Fl LE 

IN CLERKS O,FICI "'· 

SUPREME COURT, IWIGPT 

DATE AUG 1 4 ~ >W, 

IN THE SUPREME COURT OF THE STATE OF WASHINGTON 

WASHINGTON EDUCATION ) 

ASSOCIATION; KATHIE AXTELL; STACIA ) 

BILSLAND; LISA BRACKIN-JOHNSON; ) 

RANDY JENSON; JARED KINK; SUSAN ) 

LEA VEL; SHEILA NOKES; CINDY ROAF; ) 

DEBBIE ROSE; and all others similarly ) 

situated, ) 

) 

Respondents/Cross-Appellants, ) 

v. 

WASHINGTON DEPARTMENT OF 

RETIREMENT SYSTEMS; STATE OF 

WASHINGTON, 

) 

) 

) 

) 

) 

) 

) 

Appellants/Cross-Respondents. ) 

________________ ) 

CHERYL COSTELLO; STEPHEN GORE; 

RICHARD MORVAN; JERALD 

NEWELL; DAVID RENO; and FINN 

LIVINGSTON on behalf of themselves and a 

class of persons similarly situated, 

) 

) 

) 

) 

) 

) 

Respondents/Cross-Appellants, ) 

v. 

WASHINGTON DEPARTMENT OF 

RETIREMENT SYSTEMS; STATE OF 

WASHINGTON, 

) 

) 

) 

) 

) 

) 

) 

Appellants/Cross-Respondents. ) 

_______________________ _j 

No. 87424-7 

En Bane 

Filed AUG 1. 4. 2014 
No. 87424-7 

WASHINGTON PUBLIC EMPLOYEES ) 

ASSOCIATION, UFCW LOCAL 365, on ) 

behalf of the individual employees it ) 

represents, ) 

) 

Plaintiffs, ) 

) 

v. ) 

) 

DEPARTMENT OF RETIREMENT ) 

SYSTEMS; STATE OF WASHINGTON, ) 

) 

Defendants. ) 

WASHINGTON FEDERATION OF STATE ) 

EMPLOYEES; PAULETTE THOMPSON; ) 

DANA HUFFORD; and DON HEWITT, ) 

) 

Respondents/Cross-Appellants, ) 

) 

v. ) 

) 

DEPARTMENT OF RETIREMENT ) 

SYSTEMS; STATE OF WASHINGTON, ) 

) 

Appellants/Cross-Respondents. ) 

MADSEN, C.J.-The legal issue presented here is whether the legislature's 2007 

repeal of gain sharing-a pension enhancement provided in years of extraordinary 

investment return-unconstitutionally impairs the contract between the State and its 

employees. The companion case, Washington Education Ass 'n v. Department of 

Retirement Systems, No. 88546-0 (Wash. Aug. 14, 2014) (WEA 1), presents the same 

issue, and we reach the same conclusion. As in the companion case, we hold that the 

legislature reserved its right to repeal a benefit in the original enactment of that benefit 

2 
No. 87424-7 

and the enactment did not impair any preexisting contractual right. As to the employees' 

alternative argument, which is raised only in this case, we hold that the explanatory 

materials provided by the Department of Retirement Systems (DRS) do not rise to the 

level of making a promise or creating an inconsistent statement and thus reject the 

employees' contention that the state is estopped from repealing the gain-sharing benefit at 

issue in this case. Accordingly, we reverse the trial court's award of summary judgment 

to the employees. 

FACTS AND PROCEDURAL HISTORY 

Washington offers a comprehensive system of pension benefits for qualifying state 

employees. Most regularly compensated state employees and elected officials qualify for 

the Public Employees' Retirement System (PERS). Certified public school teachers 

qualify for the Teachers' Retirement System (TRS), while "classified" (noncertified) 

school district staff receive benefits under the School Employees' Retirement System 

(SERS). There are three different pension plans, and benefits offered by Plans 1, 2, and 3 

are consistent across the three systems.' Plan 1 is a defined benefit plan where members 

receive a fixed monthly pension amount regardless of the amount they actually contribute 

during employment. Employee contribution rates are fixed by statute, and employers 

contribute the amount needed to make up the difference between employee contribution, 

investment gains or losses, and the monthly payments promised to employees. Plan 3, 

alternately, is a hybrid pension plan with defined benefit and contribution components. 

