertainties, of which they are, or should be, aware at the time that they pursue and accept public employment. The terms, conditions, and even continued existence of public employment positions may be influenced by the changing fiscal conditions of the state, the evolving policy priorities of governmental bodies, constitutional modifications and other initiatives of the people, and the ebb and flow of state,
Plaintiffs argue that 2012 PA 300 causes the state to take private property without providing just compensation, in violation of the Michigan and United States Constitutions. AFT Mich. I held that 2010 PA 75 violated both Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV because its provision for mandatory retiree healthcare contributions caused the state to take portions (3%) of public school employees' salaries without providing just compensation. AFT Mich. I, 297 Mich. App. at 621, 825 N.W.2d 595. According to plaintiffs, 2012 PA 300 suffers from the same constitutional defect. We respectfully disagree and hold that 2012 PA 300 does not violate the uncompensated taking prohibitions contained in those provisions. However, we emphasize that we address in this case only 2012 PA 300 and do not decide whether the Court of Appeals correctly held that 2010 PA 75 violated those same provisions.
The government may not take private property for public use without providing just compensation to the owner. The power to take property, commonly referred to as "eminent domain" or "condemnation," arises from the state's power as a sovereign. Silver Creek Drain Dist. v. Extrusions Div., Inc., 468 Mich. 367, 373, 663 N.W.2d 436 (2003). The term "property" encompasses everything over which a person "may have exclusive control or dominion." Rassner v. Federal Collateral Society, Inc., 299 Mich. 206, 213-214, 300 N.W. 45 (1941) (quotation marks and citation omitted). The power of eminent domain is enshrined and limited in the Takings Clauses of the Michigan and United States Constitutions. Const. 1963, art. 10, § 2 provides:
The Fifth Amendment, U.S. Const. Am. V, provides:
The Fifth Amendment is applied to the states through the Fourteenth Amendment, U.S. Const. Am. XIV. Chicago, B & Q R Co. v. Chicago, 166 U.S. 226, 241, 17 S.Ct. 581, 41 L.Ed. 979 (1897) (declaring that the Fourteenth Amendment forbids the states from taking private property without providing just compensation). Although the courts of this state have applied
The term "taking" can encompass governmental interference with rights to both tangible and intangible property. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003-1004, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984). However, governmental action creating general burdens or liabilities, i.e., merely requiring citizens to expend monies for valid public purposes and expenditures, typically will not form the basis for a cognizable taking claim. See Eastern Enterprises v. Apfel, 524 U.S. 498, 540-542, 118 S.Ct. 2131, 141 L.Ed.2d 451 (1998) (KENNEDY, J., concurring in part and dissenting in part); id. at 554-555, 118 S.Ct. 2131 (BREYER, J., dissenting). Adopting a rule to the contrary would include taxes and user fees within the realm of compensable takings, and the courts of this country have long held these kinds of governmental actions distinct from and outside the scope of takings analysis. Koontz v. St. Johns River Water Mgt. Dist., 570 U.S. ___, ___, 133 S.Ct. 2586, 2600-2601, 186 L.Ed.2d 697 (2013); Mobile Co. v. Kimball, 102 U.S. 691, 703, 26 L.Ed. 238 (1880). It is possible, nonetheless, for the government to undertake a constitutional taking that requires compensation when it asserts control over a discrete and identifiable fund of money, such as a deposit account. Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 164-165, 101 S.Ct. 446, 66 L.Ed.2d 358 (1980).
To generate a compensable taking, the government must assert its authority to seize title or impair the value of property. This does not occur if the property in question is voluntarily relinquished to the government.
Put simply, a property owner cannot give property to the government of his or her own volition, and then proceed to argue that the government must compensate the owner for that contribution.
MCL 38.1343e institutes a 3% retiree healthcare contribution that, according to plaintiffs, generates an unconstitutional taking. The statute provides:
Unlike the 3% retiree healthcare contribution in 2010 PA 75, which the Court of Appeals held to be a taking in AFT Mich. I, the same contribution arising from 2012 PA 300 is not mandatory. Instead, public school employees may entirely opt out of the retiree healthcare program and thereby avoid making the 3% salary contributions:
Any public school employee who does not want to participate in the retirement healthcare plan can elect instead to contribute to a Tier 2 retirement account, and the school district employer will match this contribution up to 2% of the contributing employee's salary. MCL 38.1391a(1). An employee need not contribute anything to his or her Tier 2 retirement account. See MCL 38.1391a(2).
