Breach of Contract Cases

MANTEI v MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM AND MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT BOARD Docket No. 228589. Submitted January 15, 2003, at Lansing. Decided April 1, 2003, at 9:00 A.M. Robert J. Mantei, a retired public school principal who accepted an at-will position with a personnel-services company to provide administrative services to his former school district, petitioned the Bay Circuit Court for judicial review of a decision of the Michigan Public School Employees Retirement Board that the petitioner was subject to the earnings limitation set forth in MCL 38.1361 of the Public School Employees Retirement Act because he was employed by a reporting unit (his former school district) within the meaning of the act, and was thus required to reimburse the Michigan Public School Employees Retirement System for compensation received in excess of the statutory limit. The court, Lawrence M. Bielawski, J., affirmed the board’s decision, concluding that the board properly applied a 20-point control test to determine that the petitioner was an employee of his former school district, and his earnings subject to the limitation set forth in MCL 38.1361. The petitioner filed an application for leave to appeal, which was granted by the Court of Appeals. The Court of Appeals held,-. 1. MCL 38.1361 limits a retirant’s retirement allowance when the retirant “becomes employed by a reporting unit” and earns specified wages. There is no dispute that the petitioner’s former school district is a “reporting unit” for purposes of § 61. The issue, one of first impression, is whether a retired public-school principal who acts as an administrator in a public school pursuant to a contract with a private sector personnel services company “becomes employed by” a reporting unit for purposes of § 61. 2. The ms 20-point control test is not the correct test for determining whether the petitioner was employed by the school district because the test’s general purpose is to determine whether an individual is an employee or independent contractor for income-tax filing and withholding requirements. Furthermore, the focus of the 20-point control test is control, and the Court of Appeals has declined to apply the common-law control test in cases not involving questions of respondeat superior liability. Instead, the test to be applied is the economic-reality test. 3. The economic-reality test considers the totality of the circumstances in light of four basic factors: control of a worker’s duties; payment of wages; right to hire, fire, and discipline; and performance of the duties as an integral part of the employer’s business. The facts showed that the school district did not control the petitioner, because although contractually bound to follow and implement district rules and policies, the petitioner essentially exercised his independent professional judgment on a daily basis without direct supervision. The petitioner was compensated by the personnel services company, not the school district, and could only be disciplined by the company. Moreover, the contract between the personnel services company and the school district clearly stated that the petitioner was not an employee of the district. Under the totality of the circumstances, the petitioner was not employed by the school district, and thus was not employed by a reporting unit for purposes of § 61. Reversed. Schools — Public School Employees Retirement — Postretirement Employment — Limitation of Earnings and Retirement Allowance. The economic-reality test and its four basic factors: control of a worker’s duties; payment of wages; right to hire, fire, and discipline; and performance of duties as an integral part of the employer’s business, apply when determining whether a retirant is employed by a reporting unit of the Michigan Public School Employees Retirement System for purposes of limiting the retirant’s earnings and reducing the retirement allowance (MCL 38.1361). Thrun, Maatsch and Nordberg PC (by C. George Johnson) for the plaintiff. Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Stephen M. Rideout, Assistant Attorney General, for the defendants. Amicus Curiae: Brad A. Banasik for the Michigan School Business Officials and Michigan Association of School Boards. Before: O’Connell, P.J., and Griffin and Markey, JJ. Griffin, J. In this appeal, we address an issue of first impression: whether a retired public-school principal acting as an administrator in a public elementary school pursuant to a contractual arrangement with a private-sector personnel-services company that furnishes qualified administrators and other needed personnel to Michigan schools “becomes employed by a reporting unit,” i.e., the school district he serves, for purposes of § 61 of The Public School Employees Retirement Act of 1979 (retirement act), MCL 38.1361. If the retirant is deemed an employee of the school district, the retirant is subject to