1 Employees in PERS and TRS fall into either Plan 1, Plan 2, or Plan 3. Because SERS was not 

created until 1998 (after Plan 1 was eliminated for new employees), SERS employees are 

divided between Plan 2 and Plan 3. 

3 
No. 87424-7 

The defined benefit portion is funded exclusively through employer contributions and the 

investment returns thereon. For the defined contribution portion, the employee chooses 

the contribution rate upon joining and controls the investment of the funds. The gainsharing program at issue here applied to members of Plan 1 and Plan 3 ofFERS and TRS 

and Plan 3 of SERS. 2 

The economic boom of the 1990s sparked many years of extraordinary investment 

gains. State employers benefited significantly from this spike because their contribution 

rates for Plans 1 and 3 automatically adjusted downward to reflect the extra cash flow. 

But because employee contribution rates were fixed, the employees did not receive the 

same benefit. The legislature decided to share some of the upside with employees and 

passed the gain-sharing program in 1998. LAws OF 1998, chs. 340 (PERS 1 and TRS 1 ), 

341 (TRS 3 and SERS 3); LAWS OF 2000, ch. 247 (PERS 3). Under gain sharing, when 

investment returns exceeded 10 percent over the course of four consecutive years, a 

portion of the excess was distributed to member employees. Former RCW 41.31.020 

(2006) (Plan 1 ); former RCW 41.31A.020 (2006) (Plan 3 ). Plan 1 members received 

their gain-sharing benefit as an increase to their postretirement annual cost of living 

adjustments (COLAs). Former RCW 41.31.010 (2006). Plan 3 members received gain 

sharing as a lump sum credit to their pension accounts. Former 41.31A.020. 3 

2 Gain sharing did not apply to Plan 2 because Plan 2 members' contribution rates adjusted 

downward in times of extraordinary investment gain. Thus, they reaped the benefits of the 

surplus automatically. 

3 With a few exceptions, only Plan 3 members who had accumulated at least $1,000 in their 

member accounts could qualify for gain-sharing disbursements. Former RCW 41.41A.020(2). 

4 
No. 87424-7 

Because the Office of the State Actuary was uncertain of gain sharing's long-term 

impact on the pension system and believed the program may need to be revised over 

time, the legislature expressly reserved its right to amend or repeal gain sharing. The 

Plan 1 provision stated, "The legislature reserves the right to amend or repeal this chapter 

in the future Etnd no member or beneficiary has a contractual right to receive this 

postretirement adjustment not granted prior to that amendment or repeal." Former RCW 

41.31.030 (2006). The Plan 3 provision contained a substantially similar reservation 

clause. Former RCW 41.31A.020(4). 

Since passage of the gain-sharing provision in 1998, gain-sharing events have 

occurred twice, once in 1998 and once in 2000. In 1998, gain sharing increased Plan 1 

members' COLAs by 10 cents. Former RCW 41.31.020(2). In 2000, gain sharing 

boosted Plan 1 COLAs by 28 cents. In sum, these two gain-sharing events augmented 

Plan 1 members' COLAs by $924 million. Plan 3 members received $134.43 per year of 

service from the 1998 gain-sharing event, generating a $28 million expenditure. The 

2000 gain-sharing event paid $254.23 per year of service to Plan 3 members for a total 

disbursement of $73 million. The average Plan 3 member received $709.49 in 1998 and 

$2,051.52 in 2000 from these gain-sharing events. 4 

After the boom of the 1990s, the economy slowed and the legislature began to 

reexamine its gain-sharing policy. Because employee contribution rates in Plans 1 and 3 

4 Because SERS 3 and PERS 3 were not created until after the 2000 gain-sharing distribution, the 

Plan 3 members included in these sums were all TRS 3 members. The legislature extended a 

supplemental gain-sharing distribution equivalent to the 2000 payment for all PERS 2 members 

who transferred to PERS 3. LAws OF 2000, ch. 24 7. 