In AFT Mich. II, the Court of Appeals held that 2012 PA 300 did not give rise to an uncompensated taking because the retiree healthcare contributions are now completely voluntary:
We agree with this analysis. Voluntary healthcare contributions do not violate Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV because, as a general proposition, the government does not, for constitutional purposes, "take" property that has been voluntary given. Here, the state is offering a retirement benefit — publicly subsidized healthcare — to public school employees who serve for the requisite
Plaintiffs observe that not all public school employees who opt into the retiree healthcare program will eventually receive any actual healthcare benefits. Some number of employees will inevitably leave public school employment before they acquire sufficient years of service to qualify for these benefits.
To briefly paraphrase, an employee qualifying for this allowance will receive it over the course of 60 equal monthly installments beginning when the employee reaches the age of 60, and the allowance will equal the total amount that the employee contributed under MCL 38.1343e with the addition of interest. The interest amount is calculated by multiplying 1.5% of the total value of the contributions by the number of years that the employee contributed to the healthcare program.
Plaintiffs have argued before this Court that even if MCL 38.1343e does not "take" portions of all public school employees'
Plaintiffs here are attempting to create a distinction where none exists. The terms of the separate retirement allowance under MCL 38.1391a(8) are part and parcel of the choice offered to the public school employees under MCL 38.1391a(5). Any employee who chooses to participate in the retiree healthcare program does so with full notice that if he or she fails to qualify for retiree healthcare, he or she will receive the separate retirement allowance as described in MCL 38.1391a(8). It is unreasonable to suggest that the employees who opt into the retiree healthcare program consent to the state's receiving 3% of their salaries, but do not consent to the subsequent terms of MCL 38.1391a(8) if they fail eventually to qualify for retiree healthcare benefits. The 3% contributions and the separate retirement allowance are two sides of the same coin, and if public school employees voluntarily consent to one, they necessarily consent to the other.
In the wake of the Court of Appeals' holding in AFT Mich. II that the retiree healthcare contributions do not constitute takings because they are voluntary transactions, plaintiffs continue to argue that the employees' right to be free of an uncompensated taking has nonetheless been violated by 2012 PA 300. Specifically, plaintiffs allege that 2012 PA 300 is invalid because by requiring public school employees to make contributions in order to qualify for retiree healthcare, the state has attached an unconstitutional condition to the receipt of a government benefit:
This argument essentially disputes the Court of Appeals' conclusion that retiree healthcare contributions are made voluntarily.
We disagree and conclude that the state has not attached an unconstitutional condition to the receipt of a governmental benefit.
Individuals may under most circumstances voluntarily waive their constitutional rights.
This Court has never applied the doctrine of unconstitutional conditions to Const. 1963, art. 10, § 2. Because plaintiffs have not argued that we should analyze their unconstitutional conditions argument in a manner in any way distinct from the United States Supreme Court's application of the doctrine to claims arising under U.S. Const. Ams. V and XIV, we decline to do
Accordingly, in order to address plaintiffs' arguments, we will inquire whether 2012 PA 300 "coerces" public school employees into relinquishing their constitutional rights. We will also evaluate 2012 PA 300 under the United States Supreme Court's "rough proportionality" standard, even though the Court has yet to extend this analysis to situations akin to that in the present case. Applying the analytical framework set forth by the United States Supreme Court, we find plaintiffs' unconstitutional conditions argument unavailing. The retiree healthcare contributions made pursuant to MCL 38.1343e are indeed, as the Court of Appeals determined in AFT Mich. II, voluntary. They are not the product of "coercion" by an unconstitutional condition.