the retirement act’s provision in § 61 limiting earnings and reducing the retirement allowance. Petitioner Robert J. Mantei, the retirant in question, appeals by leave granted from an order of the circuit court affirming respondents Michigan Public School Employees Retirement System (mpsers) and Michigan Public School Employees Retirement Board’s (the retirement board) decision that petitioner was subject to the earnings limitation of § 61 of the retirement act, because he was “employed by a reporting unit” within the meaning of the retirement act. Pursuant to the court’s order, petitioner was required to reimburse the mpsers for that portion of his pension benefits that exceeded the statutory earnings limitation. We reverse and hold that under the economic-reality test, petitioner was not “employed by a reporting unit” for purposes of § 61 of the retirement act. I The following facts, as recited by the circuit court, are not in dispute: Petitioner had been employed with the Essexville-Hampton Public Schools since August 25, 1967. During said employment, petitioner was promoted to the position of Principal of Hughes Elementary School effective July 1, 1994. Petitioner continued [as] the Principal of Hughes Elementary School until July 1, 1997 — i.e., the effective date of his retirement. It should be noted that at the time of his promotion to the position of Principal of Hughes Elementary School, and in response to certain incentives offered to employees if notification of retirement was provided at least three (3) years in advance, petitioner informed former Superintendent Bob Winters in 1994 that he would be retiring in 1997. At that time, there were no discussions between petitioner and Superintendent Winters regarding any options for petitioner to continue providing services to the school district through any contracted-for service arrangement. Indeed, petitioner had not even considered such an option at that time. However, in the winter of 1995 or the spring of 1996, petitioner attended a conference where he learned that some retired principals were being employed by private organizations to provide serves [sic] as principals in public schools. In any event, within one week after retiring as Principal of Hughes Elementary School, petitioner returned to the school district as Principal of Hughes Elementary School under an employment contract with Thumb Educational Services, Inc. [hereinafter “Thumb”]. Apparently, prior to retiring from the school district, petitioner had discussions with Thumb, a Michigan corporation that places administrators and supervisory personnel in Michigan schools. The substance of those discussions related to petitioner’s continued employment as a Principal .... At that same time, said school district was having discussions with Thumb regarding an experienced administrator to take petitioner’s place as Principal of Hughes Elementary School. .. . petitioner was hired by Thumb and the school district contracted with Thumb for an experienced administrator to become Principal of Hughes Elementary School. As a result, within one week of his retirement from the school district, petitioner once again returned to Hughes Elementary School in the capacity of Principal. From the 1997-98 school year to present, petitioner has been the Principal of Hughes Elementary School under an at-will employment contract with Thumb. Pursuant to said contract, petitioner is compensated solely by Thumb and does not receive any monetary compensation, reimbursements or benefits from the school district. However, in his capacity as Principal of Hughes Elementary School, petitioner oversees the day-to-day operations of the school just as he did before retiring. Indeed, petitioner sits in the same office and has the same job responsibilities as before his retirement. Furthermore, petitioner is subject to the policies, rules and procedures of the school district in the performance of his duties as Principal of Hughes Elementary School. After petitioner retired from the school district and while he held the position of Principal of Hughes Elementary School under his employment contract with Thumb, the school district was contacted by staff personnel from [defendant] the Michigan Public School Employees Retirement System [hereinafter “mpsers”] regarding petitioner’s employment status. The school district informed mpsers that petitioner was working as the Principal of Hughes Elementary School under contract with Thumb. Upon receipt of this information and after a review of MPSERS records showing that petitioner was a retiree working in the exact same capacity as he had prior to his retirement, MPSERS made a determination that petitioner was acting as an employee of the school district. This determination was based upon a 20-point control test contained in the Operations Manual produced by mpsers and given to all school districts in the state. It is the same test used by the Internal Revenue Service [irs] to make