5 
No. 87424-7 

were fixed, it became necessary to increase employer contribution rates after gain-sharing 

events to accommodate years of poor investment returns. In2002, the legislature 

appointed a new state actuary. This new actuary quantified the monetary impact of gainsharing and recommended that employer contribution rates be increased in anticipation of 

future gain-sharing liabilities. The legislature directed a study of its options and 

ultimately decided to repeal gain sharing in 2007. LAws OF 2007, ch. 491. The 2007 act 

eliminated gain sharing for employees hired after July 1, 2007 and discontinued gain 

sharing for existing employees as of January 2, 2008. This structure allowed existing 

employees to collect a gain-sharing benefit scheduled for January 1, 2008. Additionally, 

benefits already paid under the 1998 and 2000 gain-sharing events were not reclaimed. 

The 2007 act also enacted "replacement benefits" for members of each class. Plan 1 

members received an increase in their COLAs, some Plan 2 and 3 members were allowed 

early retirement, and newly hired TRS and SERS members were allowed to choose 

between Plans 2 and 3, instead of being forced into Plan 3. 

The Washington Education Association, the Washington Federation of State 

Employees, the Washington Public Employees Association, and an unaffiliated group of 

employees (the Costello group) filed lawsuits against the State in King County Superior 

Court.5 The plaintiffs challenged the 2007 repeal of gain sharing, contending the repeal 

unconstitutionally impaired their employment contracts with the State in violation of 

article I, section 23 of the Washington Constitution and article I, section 10 ofthe United 

States Constitution. Alternatively, the plaintiffs alleged that the repeal violated the due 

5 The Washington Public Employees Association eventually withdrew their suit. 

6 
No. 87424-7 

process clause, that the legislature was estopped from repealing gain sharing, and that the 

repeal breached a unilateral contract. 

The trial court consolidated the actions and bifurcated the issues. Phase one 

considered the legality of the repeal; the trial court granted summary judgment to the 

plaintiffs and held the repeal violated the contracts clause of the state and federal 

constitutions. Phase two considered whether, given the unconstitutionality of the repeal, 

the State was required to maintain the replacement benefits provided by the repeal 

legislation. Here the trial court granted summary judgment to the State and canceled the 

replacement benefits. This court granted direct review after receiving petitions from both 

parties. 

DISCUSSION 

As an issue of law, summary judgment is reviewed de novo. Retired Pub. Emps. 

Council of Wash. v. Charles, 148 Wn.2d 602,612,62 P.3d 470 (2003). This court 

presumes that statutes are constitutional as enacted. For the employees to prevail,, 

therefore, they must establish that "there is no reasonable doubt that the statute violates 

the constitution." Larson v. Seattle Popular Monorail Auth., 156 Wn.2d 752, 757, 131 

P.3d 892 (2006). 

1. Impairment ofContract 

The employees argue that they have a constitutionally protected right to continued 

gain sharing under this court's decision in Bakenhus v. City of Seattle, 48 Wn.2d 695, 296 

P.2d 536 (1956). They contend this court cannot give effect to that part of the statute 

7 
No. 87424-7 

reserving the right to amend or repeal gain sharing. Finally, they argue that under 

Bakenhus, the 2007 act substantially impaired the retirement benefits of employees 

because the repeal was not necessary to maintain the flexibility or integrity of the system 

and the replacement benefits provided were not comparable to the gain-sharing benefits 

that were repealed. Resp'ts' Br. and Cross Appellants' Br. at 20-45. 

This court addresses an identical legal issue in WEA I. That case concerns the 

legislature's 2011 repeal ofthe uniform cost of living adjustment (UCOLA) program. 

