Opinion ID: 2610300
Heading Depth: 1
Heading Rank: 3

Heading: Labor Code section 3751, Fraide, and Morse forbid the city from reducing the pension payments by the entire amount of the workmen's compensation benefits.

Text: In Fraide we dealt with a fund established by the Los Angeles City Charter to provide pensions for city firemen and policemen, financed in part by these city employees, who contributed 6 percent of their salaries, and in part by city taxes. The city charter authorized a Board of Pension Commissioners to administer the pension fund and provided that if any policeman or fireman were awarded workmen's compensation benefits, any disability pension from the fund would be construed to be and shall be payments of such compensation. The city paid its pensions and discharged its workmen's compensation liability from the same monies because the city served as its own workmen's compensation carrier. When the Industrial Accident Commission refused to allow the city any credit against its workmen's compensation liability for disability pension payments from the pension fund, the city sought review. In a unanimous opinion, we held that to avoid transgressing section 3751's prohibition against employee contributions, the city should receive only a partial credit against its workmen's compensation liability for disability pension payments. (3a) Rejecting the city's contention that its charter provision entitled it to a full credit against its workmen's compensation liability, we noted that in Healy v. Industrial Acc. Com. (1953) 41 Cal.2d 118, 122 [258 P.2d 1], we had held that the compensation provisions of the Labor Code prevail when in conflict with city charter provisions. ( City & County of San Francisco v. Workmen's Comp. App. Bd. (1970) 2 Cal.3d 1001, 1010 [88 Cal. Rptr. 371, 472 P.2d 459]; Pearson v. County of Los Angeles (1957) 49 Cal.2d 523, 535 [319 P.2d 624]; Wilson v. Beville (1957) 47 Cal.2d 852, 859 [306 P.2d 789]; Ferris v. Industrial Acc. Com. (1965) 237 Cal. App.2d 427, 434 [46 Cal. Rptr. 913] (hg. den.).) [4] This court pointed out, If we uphold the city's system of employee deductions which can be used for disability pensions and permit the city a complete credit against its workmen's compensation liability, we encourage employers to set up hybrid funds composed of employee contributions and other funds for the purpose of discharging compensation liability, even though the employer cannot show that employee contributions are not used for payment of benefits. Such a system would violate the legislative mandate as interpreted by Healy and offer a stratagem for the purpose of undermining the system of workmen's compensation long established in this state. ( City of Los Angeles v. Industrial Acc. Com. ( Fraide ), supra, 63 Cal.2d 242, 252-253.) In a companion case of City of Los Angeles v. Industrial Acc. Com. ( Morse ), supra, 63 Cal.2d 263, 264-265 and footnote 1, we indicated expressly that the Fraide principle would limit the city's right to reduce the pension of a fireman's widow by the amount of workmen's compensation death benefits: If the city is lawfully entitled to reduce its workmen's compensation liability to Mrs. Morse we see no reason why it may not, as an alternative, reduce its pension liability. In either case, of course, the reduction may not exceed an amount determined by the method of computation outlined in Fraide. In the present case the City of Albany urges this court to distinguish Fraide and Morse on six grounds, none of which we find valid: First: The city contends that the evidence does not show that any funds paid for workmen's compensation came from the earnings of an employee in violation of Labor Code section 3751. (1b) Yet the Morse case expressly holds Fraide applicable whether a city charter provision reduces pension payments to account for workmen's compensation or seeks to deduct from workmen's compensation those amounts that it has disbursed as pension payments. Cavoretto v. City of Richmond (1969) 270 Cal. App.2d 726, 729 [76 Cal. Rptr. 94], expressly relied upon Morse in concluding that a municipality may not evade Fraide by reducing city pension payments instead of workmen's compensation liability. Second : The Albany pension fund constitutes a separate trust account apart from the city's general fund, whereas the Los Angeles pensions were paid from the city's general fund. Although in Fraide and Morse both workmen's compensation and city pension obligations derived from the same fund to which employees were required to contribute and although in the present case the City of Albany's pension fund reposes in a trust account separate from the city's general fund, this rather metaphysical distinction does not support a different result. (See City of Los Angeles v. Industrial Acc. Com. (Fraide), supra, 63 Cal.2d 