determinations as to whether individuals are employees or independent contractors. Based upon the determination that petitioner was acting as an employee of the school district, Retiree Services Analyst Ben Mclntire sent a letter to petitioner dated December 7, 1998 which stated, in relevant part, as follows: “All retirees who return to public school employment are subject to post-retirement earnings limitations. . . . “Your earnings [limit] in 1997 was $10,718.50. Your actual wages, as reported by the school system(s) you were employed by, were $30,816.00. You have exceeded your statutory limit by $20,097.50. Your pension in 1997 was $15,750.48. You must return to the Michigan Public School Employees Retirement System (mpsers) the portion of your pension (up to the entire pension) that exceeded your limit: $15,750.48.” This same scenario applied in 1998 and 1999 as petitioner had exceeded the earnings limitation for those years also. Petitioner did not return to mpsers the pension monies he had received; rather, he requested an administrative hearing [before the Michigan Public School Employees’ Retirement Board]. At the administrative hearing, petitioner maintained that the statutory limitation on earnings did not apply to him because he did not return to the school district as an employee. On September 14, 1999, the hearing referee issued her Proposal for Decision (pfd), recommending that petitioner’s appeal be denied. Specifically, the pfd stated, in pertinent part; Respondent utilizes a 20-point control test used by the Internal Revenue Service (Revenue Ruling 87-41) for determining the true nature of an employment relationship. . . . . . . the 20-point test is instructive, and is applied in the following analysis. Because Petitioner has served as principal for many years prior to his retirement, he requires very little direction and can be trusted to carry out his functions proficiently. Indeed, it was because of a concern about continuity in the face of several retirements that the system engaged the services of Thumb and Petitioner. Nevertheless, he is required to follow school policies and procedures. The position of school principal is integral to and merged into the functioning of the school system. In other words, Petitioner’s position is under the direction and control of the school superintendent and school board. Petitioner’s work hours are largely controlled by the official school year; i.e., work hours are set by the school system/employer. As a practical matter, Petitioner devotes his full time to the activities of school principal. Moreover, the employer provides him with an office, furniture, telephone and administrative support services, all on the employer’s premises. Essentially, the only differences between Petitioner’s current position and his former one are that he does not undergo a regular performance review, and he is not required to report each time he leaves the school building. I concluded that, under the IRS 20-point test, Petitioner is an employee of the Essexville-Hampton Public Schools, and is therefore subject to the earnings limitations of the Act. Petitioner filed exceptions to the PFD; however, following further review, respondent retirement board adopted the hearing referee’s PFD in its entirety and, on November 29, 1999, issued an order denying petitioner’s appeal. Petitioner appealed by right to the circuit court, which affirmed the retirement board’s order. The court, relying on Brouwer v Michigan Pub School Employee Retirement Sys, unpublished opinion per curiam of the Court of Appeals issued 5/28/92 (Docket No. 131224), in which this Court tacitly approved the use the IRS 20-point control test to determine the employment status of a retirant working for a school district, held that the retirement board did not err in its application of the 20-point control test to the present circumstances, and that the board’s decision was supported by competent, material, and substantial evidence on the whole record. On June 27, 2000, the circuit court issued its opinion and order affirming the decision of the retirement board that pursuant to § 61 of the retirement act, petitioner was “employed by a reporting unit,” the Essexville-Hampton School District, and therefore subject to the earnings limitation of § 61 with regard to compensation received by petitioner for providing administrative services to the school district. Thereafter, this Court granted petitioner’s application for leave to appeal. II On direct review of an agency decision, a trial court must determine whether the administrative action was authorized by law and whether the agency decision was supported by competent, material, and substantial evidence on the whole record. Const 1963, art 6, § 28; MCL 24.306(1); Boyd v Civil Service Comm, 220 Mich App 226, 232; 559 NW2d 342 (1996). Substantial evidence is any evidence that reasonable minds would accept as adequate to support the decision; it is more than a mere scintilla