Enacted by the legislature in 1995, UCOLA replaced a prior system of ad hoc COLAs 

with an automatic grant of annual COLAs based on a statutorily calculated increase 

amount per year of service. LAWS OF 1995, ch. 345. As with gain sharing, the legislature 

expressly reserved its right to modify or repeal UCOLA in the future. In fact, the 

reservation language is almost indistinguishable: "The legislature reserves the right to 

amend or repeal this section in the future and no member or beneficiary has a contractual 

right to receive this postretirement adjustment not granted prior to that time." Former 

RCW 41.32.489(6) (2010); former RCW 41.40.197(5) (2010). Faced with declining 

economic conditions similar to those that motivated the repeal of gain sharing, the 

legislature decided to exercise its reserved right and repealed UCOLA in 2011. LAws OF 

20 11, ch. 3 62, § 1. A class of public employee unions and unaffiliated employees 

challenged the 2011 repeal of the UCOLA program as an unconstitutional impairment of 

contract. 

8 
No. 87424-7 

Because the facts and legal issues between the companion cases are so similar, our 

decision here follows the analysis we outline in WEA I. 

WEA I holds that the three-prong test adopted in Carlstrom v. State, 103 Wn.2d 

391, 694 P.2d 1 (1985), applies to public pension cases as well as other public contract 

impairment cases but that the pension-specific principles outlined in Bakenhus inform its 

application in the pension context. WEA I, slip op. at 10-11. These three prongs consider 

(1) whether a contractual relationship exists, (2) whether legislation has substantially 

impaired that contractual relationship, and (3) if so, whether the impairment is reasonable 

and necessary to serve a legitimate public purpose. !d. at 10. Just like the parties in this 

case, the respondents in WEA I claimed that the 2011 repeal of the UCOLA program 

impaired their contract rights with the State. But as we explain, the 1995 creation of the 

UCOLA program also provided for its repeal. The repeal ofUCOLA could never 

substantially impair existing contractual rights because a repeal of the program was 

expressly anticipated by the language of the contract. We therefore reason that the 

respondents' contract rights were impaired, if at all, by the creation of the UCOLA 

program in 199 5 and the legislature's inclusion of a reservation clause in that statute. !d. 

at 11-12. 

When addressing whether the creation of the 1995 UCOLA impaired any existing 

contract rights, this court focuses on the second prong of Car/strom--substantial 

impairment. !d. at 17-19. In WEA I, we hold that the Bakenhus requirements of implied 

consent and comparable new advantages define whether legislation substantially impairs 

9 
No. 87424-7 

existing contract rights in the public pension context. !d. at 17. In this way, Bakenhus 

remains the driving force of our analysis, though we properly confine it within the threeprong backbone of Carlstrom. We also hold that the reservation clause is enforceable 

because it is "an express provision of the statute that created the claimed pension right,'' 

and enforcement is consistent with this court's case law and rules of statutory 

construction. !d. at 12-15. 

As in WEA I, the parties here frame the issue as a challenge to the constitutionality 

of the 2007 repeal of the gain-sharing program. However, the repeal of gain-sharing 

cannot impair any existing contractual right because the express language of the gainsharing statute provided for its repeal. The parties are in fact arguing over the 

enforceability of the reservation clause contained in the original gain-sharing legislation. 

The employees' contract rights were impaired, if at all, by the legislature's 1998 

enactment of the gain-sharing program and its reservation of the right to amend or repeal 

the program in the future. 

Properly framed, it is obvious that gain sharing did not impair the employees' 

preexisting contract rights. The first prong of the Carlstrom analysis asks whether gain 

sharing became part of the parties' employment contract, which it clearly did. Whether 

the gain-sharing provision, in particular the reservation clause, substantially impaired any 

existing contractual rights is addressed under Carlstrom's second prong. As explained in 

WEA I, the reservation clause contained in the gain-sharing statute is enforceable. WEA 

10 
No. 87424-7 

I, slip op. at 12-15. The legislature is allowed to condition its grant of pension 

enhancements using express language in the statutory provision that creates the right. 

In pension cases, whether legislation substantially impairs a public contract 

depends on whether new legislation created comparable new advantages and whether the 

employees impliedly consented to the modifications. WEA I, slip op. at 17-19. Here, the 

employees impliedly consented to the gain-sharing program, including its reservation 

clause, because gain sharing was a favorable addition to their employment contract. 

