AGO 1991 No. 29 - Sep 23 1991
PUBLIC FUNDS ‑- ANNUAL LEAVE ‑- SICK LEAVE ‑- COUNTIES ‑- PUBLIC EMPLOYEES RETIREMENT SYSTEM ‑- Applicability of Gift of Public Funds Prohibition and Contribution Requirements for Public Employees Retirement System to County Sick Leave Bank.
1. There is a proposal by a county to establish a sick leave bank. Under the proposal employees who have accrued vacation leave or sick leave may donate the leave to the sick leave bank. In the event of catastrophic illness or injury, employees who have exhausted their vacation leave and sick leave may apply to the sick leave bank for additional leave. Article 8, section 7 of the Washington Constitution prohibits gifts of public funds. The proposal is not a gift by the county. There is consideration to the county since the donating employees performed service in order to accrue the donated leave. There is donative intent on the part of the donating employee, not the county.
2. Under RCW 41.40.010(8)(a), (b), vacation leave and sick leave donated to the sick leave bank are not compensation earnable of the employee making the donation. Although the employee accrues the leave, he or she is never paid for it.
3. Under RCW 41.40.010(8)(a), (b), leave paid from the sick leave bank is not compensation earnable. Although the employee receives payments from the sick leave bank, the payments are not made in return for services to the county by the receiving employee. The leave was accrued as a result of services performed by the donating employee.
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September 23, 1991
Honorable John W. Ladenburg
Pierce County Prosecuting Attorney
930 Tacoma Avenue South, Room 946
Tacoma, Washington 98402-2171
Cite as: AGO 1991 No. 29
Dear Mr. Ladenburg:
By letter previously acknowledged, you requested our opinion regarding a proposal by Pierce County to establish a Humanitarian [[Orig. Op. Page 2]] Catastrophic Sick Leave Bank. Under the proposal, county employees may donate accrued vacation or sick leave to the sick leave bank. Under certain circumstances, the county will pay the donated leave to other county employees. We paraphrase your questions:
1. Does the county's payment to some employees of leave donated to the sick leave bank by other employees violate article 8, section 7 of the Washington Constitution, which prohibits gifts of public funds?
2. Is leave that is donated to the sick leave bank by a county employee compensation earnable under RCW 41.40.010(8) of the employee donating the leave?
3. Is leave paid from the sick leave bank to a county employee compensation earnable under RCW 41.40.010(8) of the employee receiving the leave?
We answer each of your questions no.
According to your letter, the county is concerned that some employees exhaust leave benefits when faced with catastrophic illness or injury. To deal with this problem the county is considering the establishment of a Humanitarian Catastrophic Sick Leave Bank.
Under the proposal, county employees may donate accrued vacation leave or sick leave to the sick leave bank.1/
County employees accrue vacation and sick leave benefits as provided in the county ordinance. See Pierce County Ordinance chapters 3.72 and 3.68.
Under the proposal, employees who donate leave to the sick leave bank waive all rights to the donated leave. If the county discontinues the program, unused leave donations are forfeited. Donations and use of leave are on an hour-for-hour basis, without any conversion for differentials between rates of pay received by the donors and the recipients.
Any county employee eligible to accrue and use sick leave benefits may apply for leave donated to the bank. However, there [[Orig. Op. Page 3]] is no right to withdraw leave donated to the bank. A special committee must approve applications to use donated leave. Payments from the sick leave bank are made only in the event of catastrophic illness or injury. To qualify, the employee also must exhaust his or her available sick leave and vacation leave.
Vacation and sick leave hours donated to the sick leave bank provide the source of funds for the program. Use of the sick leave bank is limited to the available pool of hours donated by other employees. Leave awarded from the sick leave bank is on a first come, first serve basis to the extent of the available donated hours. If the employee's application is approved, the employee is paid, subject to availability of donated leave, according to the employee's regular rate of pay. However, if the employee's injury or illness qualifies for state workers' compensation, the employee receives donated sick leave only for the difference between the employee's regular pay and the amount paid under state workers' compensation benefits.
Does the county's payment to some employees of leave donated to the sick leave bank by other employees violate article 8, section 7 of the Washington Constitution, which prohibits gifts of public funds?
Article 8, section 7 prohibits local governments from making gifts of public funds.
Article 8, section 7 of the Washington Constitution, provides:
No county, city, town or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm, or become directly or indirectly the owner of any stock in or bonds of any association, company or corporation.
InCitizens for Clean Air v. Spokane, 114 Wn.2d 20, 785 P.2d 447 (1990), the court set out a two-prong test by which to judge whether a public expenditure violates article 8, section 7. First, when funds are expended by the government in carrying out its fundamental purposes, no gift occurs. 114 Wn.2d at 39.