of evidence but may be less than a preponderance of the evidence. Michigan Ed Ass’n Political Action Comm (MEAPAC) v Secretary of State, 241 Mich App 432, 444; 616 NW2d 234 (2000). This Court’s review of the circuit court’s decision is, in turn, limited to a determination “whether the lower court applied correct legal principles and whether it misapprehended or grossly misapplied the substantial evidence test to the agency’s factual findings.” Boyd, supra at 234. This standard of review is indistinguishable from the “clearly erroneous” standard of review. Id. “[A] finding is clearly erroneous when, on review of the whole record, this Court is left with the definite and firm conviction that a mistake has been made.” Id. at 235. See also MEAPAC, supra at 444; Nat'l Bank of Detroit v Dep’t of Social Services, 240 Mich App 348, 354; 614 NW2d 655 (2000). Statutory interpretation is a question of law we review de novo. Haworth, Inc v Wickes Mfg Co, 210 Mich App 222, 227; 532 NW2d 903 (1995). When construing a statute, the primary goal is to ascertain and give effect to the intent of the Legislature. Robertson v DaimlerChrysler Corp, 465 Mich 732, 748; 641 NW2d 567 (2002). The first criterion in determining intent is the specific language of the statute. Id. The Legislature is presumed to have intended the meaning it has plainly expressed, and if the expressed language is clear, then judicial construction is neither required nor permitted, and the statute must be enforced as written. Id. When parsing a statute, this Court presumes that every word is used for a purpose. Pohutski v City of Allen Park, 465 Mich 675, 683; 641 NW2d 219 (2002). It is important to ensure that words in a statute are not ignored, treated as surplusage, or rendered nugatory. Robertson, supra at 748. Unless defined in the statute, every word or phrase of a statute will be ascribed its plain and ordinary meaning. Id. III Section 61 of the retirement act, MCL 38.1361, limits a retirant’s retirement allowance when the retirant “becomes employed by a reporting unit” and earns specified wages: (1) Except as otherwise provided in this section, if a retirant is receiving a retirement allowance other than a disability allowance payable under this act ... on account of either age or years of personal service performed, or both, and becomes employed by a reporting unit, the following shall take place: (b) The retirant’s retirement allowance shall be reduced by the lesser of the amount that the earnings in a calendar year exceed the amount permitted without a reduction of benefits under the social security act, chapter 531, 49 Stat. 620, or lh of the retirant’s final average compensation. For purposes of computing allowable earnings under this subdivision, the final average compensation shall be increased by 5% for each full year of retirement. (2) The retirement system may offset retirement benefits payable under this act against amounts owed to the retirement system by a retirant or retirement allowance beneficiary. [Emphasis added.] As a preliminary matter, we note there is no dispute that the Essexville-Hampton Public Schools constitute a “reporting unit” for purposes of this legislation and that petitioner’s postretirement benefits collected, wages earned, and attendant limitations are as calculated and set forth by the hearing referee and recited by the circuit court. Moreover, as it was presumed and not at issue below, we assume without deciding that the school district has the statutory authority to contract with a private sector corporate entity to provide administrative services such as those provided by petitioner through Thumb. See, generally, MCL 380.11a(3)(d) and (4); MCL 380.1229(2). Relevant to the present appeal is that portion of § 61 that places limits on a retirant’s retirement allowance when the retirant “becomes employed by a reporting unit” and earns specified wages. Specifically, the central question is whether petitioner was “employed by a reporting unit,” the Essexville-Hampton Public Schools, or employed by Thumb, a private-sector personnel-services corporation supplying administrators and staff to the EssexviUe-Hampton Public Schools pursuant to a contract between the school district and Thumb. Using the IRS 20-point control test to determine petitioner’s employment status, the hearing referee, the retirement board, and the circuit court all concluded that despite his at-will employment contract with Thumb, the school district actually employed petitioner. Consequently, petitioner was ordered to reimburse the mpsers for monies obtained in excess of the earnings limitations of § 61. Petitioner’s primary claim on appeal is that he is not subject to the § 61 earnings limitation because he is employed by Thumb, not the school district. Petitioner maintains that the retirement board and the circuit court should not have utilized the IRS 20-point control test to determine that he was “employed by a reporting unit.” Petitioner contends