When the legislature instituted gain sharing in 1998, it did not replace any similar 

preexisting rights. Rather, gain sharing was a gratuitous addition to employees' 

retirement packages. In this way, gain sharing, even more so than UCOLA and in spite 

of its reservation clause, represented a favorable modification to the employees' contract 

with the State. Thus, the employees impliedly consented to the modification and gain 

sharing, as defined by the statute that created it, which then became part of their 

employment contract. In other words, gain sharing provided new advantages to 

employees compared to their prior benefits because gain sharing was all advantage. 

In sum, although gain sharing did become part of the employees' contract with the 

State, the institution of gain sharing did not substantially impair those contract rights 

because the employees impliedly consented to the favorable addition, including the 

enforceable reservation clause. Because we resolve this issue on the second prong of 

Carlstrom, we need not consider the third prong of whether the impairment was 

reasonable and necessary to achieve a legitimate public purpose. 

11 
No. 87424-7 

2. Estoppel 

Alternately, the employees contend that principles of estoppel preclude repeal of 

gain sharing. They argue that employees reasonably relied on DRS handbooks and other 

DRS communications, which made no mention of the legislature's reserved right to 

repeal, and thus both promissory and equitable estoppel apply. 

Promissory estoppel requires satisfaction of five elements: 

"(1) [a] promise which (2) the promisor should reasonably expect to cause 

the promisee to change his position arid (3) which does cause the promisee 

to change his position ( 4) justifiably relying upon the promise, in such a 

manner that (5) injustice can be avoided only by enforcement of the 

promise." 

Havens v. C&D Plastics, Inc., 124 Wn.2d 158, 171-72, 876 P.2d 435 (1994) (alteration in 

original) (internal quotation marks omitted) (quoting Klinke v. Famous Recipe Fried 

Chicken, Inc., 94 Wn.2d 255,259 n.2, 616 P.2d 644 (1980)). Importantly, "[p]romissory 

estoppel requires the existence of a promise" that is "clear and definite." !d. at 172. This 

court has adopted the Restatement definition of promise: "A promise is a manifestation 

of intention to act or refrain from acting in a specified way, so made as to justify a 

promisee in understanding that a commitment has been made." RESTATEMENT (SECOND) 

OF CONTRACTS§ 2(1) (1981). 

The DRS communications did not promise a perpetual right to gain sharing. The 

employees point to language in the DRS handbooks issued regularly to employees that 

explained that gain sharing "'will be passed on"' if there are extraordinary investment 

returns. Resp'ts' Br. and Cross Appellants' Br. at 11-12 (emphasis omitted). 

12 
No. 87424-7 

Additionally, the employees highlight DRS booklets designed to help employees choose 

between Plan 2 and Plan 3. They contend that DRS used the promise of gain sharing to 

incentivize employees to choose Plan 3. !d. at 10-11. DRS stipulates that none of its 

communications with employees warned of the legislature's reserved right to arnend or 

repeal gain sharing. But the absence of a warning and the equivocal description that gain 

sharing will be paid does not create a clear and definite promise of everlasting gainsharing rights. Furthermore, all of the DRS handbooks contained qualifying statements 

advising employees to consult the statute for a fuller description of rights. For example, 

the PERS 3 handbook states: 

The actual rules governing your benefits are contained in state retirement 

laws. This handbook is a summary, written in less legalistic terms. It is not 

a complete description of the law. Ifthere are any conflicts between what 

is written in this handbook and what is contained in the law, the applicable 

law will govern. 

Clerk's Papers (CP) at 1129; see also CP at 1083 (TRS 1), 2782 (SERS 3). The materials 

provided to aid employees' decision between Plan 2 and Plan 3 contained a similar 

qualification on the first page. Taken as a whole, these DRS communications did not 

promise that gain sharing would continue, they merely described how gain sharing would 

operate. This is not enough to estop the legislature from executing its explicitly reserved 

right to cancel the program. See, e.g., Havens, 124 Wn.2d at 171-75 (holding that there 

was no clear and definite promise of unending employment simply because an employer 

failed to inform his employee that employment was terminable at will). 