[[Orig. Op. Page 4]]
Second, if the expenditure is not for a fundamental governmental purpose, two factors must be considered to determine whether a gift has been made: consideration and donative intent. 114 Wn.2d at 39. If the expenditure is made without consideration and with donative intent, it is an impermissible gift. Moreover, these two factors are related. The court looks for donative intent to determine how closely to scrutinize sufficiency of the consideration. Unless there is proof of donative intent or grossly inadequate return, courts do not inquire into the adequacy of consideration.
In our opinion, the program about which you inquire would not constitute a gift of public funds. The services provided to the county by the employees who donate the leave is consideration for the program. The source of funds for the sick leave bank is the hours of vacation and sick leave donated by county employees. The donating employees accrue these hours of leave that may be transferred to the sick leave bank for use by qualifying employees. Additionally, there is no donative intent on the part of the county.2/
The court long has held that payments to employees for services rendered do not constitute a gift. In Luders v. Spokane, 57 Wn.2d 162, 356 P.2d 331 (1960) the court considered an increase in the pension of retired policemen. The court ruled that the payment of the increase was not a gift of public funds. The court said:
Art. VIII, § 7, of the state constitution prohibits gratuities. We held inBakenhus v. Seattle, 48 Wn. (2d) 695, 296 P. (2d) 536, that a pension granted to a public employee is not a gratuity, but is [[Orig. Op. Page 5]] deferred compensation. That renders Art. VIII, § 7, inapplicable. Here there is a compensation increase which may apply as well to deferred compensation as compensation paid during active service.
57 Wn.2d at 165. See also Marysville v. State, 101 Wn.2d 50, 57-8, 676 P.2d 989 (1984) and Bellevue Sch. Dist. v. Bentley, 38 Wn. App. 152, 159, 684 P.2d 793 (1984), which recognize that payments for services rendered by employees are not prohibited by article 8, section 7.
That employees choose to donate leave instead of taking it, does not change the fact that the leave has been accrued or that the county has received consideration for its payment. Nor does the fact that employees choose to give the leave to the sick leave bank establish donative intent on the part of the county. If an employee elects to donate leave, there is obviously donative intent. But the donative intent is on the part of the employee, not the county. The proposal accompanying your letter plainly states that donation of leave is voluntary. Nothing in article 8, section 7 prohibits an employee from making such a donation. Since payments from the sick leave bank consist of leave donated by the employees who have accrued the leave, there is no gift of public funds. And since there is no donative intent on the part of the county, there is no basis for questioning the adequacy of consideration the county receives for payment of the leave. Tacoma v. Taxpayers of Tacoma, 108 Wn.2d 679, 703, 743 P.2d 793 (1987).
Since there is consideration and no donative intent on the part of the county, we conclude that the proposed sick leave bank does not violate article 8, section 7.
Is leave that is donated to the sick leave bank by a county employee compensation earnable under RCW 41.40.010(8) of the employee donating the leave?
This question relates to the treatment of leave donated to the sick leave bank under the Washington Public Employees' Retirement System (PERS)3/
established in chapter 41.40 RCW. [[Orig. Op. Page 6]] RCW 41.40.410 provides that employees of political subdivisions of the state may become members of the state retirement system by approval of the local legislative authority.
A number of the provisions in PERS turn on the concept of "compensation earnable". A PERS covered employee must make contributions toward retirement benefits based on a percentage of the employee's "total compensation earnable". RCW 41.40.330. Additionally, pension benefits are a function of years of covered service and the employee's "average final compensation," which is defined as average compensation earnable during the appropriate measuring period. RCW 41.40.010(15)(a), (b); RCW 41.40.185, [41.40].188, [41.40].190. "Compensation earnable" includes "salaries or wages earned during a payroll period for personal services." RCW 41.40.010(8)(a), (b).
Your second question asks whether leave accrued by a county employee and donated to the sick leave bank constitutes "compensation earnable" of the donating employee. If donated leave is "compensation earnable" of the employee making the donation, then the donating employee should make contributions to PERS based on the value of the hours, the donating employee may be entitled to include the value of the leave in the employee's pension base, and the donating employee may be entitled to service credit for the period when the leave is accrued, if he or she would otherwise not be entitled to such credit.
In our opinion, accrued leave donated to the sick leave bank is not "compensation earnable" to the donating employee because it does not constitute salary or wages under RCW 41.40.010(8). In AGO 1976 No. 1 we considered the meaning of the phrase "salary and wages." The question was whether the payment of terminal leave or severance pay for vacation or sick leave constituted "compensation earnable" under RCW 41.40.010(8)(a). We concluded that such payments constituted "compensation earnable" and in doing so said:
"The word 'salary' is defined in Webster's Third New International Dictionary (1963 ed.) as:
"'a fixed payment at regular intervals for services.'
"Black's Law Dictionary, quoted with approval in Maes v. City of New Orleans, (La.) 97 So. (2d) 856 (1957), defines 'salary' simply as:
"'A reward or recompense for services performed.'
. . . .