242, 246.) [5] In Fraide we refused to follow the city's suggestion that we deem workmen's compensation payments totally tax supported by reason of the presence of adequate tax monies in the fund, because, we reasoned, Both employee deductions and tax monies constitute sources for the pension fund. When a disability pension is paid, it in fact consists of money from both sources. Artificially to allocate all the employee deductions to the `additional' amount and not to the portion which discharges workmen's compensation liability is merely to choose the desired result. (63 Cal.2d at p. 251; fn. omitted.) Our refusal in Fraide to follow the city's suggestion was prompted by the fear that we would encourage precisely the evasion that Albany now attempts in setting up hybrid funds composed of employee contributions and other funds for the purpose of discharging compensation liability, even though the employer cannot show that the employee contributions are not used for payment of benefits. (63 Cal.2d at pp. 252-253; italics added.) As a practical matter, the city in the present case seeks the same result that Los Angeles sought in Fraide, that is, to reduce the employee's effective return on his contributions to the city pension fund solely because he was awarded workmen's compensation, and hence, directly or indirectly to charge him for workmen's compensation. By attempting to credit pension payments which result in part from employee contributions against workmen's compensation liability, as in Fraide, Morse, and Healy, or by attempting to reduce pension payments on account of workmen's compensation benefits, as in Cavoretto and the instant case, the employer seeks to reduce the ultimate value of the employee's contributions to the pension fund. City of Oakland v. Workmen' Comp. App. Bd. (1968) 259 Cal. App.2d 163, 169-170 [66 Cal. Rptr. 283] (hg. den.) does not support the city's theory because the Oakland plan provided that the employee would always get both the full value of the fund supported by his contribution and the full amount of any workmen's compensation award. Unlike any of the plans in the other cases we have discussed, Oakland segregated employee and employer contributions to its pension fund, stipulated that the employee would receive the full pension to which he had contributed, and reduced only that fund supplied entirely by the city's contributions in an amount commensurate with any workmen's compensation benefits reduced in accord with the Fraide formula. Hence, the Oakland plan institutionalized the formula adopted by the Fraide decision. The Oakland plan makes certain that the value of an employee's contributions to his pension will not be decreased by virtue of any possible workmen's compensation benefits. In contrast, the Albany plan would deduct the entire workmen's compensation from the pension, to which both the employee and the city had contributed, in such a way as to diminish the full pension value of the employee's contribution. Third: The city attaches great significance to the language of the Los Angeles Charter provision, considered in Fraide, that any payments be construed to be and shall be payment of such workmen's compensation [6] and purports to find no similar language in the Albany Charter. The Albany Charter does, however, indicate that payments shall be computed to the end that said members of the Police and Fire Department shall receive an aggregate total of benefits paid for by the City of Albany and not included in this law. [7] The benefits paid for by the City of Albany and not included in this law constitute in fact payment of such workmen's compensation. The charter provisions are thus indistinguishable for any purpose here relevant. (2b) Fourth: Albany attempts to distinguish cities which are self-insured, such as Los Angeles in the Fraide case, from cities which are insured by the State Compensation Insurance Fund, such as Albany itself in the present case. The practical effect of Albany's decrease of its pension payments by the entire amount of the fireman's workmen's compensation award is to diminish the value of his contributions to his pension and thus indirectly to compel the employee to pay for his workmen's compensation benefits. (1c) We see no reason for any distinction between section 3751's application to those employers who are permissibly self-insured and to those who are institutionally insured. (See Lab. Code, § 3700; see Cavoretto v. City of Richmond, supra, 270 Cal. App.2d 726, 728-729.) Fifth: The city contends that the application of Fraide would result in double liability for the city. To the contrary, Fraide as applied in this case prevents double liability for the city, while retaining the legislative objectives of section 3751. (Cf. City of Oakland v. Workmen's Comp. App. Bd. (1969) 271 Cal. App.2d 555, 556 [76 Cal. Rptr. 886] (hg. den.).) The Fraide rule recognizes that the city has substantially contributed to the pension fund and the employee should not garner both the benefits of the workmen's compensation insurance for which the city has paid and the city's portion of the pension fund. Hence, Fraide permits the city to decrease its pension payments by an amount commensurate with its contributions to the pension fund because of a fireman's compensation award. (See City of Los Angeles v. Industrial Acc. Com. ( Fraide ), supra, 63 Cal.2d 242, 252-253; cf. Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 10 [84 Cal. Rptr. 173, 465 P.2d 61].) (3b) Sixth: Although the city correctly contends that the pension provisions compose an integral part of the employment contract (see Kern v. City of Long Beach (1947) 29 Cal.2d 848, 852 [179 P.2d 799]; Dryden v. Board of Pension Commrs. (1936) 6 Cal.2d 575, 579 [59 P.2d 104]), the city erroneously argues that the contract binds the employee to accept the city's disputed reduction in the pension. (2c) The contract, however, does not endow the city with the power to abrogate Labor Code section 3751. The section prohibits the employer from exacting from any employee any contribution ... either directly or indirectly, to cover the whole or any part of the cost of [workmen's] compensation.... The City of Albany may no more condition employment upon the fireman's or policeman's contribution to the cost of his workmen's compensation than could the City of Los Angeles in Fraide. Since the city charter, and thus the contract of employment, expressly provide for a credit against pension payments by reason of workmen's compensation benefits, the city may, however, claim a partial credit according to the formula established by Fraide. (1d) In any event, in order to take even a partial credit the city must put the employee on notice by means of the contract of employment or charter that his pension payments will not be independent of his workmen's compensation benefits for permanent disability. Neither the city nor the Workmen's Compensation Appeals Board could allow any credit if the contract of employment fails so to provide. (See City of Oakland v. Workmen's Comp. App. Bd., supra, 259 Cal. App.2d 163, 168; cf. Lab. Code, § 4909; Herrera v. Workmen's Comp. App. Bd. (1969) 71 Cal.2d 254, 257 [78 Cal. Rptr. 497, 455 P.2d 425] (temporary disability).) (2d) Finally, the city suggests that even if the Fraide decision is controlling in the present case, the city in addition to the credit it receives for its contribution to the city pension fund, should be credited for the premiums for workmen's compensation that it pays to the State Compensation Insurance Fund. For the reasons stated herein we reject this suggestion. Fraide defines the city's contributions as the aggregate tax monies paid into the pension fund during the years Fraide was employed by the city as a policeman and paid into the fund. `Employee contributions' are the aggregate deductions paid into the fund by all firemen and policemen during those years. ( City of Los Angeles v. Industrial Acc. Com., supra, 63 Cal.2d 242, 253-254; Cavoretto v. City of Richmond, supra, 270 Cal. App.2d 726, 730.) Hence, the Fraide formula did not give the city any credit for premiums paid for workmen's compensation; Labor Code section 3751 as interpreted by Fraide does not warrant such a step. (4) In conclusion, we note that we deal here with a relationship that begins as that of employee and employer but which now has matured into that of pensioner and administrator. In the vast development of pensions in today's complex society, the numbers of pension funds and pensioners have multiplied, and most employees, upon retirement, now become entitled to pensions earned by years of service. We believe that courts must be vigilant in protecting the rights of the pensioner against powerful and distant administrators; the relationship should be one in which the administrator exercises toward the pensioner a fiduciary duty of good faith and fair dealing. The trial court in the instant case reaches an equitable result consonant with the above principle; it followed the legislative mandate of Labor Code section 3751 as articulated by Fraide and Morse to resolve the present cause upon the basis of the exact equities of the contending parties. ( City of Los Angeles v. Industrial Acc. Com. ( Fraide ), supra, 63 Cal.2d 242, 254.) Refusing to ignore the employee's contributions to the pension fund and the rights so earned, the trial court correlatively allowed to the city a partial credit against its pension liability because of the fireman's receipt of workmen's compensation benefits. The rights of the pensioner were thereby respected and those of the city equitably adjusted. The judgment is affirmed.