13 
No. 87424-7 

In contrast to promissory estoppel, which is forward-looking, "[e]quitable estoppel 

prevents a party from taking a position inconsistent with a previous one where . . 

inequitable consequences would result to a party who has justifiably and in good faith 

relied." Silverstreak, Inc. v. Dep't of Labor & Indus., 159 Wn.2d 868, 887, 154 P.3d 891 

(2007). Equitable estoppel has five elements: 

( 1) a statement, admission, or act by the party to be estopped, which is 

inconsistent with its later claims, (2) the asserting party acted in reliance 

upon the statement or action, (3) injury would result to the asserting party if 

the other party were allowed to repudiate its prior statement or action, ( 4) 

estoppel is "necessary to prevent a manifest injustice," and (5) estoppel will 

not impair governmental functions. 

!d. (quoting Kramarevcky v. Dep 't of Soc. & Health Servs., 122 Wn.2d 738, 743, 863 

P.2d 535 (1993)). Because equitable estoppel is asserted against the government, the 

employees must establish each of these elements by "clear, cogent, and convincing 

evidence." !d. 

The employees fail to prove equitable estoppel because the legislature's repeal of 

gain-sharing was not "inconsistent with" the highlighted DRS communications. DRS 

cautioned employees that the statutes, not their handbooks, controlled, and the gainsharing statute explicitly stated that gain sharing may be repealed in the future. 

Inconsistency requires a conflict, and the qualifications in the DRS materials prevented 

such a conflict from occurring. Equitable estoppel does not apply. 

3. Unilateral Contract 

Finally, the employees contend that even if the legislature was not estopped from 

repealing gain sharing, its decision to do so breached a unilateral contract that promised 

14 
No. 87424-7 

gain sharing as compensation for continued employment. The employees point to the 

same DRS communications discussed above as forming the basis for this unilateral 

contract. Resp'ts' Br. and Cross Appellants' Br. at 30-33. 

Our case law does not support the recognition of a unilateral contract on these 

facts. The employees are correct that this court has enforced unilateral contracts. formed 

by promises made in employee handbooks. E.g., Thompson v. St. Regis Paper Co., 102 

Wn.2d 219, 228-29, 685 P.2d 1081 (1984). But, as with promissory estoppel, a unilateral 

contract requires a promise-termed an offer-evidencing an intent to be bound by its 

terms, and here the DRS communications were too qualified. Storti v. Univ. of Wash., 

No. 88323-8, slip op. at 7-8 (Wash. July 24, 2014). Moreover, handbooks that have 

created enforceable unilateral contracts always outlined employer-specific policies, rather 

than statutory rights, and were distributed by the direct employer, rather than a state 

bureaucratic entity like DRS. E.g., Swanson v. Liquid Air Corp., 118 Wn.2d 512, 826 

P.2d 664 (1992); Gaglidari v. Denny's Rests., Inc., 117 Wn.2d 426, 815 P.2d 1362 

(1991 ). The cases cited by the employees do not support their position. 

CONCLUSION 

The repeal of gain sharing did not impair any contract rights of employees because 

the statute enacting gain sharing made provision for its eventual repeal. Further, the 

original gain-sharing statute did not impair any preexisting rights because the reservation 

clause is enforceable and employees impliedly consented to the qualified benefit. 

Finally, doctrines of estoppel and unilateral contract do not provide the relief employees 

15 
No. 87424-7 

are looking for. The legislature's repeal of gain sharing must stand. We reverse the trial 

court. 

16 
No. 87424-7 

WE CONCUR: 

/ 

17 
WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result) 

GONZALEZ, J. (concurring in result)-! agree with the majority in result. 

The Washington Legislature specifically reserved the power to repeal gain 

sharing in the statutes that created the benefit. When the legislature exercised 

that reserved power in the way that it did, it did not violate the contract clause. 

I write separately, however, because I do not agree that "gain sharing was a 

gratuitous addition to employees' retirement packages" or that "the employees 

impliedly consented" to having it repealed. Majority at 11. 