As an initial matter, we note that a necessary premise of plaintiffs' unconstitutional conditions argument is the existence of a situation in which there would have been a compensable taking but for the property owner's choice to give property rights to the government. Only in such a situation could a property owner properly argue that he or she had a constitutional right to be free of an uncompensated taking that an unconstitutional condition allegedly coerced the owner to waive. In the present case, this would require an affirmation of the Court of Appeals' holding in AFT Mich. I that a compelled healthcare contribution under MCL 38.1343e constitutes a taking. AFT Mich. I, 297 Mich.App. at 617-621, 825 N.W.2d 595. However, we need not reach the merits of AFT Mich. I because, even assuming that a compelled healthcare contribution would constitute a taking, plaintiffs have nonetheless failed to demonstrate that 2012 PA 300 would violate the doctrine of unconstitutional conditions if that were the case.
The state here is not coercing public school employees into giving up their rights under Const. 1963, art. 10, § 2 and U.S. Const. Ams. V and XIV, but is merely seeking, as a condition for receiving access to retiree healthcare benefits, the assistance of public school employees in paying for these benefits. Plaintiffs have not demonstrated that the terms controlling MCL 38.1343e contributions (the allegedly unconstitutional condition) are unrelated to the state's purpose furthered by the contributions or that the relationship between the condition and the benefit is so compelling or disproportionate that public school employees are effectively coerced into relinquishing their constitutional rights.
Suggesting that the state's condition here bears no nexus or roughly proportionate relationship to the state's interest advanced by the contributions would strain credulity. The MCL 38.1343e contributions directly fund the MPSERS's retiree healthcare program, advancing the state's strong interest in providing retiree healthcare for its public school employees. If, for example, 2012 PA 300 had required that public school employees grant the state easements on their real property in order to qualify for retiree healthcare benefits, that condition could not similarly be said to advance the same state interest because the condition would be entirely unrelated to the state's interest in providing for retiree healthcare benefits. The present situation clearly implicates a strong and direct connection, or nexus, between the conditional burden placed on public employees and the state's interest.
Furthermore, the willingness of public school employees to participate in the retiree healthcare program compellingly
We also do not believe that the state has created a coercive situation in which public school employees are compelled to participate in the retiree healthcare system. Unlike the situations in the cases cited by plaintiffs involving land use permits — a benefit within the government's exclusive power to convey — there are multiple sources of healthcare coverage available to public school employees. Public school employees who dislike the terms of the program can explore health insurance options in the open market. If the MPSERS retiree healthcare program achieves a high participation rate, this seems more likely to be attributable to the fact that the program constitutes an attractive retirement benefit, rather than because there is some ongoing coercion in inducing employee participation.
Plaintiffs next argue that 2012 PA 300 impairs the "obligation of contracts" in violation of Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1. We again disagree. Both the Michigan and United States Constitutions prohibit laws that impair obligations under contracts. Const. 1963, art. 1, § 10 provides:
No bill of attainder, ex post facto law or law impairing the obligation of contract shall be enacted.
U.S. Const. art. I, § 10, cl. 1 provides:
This Court has often interpreted these provisions coextensively,
AFT Mich. I, 297 Mich.App. at 610-616, 825 N.W.2d 595, held that 2010 PA 75 violated Const. 1963, art. 1, § 10 and U.S. Const. art. I, § 10, cl. 1 because it significantly impaired employment contracts and the state had not demonstrated that the impairment was necessary to serve the public good. Plaintiffs continue to argue that the modifications made to the retiree healthcare plan unconstitutionally impair the employment contracts between public school employees and employer school districts. Specifically, plaintiffs allege that 2012 PA 300 impairs employees' contracted-for right to a particular salary. We reject this argument as asserted against 2012 PA 300, but we do not decide whether
In AFT Mich. II, the Court of Appeals analyzed and subsequently rejected plaintiffs' claim that the retiree healthcare modifications enacted by 2012 PA 300 violated the Contracts Clauses:
We agree with the Court of Appeals' conclusion in AFT Mich. II. There can be no impairment of a contract when the complaining party can freely avoid the alleged impairment altogether. Under MCL 38.1391a(5), public school employees who do not wish to participate in the retiree healthcare program can simply opt out and instead contribute money into their Tier 2 accounts. By opting out, the employees guarantee that the state will never receive their 3% contributions and that they will be paid the full amount of their bargained-for salaries. The 2012 PA 300 retiree healthcare modifications thus do not impair any employment contracts; rather, the act affords public school employees the option to choose between two potential retirement benefits. The underlying employment contracts between public school employees and employer school districts are unaffected by this exercise of choice.