[[Orig. Op. Page 7]]
This general view of the scope of "salaries and wages" is likewise supported by numerous cases from other jurisdictions. Thus, a sick leave allowance has been held to be encompassed within the term "wages" inBarrett v. California Unemployment Insurance Appeals Board, 12 Cal. Rptr. 356, 190 C.A. 2d 854 (1961) and Temple v. Pennsylvania Department of Highways, 445 Pa. 539, 285 A. 2d 137 (1971). Vacation pay has similarly been held to be encompassed by the term "wages" inGeremia v. Administrator, Unemployment Compensation Act, 146 Conn. 264, 150 A. 2d 203 (1959);Carter v. Board of Review Under Oklahoma Employment Security Act, 323 P. 2d 362 (1958); and Textile Workers Union of America, CIO v. Williams Port Textile Corp., 136 F. Supp. 407 (D.C. Pa. M.D. 1955).
AGO 1976 No. 1 at 9 (quoting AGO 63-64 No. 61 at 5). See also AGO 1982 No. 6 at 3; AGLO 1980 No. 11 at 2-3.
Under these opinions the payment of vacation and sick leave constitutes salary or wages. However, AGO 1976 No. 1 only dealt with the payment of vacation or sick leave. The opinion did not deal with accrued leave that is not paid. AGO 1976 No. 1 at 7 n. 7. Just because leave is accrued does not mean it will be paid. For example, under county ordinance vacation leave in excess of 30 days cannot be transferred from one calendar year to another and must be forfeited. Pierce County Ordinance 3.72.040. Similarly, upon retirement the payment of sick leave is limited to 200 days. Any additional days of sick leave are lost. Pierce County Ordinance 3.68.050.
In our opinion, accrued vacation and sick leave donated to the leave bank do not constitute salary or wages to the donating employee. There is no payment to that employee. Unpaid vacation and sick leave therefore do not meet the definition of salary and wages. Unpaid leave is not a fixed payment at regular intervals for services. The donating employee accrues the leave but is never paid for it. Indeed, under the proposal, the donating employee must relinquish all claim to the donated leave. Since the donating employee receives no payment for the donated leave, we conclude that the leave is not compensation earnable by the donating employee under RCW 41.40.010(8). As a result, the [[Orig. Op. Page 8]] donating employee need not make contributions based on the donated leave, will not receive service credit based on the donated leave, and cannot determine average final compensation based on the donated leave.4/
Is leave paid from the sick leave bank to a county employee compensation earnable under RCW 41.40.010(8) of the employee receiving the leave?
Your third question asks about the retirement impact of the sick leave bank on an employee receiving payments. As previously noted, "compensation earnable" consists of salary and wagesearned by a member. We conclude that payments from the sick leave bank are not "compensation earnable" of the employee receiving them because the employee receiving the payments does not earn the payments.
A payment is earned if it is accredited to one as remuneration for work done or services rendered. See Webster's Third International Dictionary (1966) at 714. Although the employee receiving the leave payments has provided services to the county, the payment of donated sick leave is not made in return for those services. The services are not quid pro quo for the leave payment. Instead, the employee may apply to the sick leave bank and receive payments only in the event of catastrophic illness or injury and only if the employee has exhausted his or her own accrued vacation and sick leave. It is the donating employee, not the recipient, who earned the leave in return for services rendered.
In addition, payments are based solely on donation. They are not earned by the receiving employee. The receiving employee is not entitled to the payments‑-the receiving employee has no right to payments from the sick leave bank as he or she would have if they were earned for service to the county. The employee must apply to participate in the program. Even if the application is approved, no payments are made if the sick leave bank is empty.
[[Orig. Op. Page 9]]
Since payments from the sick leave bank are not "compensation earnable" of the receiving employee, that employee need not make contributions based on the payments from the bank, will not receive service credit based on the payments from the bank, and cannot determine average final compensation based on payments from the bank.
We trust that the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
RICHARD A. MCCARTAN
Assistant Attorney General
WILLIAM B. COLLINS
Assistant Attorney General
*** FOOTNOTES ***
1/Employees may also donate leaves of absence with pay, earned pursuant to Pierce County Ordinance chapter 3.76.
2/We also note that article 8, section 7 contains an exception for the "necessary support of the poor and infirm". The court has ruled that the poor and infirm exception should be read in the disjunctive, that is, it applies to one who is poor or one who is infirm. Health Care Facilities v. Ray, 93 Wn.2d 108, 116, 605 P.2d 1260 (1980). Payments from the sick leave bank may be valid under this exception because the sick leave bank may be used only in the event of catastrophic illness or injury. However, since we conclude that there is consideration for the payments from the sick leave bank we need not reach this question.
3/There are two retirement systems‑-Plan I and Plan II. RCW 41.40.005. For purposes of this opinion, it is not necessary to differentiate between the two plans.
4/In reaching this answer and the answer to Question 3, we do not address RCW 41.04.655-[41.04].670. These statutes pertain to state, school district, and educational service district employees, and therefore are not applicable to Pierce County.