First, we held long ago that pension benefits, including public employee 

pension benefits, are compensation for work done, not gratuities. Ayers v. City 

of Tacoma, 6 Wn.2d 545, 550-51, 108 P.2d 348 (1940) (citing Bowler v. Nagel, 

228 Mich. 434, 440-41,200 N.W. 258 (1924)). In Ayers, a city comptroller 

refused to pay public pensions in part on the theory that they were a gift of 

public funds and unconstitutional under article VIII, section 7 of our 

constitution. 1 !d. at 548, 550. We disagreed and found that the right to a 

1 That provision says: 

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. 

WASH. CONST. art. VIII,§ 7. 

1 
WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result) 

pension was not a gratuity but was "'in the nature of compensation for services 

theretofore rendered."' I d. at 551 (internal quotation marks omitted) (quoting 

Bowler, 228 Mich. at 440). The contractual nature of pension rights is woven 

through our public pension jurispn1dence. E.g., Navlet v. Port of Seattle, 164 

Wn.2d 818, 835, 194 P.3d 221 (2008); Bakenhus v. City of Seattle, 48 Wn.2d 

695,698,296 P.2d 536 (1956) (citing Luellen v. City of Aberdeen, 20 Wn.2d 

594, 148 P.2d 849 (1944), overruled on other grounds by Stenberg v. Pac. 

Power & Light Co., 104 Wn.2d 710, 709 P.2d 793 (1985)). The fact that gain 

sharing was part of the contract for only a set period of time does not change 

the fact that it was contractual for that time. 

Second, in Bakenhus itself we flatly rejected the notion that employees 

impliedly consent to having their pension benefits reduced by continuing to 

work for an employer after pension reductions are announced. H.D. Bakenhus 

had been hired as a police officer by the city of Seattle in 1925. Bakenhus, 48 

Wn.2d at 696. At the time, state law made police officers who met certain 

requirements eligible for a pension equal to one half their salary the year before 

their retirement. Id. (citing LAWS OF 1909, ch. 39, at 59). In 1937, the 

legislature capped police officer pensions at $125 per month. Id. at 697 

(quoting LAWS OF 1937, ch. 24, at 62). Bakenhus retired in 1950, and, based 

on the 1937 statute, the city paid him only $125 per month. The city of Seattle 

argued that employees had either impliedly consented to having their pensions 

2 
WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result) 

reduced by continuing to work for the city after the change was announced or 

were barred from challenging the reduction under a waiver or estoppel theory. 

Id. at 700-01.2 In a careful opinion, we rejected the city's many theories. Id. 

Instead of reaching outside of the arguments presented by the parties in 

this case to characterize gain sharing in ways they did not, I would simply 

follow precedent. We have developed a three part test to analyze contract 

clause challenges to legislation, asking "(1) does a contractual relationship 

exist, (2) does the legislation substantially impair the contractual relationship, 

and (3) if there is a substantial impairment, is it reasonable and necessary to 

serve a legitimate public purpose." Tyrpak v. Daniels, 124 Wn.2d 146, 152, 

874 P.2d 1374 (1994) (citing Caritas Servs., Inc. v. Dep'tofSoc. &Health 

Servs., 123 Wn.2d 391, 403, 869 P.2d 28 (1994)). A separate line of cases 

establish that any modification of a public pension right (1) must be done to 

keep the relevant retirement system flexible, (2) must be done to maintain its 

integrity, and (3) must include counterbalancing benefits for any potential 

impairment of members' rights. Bakenhus, 48 Wn.2d at 701-02. This court 

began harmonizing the Bakenhus line of cases with our traditional contract 

clause analysis in Retired Public Employees Council of Washington v. Charles, 

148 Wn.2d 602, 62 P.3d 470 (2003). Charles was a challenge to the 

2 Counsel suggested at oral argument that Bakenhus, properly understood, was a contract 

clause case because, he contended, it was argued that way to the trial court. While this 

might have been the complexion of the case before the trial court, it was not analyzed as a 

contract clause case before this court. 