Plaintiffs also argue that 2012 PA 300 impairs separate contracts between the state and public school employees guaranteeing the latter the opportunity to accrue pension benefits at a specific rate.
A contract for employment is typically formed when the employee accepts the employer's promised terms of employment through performance. Toussaint v. Blue Cross & Blue Shield of Mich., 408 Mich. 579, 630-631, 292 N.W.2d 880 (1980) (separate opinion by RYAN, J.). "The employer's promise constitutes, in essence, the terms of the employment agreement...." Id. The terms of an employment contract regarding compensation must be express promises, either oral or written; an employer's policy statements may not form the basis for any rights to specific forms or amounts of compensation. Dumas v. Auto Club Ins. Ass'n, 437 Mich. 521, 528-531, 473 N.W.2d 652 (1991).
2012 PA 300 requires all current public school employees to increase the amount of their pension contributions in order to continue accruing pension benefits, calculated using a 1.5% multiplier. Members of the Basic Plan must now contribute 4% of their salaries, and members of the MIP must now contribute 7%. These changes are codified in MCL 38.1343g(1):
The increased salary contributions under MCL 38.1343g are not mandatory; public school employees are given a choice, described in MCL 38.1384b:
Under MCL 38.1384b, public school employees may choose to pay the additional contributions described in MCL 38.1343g, or they may instead continue making contributions at their current rates. If employees decide to forgo making additional contributions, they will continue accruing pension benefits; however, the benefits that they accrue after the transition date will be calculated using a multiplier of 1.25%. Employees may also elect to forgo accruing additional pension benefits entirely and instead begin making employer-matched contributions to a Tier 2 retirement account. All pension benefits that
Plaintiffs claim that public school employees have a contractual right to continue accruing pension benefits calculated using the 1.5% multiplier. They assert that this right has arisen from statements made in publications prepared by the state Office of Retirement Services explaining to public school employees the retirement benefits they would be eligible to receive. These publications contained statements such as: "Your Retirement Plan provides a benefit that is determined by a formula. The formula is your final average salary times 1.5% (.015) times your total years of service credit...." Michigan Public School Employees' Retirement System, An Introduction to Your Retirement Plan (1990 rev), p. 7. Plaintiffs claim that these statements are unequivocal promises by the state to provide pension benefits under those specific terms, which were made binding contractual guarantees when public school employees entered into their employment. By enacting 2012 PA 300, plaintiffs argue, the state impaired contracts between itself and the employees by altering the manner in which current employees continue to accrue pension benefits.
In AFT Mich. II, the Court of Appeals rejected plaintiffs' argument because it found that no contracts existed between the state and public school employees creating rights to future pension benefits:
We agree with the Court of Appeals. Plaintiffs' argument fails because they have not shown that enforceable contracts concerning future pension benefits exist between the employees and the state.
First, plaintiffs cannot demonstrate that the state actually made any promises. Every publication that plaintiffs cite to demonstrate the existence of explicit promises contains a clear disclaimer notifying the reader that public school employee retirement benefits are governed by the Retirement Act, and that the act will prevail if a conflict arises between the act and the publications. Some disclaimers unambiguously state that the Legislature may alter the pension benefits. For example, the publication issued in 1990 contained the following language:
This booklet was written as an introduction to your retirement plan. You
Another publication, issued in 1997, included the following in its introduction:
As the Court of Appeals correctly concluded, these disclaimers demonstrate that the publications are merely instructional materials designed to generally explain the retirement benefits available at the time of publication. A person could not read these disclaimers and reasonably believe that the state was legally obligating itself to provide public school employees pension benefits exactly as described in the publications for the duration of their careers, notwithstanding any altered fiscal circumstances of the state or any altered policy perspectives on the part of the lawmaking branch of the state. The disclaimers are not, as plaintiffs characterize them, "vacuous" and "devoid of substance and meaning." On the contrary, their meaning is plain — retirement benefits are controlled by the law in effect at the time and not by any statements made in ephemeral publications.