3 
WEA v. DRS, No. 87424-7 (Gonzalez, J. concuning in result) 

legislature's decision to lower the employer contribution rate in Public 

Employees' Retirement System Plan 1 and Teachers' Retirement System Plan 

1. Id. at 609-10. Plaintiffs challenged the reduction as a violation of the 

contract clause, among many other things. We considered Bakenhus (among 

many other things) in determining the existence and scope of the contract itself. 

Id. at 624 (citing Bakenhus, 48 Wn.2d at 701). We did not rest our contract 

clause analysis solely on Bakenhus. Id. at 623-28. 

What we did impliedly in Charles, I would do explicitly today. I would 

hold that the traditional contract clause analysis applies to contract clause 

challenges to statutes affecting public employee pension rights. As it was in 

Charles, Bakenhus is relevant to our contract clause analysis but does not 

replace it. Id. at 624 (citing Bakenhus, 48 Wn.2d at 698-99, 701); see also 

Wash. Educ. Ass'n v. Dep'tofRet. Sys., No. 88546-0, at 17 (Wash. Aug. 14, 

2014). 

I would resolve this case simply on step two of the contract clause 

analysis: whether the repeal of gain sharing substantially impaired the 

contractual relationship. Like the majority, I would hold that it did not. The 

original legislation stated that gain sharing could be adjusted or repealed at any 

time. E.g., LAWS OF 1998, ch. 340, § 3 ("The legislature reserves the right to 

amend or repeal this chapter in the future and no member or beneficiary has a 

contractual right to receive this postretirement adjustment not granted prior to 

4 
WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result) 

that amendment or repeal."), ch. 341, § 312(4). A contractual right is 

potentially impaired by a statute that alters its terms, imposes new conditions, 

or lessens its value. Charles, 148 Wn.2d at 625 (citing Wash. Fed 'n of State 

Emps. v. State, 127 Wn.2d 544, 563, 901 P.2d 1028 (1995)). In this case, the 

language of the original gain-sharing statutes does not '"evince a legislative 

intent to create private rights of a contractual nature"' in ongoing gain sharing. 

Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107, 145, 744 P.2d 

1032, 750 P.2d 254 (1987) (quoting United States Trust Co. v. New Jersey, 431 

U.S. 1, 17 n.l4, 97 S. Ct. 1505, 52 L. Ed. 2d 92 (1977)). Given this 

reservation, the legislature reserved the power to repeal gain sharing, and its 

exercise of that power did not substantially impair the contractual relationship. 

Accord Strunkv. Pub. Emps. Ret. Bd., 338 Or. 145, 177-78, 108 P.3d 1058 

(2005). 

Bakenhus is in accord. The threshold issue under Bakenhus is whether 

there is a pension right that has been changed by subsequent legislation. E.g., 

48 Wn.2d at 700. If there is a pension right that has been changed, then 

Bakenhus must be satisfied or the contract clause is violated. See, e.g., Wash. 

Fed'n of State Emps., AFL-CIO, Council28 v. State, 98 Wn.2d 677,678-79, 

658 P.2d 634 (1983). Here, the pension right at issue was the right to gain 

sharing for as long as the legislature allowed gain sharing. From its inception, 

the right was subject to the legislature's explicitly reserved power to repeal or 

5 
WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result) 

revoke it in the future. See LAWS of 1998, ch. 340, § 3, ch. 341, § 312(4); 

LAWS OF 2000, ch. 247. Given the legislature's statutory reservation, the 

legislature's subsequent action did not modify any right. 

Based on a plain reading of the statutes, there was no promise to gain 

sharing in perpetuity. Thus, repealing it was not a substantial impairment of 

the contract under Tyrpak or a modification of a pension right under Bakenhus. 

See Tyrpak, 124 Wn.2d at 152 (citing Caritas, 123 Wn.2d at 403); Bakenhus, 

48 Wn.2d at 700-01. 

With those observations, I respectfully concur in result. 

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WEA v. DRS, No. 87424-7 (Gonzalez, J. concurring in result) 

7