Second, assuming arguendo that plaintiffs could demonstrate that the publications did make express promises, plaintiffs have failed to show that these promises could be enforced against the state. "Public officers have and can exercise only such powers as are conferred on them by law, and a State is not bound by contracts made on its behalf by its officers or agents without previous authority conferred by statute or the Constitution." Roxborough v. Mich. Unemployment Compensation Comm., 309 Mich. 505, 510, 15 N.W.2d 724 (1944) (quotation marks and citation omitted). Individuals dealing with public officers are charged with knowledge of the limits of the officers' authority, and officers cannot act for the state without the express power to do so.
The publications at issue were created by the Office of Retirement Services. Retirement benefits for public school employees are governed by the Retirement Act. Nothing in the Retirement Act confers on the Office of Retirement
AFT Mich. I held that 2010 PA 75 violated the "substantive" due process guarantees of Const. 1963, art. 1, § 17 and U.S. Const. Am. XIV, § 1. AFT Mich. I, 297 Mich.App. at 621, 825 N.W.2d 595. Plaintiffs continue to argue that the modifications made to the retiree healthcare benefit plan infringe public school employees' "substantive" due process rights. We once more disagree. Without offering any pronouncements regarding the constitutionality of 2010 PA 75, we conclude that 2012 PA 300 does not infringe any "substantive" due process rights that public school employees may possess.
The Michigan and United States Constitutions forbid the state from depriving any person of life, liberty, or property without due process of law. Const. 1963, art. 1, § 17 provides:
The Fourteenth Amendment provides:
Although these provisions are often interpreted coextensively,
This Court has stated that the term "due process" encompasses not only procedural protections, but also contains a "substantive" component that protects individuals against "the arbitrary exercise of governmental power." Bonner v. City of Brighton, 495 Mich. 209, 223-224, 848 N.W.2d 380 (2014). If a challenged law does not infringe any "fundamental rights" — the substantive liberties that are deemed "implicit in the concept of ordered liberty"
Plaintiffs contend that 2012 PA 300 violates "substantive" due process because current employees contribute money to fund current retirees' healthcare benefits absent any guarantee that current employees themselves will ever receive retiree healthcare benefits. Plaintiffs point out that public school employees are required to contribute to either the retiree healthcare fund or a Tier 2 account. Because these employees lack contractual rights to any specific future benefits, plaintiffs argue that 2012 PA 300 is unconstitutional because the Legislature might attempt in the future to modify the retiree healthcare system or the separate retirement allowance provided by MCL 38.1391a(8). By scaling back retiree healthcare coverage or reducing the matching employer contributions to the Tier 2 accounts, the Legislature could diminish the value of whatever option public school employees select. In essence, plaintiffs posit, employees have been compelled to make an irrevocable decision without any guarantee that their chosen benefits will not be diminished or eliminated at some time in the future.
In assessing plaintiffs' "substantive" due process claim, the Court of Appeals in AFT Mich. II held that the act does not violate "substantive" due process guarantees:
We agree with the analysis of the Court of Appeals. Plaintiffs have not suggested that 2012 PA 300 infringes any fundamental rights, so the pertinent test for 2012 PA 300 under this Court's "substantive" due process precedents is whether the law is reasonably related to a legitimate governmental purpose. We find this test to be fully satisfied. The state may reasonably request that public school employees assist in funding a retiree healthcare benefit system to which they belong. The state's purpose advanced by the challenged portions of 2012 PA 300 — implementing a fiscally responsible system by which to fund public school employees' retiree healthcare — is unquestionably legitimate. It is entirely proper for the state to seek the continuation of an important retirement benefit for its public school employees while simultaneously balancing and limiting a strained public budget.
We recognize that some employees might be dissatisfied if and when, and for whatever reason, they ultimately fail to qualify for retiree healthcare after contributing to fund the retiree healthcare of others. However, to prevail on a "substantive" due process claim, plaintiffs must surmount the exceedingly high hurdle of demonstrating that the law is altogether unreasonable, and they have completely failed to do so here. These employees
We are also unpersuaded by plaintiffs' concerns about the possibility of subsequent modifications to either the retirement healthcare benefit program or the MCL 38.1391a(8) separate retirement allowance. This Court assesses the constitutionality of enacted legislation.
On the basis of the preceding analysis, we conclude that plaintiffs have failed to demonstrate that 2012 PA 300 takes private property without providing just compensation in violation of Const. 1963, art. 10, § 2 or U.S. Const. Ams. V and XIV; that it impairs the obligation of contracts in violation of Const. 1963, art. 1, § 10 or U.S. Const. art. I, § 10, cl. 1; or that it violates the guarantee of due process found in Const. 1963, art. 1, § 17 or U.S. Const. Am. XIV, § 1. Absent any contractual guarantees to the contrary, the state may prospectively adjust the compensation of its employees without breaching either the state or federal Constitutions. Because plaintiffs have failed to demonstrate that 2012 PA 300 restructures the retirement benefits offered to public school employees in an unconstitutional manner, we affirm the judgment of the Court of Appeals.
YOUNG, C.J., and MARY BETH KELLY, ZAHRA, McCORMACK, and VIVIANO, JJ., concurred with MARKMAN, J.
BERNSTEIN, J., took no part in the decision of this case.
The `nexus/proportionality' analysis is unique to unconstitutional conditions claims arising under U.S. Const. Ams. V and XIV and, as of yet, has only been applied in the context of land-use permits. "Nollan and Dolan `involve a special application' of [the doctrine of unconstitutional conditions] that protects the Fifth Amendment right to just compensation for property the government takes when owners apply for land-use permits." Koontz, 570 U.S. at ___, 133 S.Ct. at 2594. Therefore, although plaintiffs rely on Koontz, Dolan, and Nollan, it is not entirely clear that the analyses set forth in those opinions are applicable to the present case. However, because neither party addressed these opinions' applicability, we assume without deciding that their reasoning could be extended to the present context.
We note that in most applications of the doctrine of unconstitutional conditions concerning constitutional rights other than the Fifth Amendment right to be free of an uncompensated taking, the Supreme Court has focused mainly on whether the condition coerces individuals into relinquishing constitutional rights. See, e.g., O'Hare Truck Serv., Inc. v. City of Northlake, 518 U.S. 712, 721, 116 S.Ct. 2353, 135 L.Ed.2d 874 (1996) ("Our cases make clear that the government may not coerce support [by punishing a person for political views], unless it has some justification beyond dislike of the individual's political association."). Under either the nexus/proportionality or the coercion standard, however, plaintiffs' unconstitutional conditions argument fails.
In the present case, the condition attached to the governmental benefit is the payment of the MCL 38.1343e contributions under the terms provided in 2012 PA 300, which condition directly advances the state's interest in providing healthcare benefits to public school retirees. In order for the condition to be deemed disproportionate to the state's interest, the burden imposed on public school employees by the terms governing MCL 38.1343e contributions would need to exceed the burden incurred by the state in providing the retiree healthcare benefits. Plaintiffs have not alleged this to be the case, and because the state exclusively bore these costs until 2010 PA 75 was passed, we presume that employee contributions only cover a portion of this program's full costs. If anything, it would appear that the present retiree healthcare system still benefits, disproportionately as a class, public school employees who participate and not the state.
Although the Court did not specifically address the doctrine of unconstitutional conditions in Dole, we find its analysis of coerciveness instructive. Dole articulated a limitation on the constitutional spending power of the Congress — federal spending must be related to the federal interest advanced by the spending project, and the spending must not be so great that it coerces states into acquiescing to conditions placed on that funding. This limitation is in many ways analogous to the doctrine of unconstitutional conditions — while the doctrine of unconstitutional conditions protects individual constitutional rights from governmental incursion, the doctrine set forth in Dole and related cases protects the states' right to sovereignty and self-governance from federal incursion.
This argument was properly rejected by the Court of Appeals in AFT Mich. II on the basis of this Court's holding in Studier that Const. 1963, art. 9, § 24 protects only accrued, or earned, pension benefits. AFT Mich. II, 303 Mich.App. at 666-667, 670, 846 N.W.2d 583, citing Studier, 472 Mich. at 654-658, 698 N.W.2d 350. The form or availability of future pension benefits for state employees is not governed by Const. 1963, art. 9, § 24.