Opinion ID: 835784
Heading Depth: 2
Heading Rank: 1

Heading: General Summary of Case Law and Legal Principles

Text: To the extent that it provides background for some of the discussion that follows, we briefly summarize this court's decisions in Eckles v. State of Oregon, 306 Or. 380, 760 P.2d 846 (1988), Hughes, 314 Or. 1, 838 P.2d 1018, and Oregon State Police Officers' Assn. v. State. of Oregon, 323 Or. 356, 918 P.2d 765 (1996) ( OSPOA ), which the parties cite to support many of their competing contentions in these proceedings. Eckles involved legislation that had transferred surplus funds from the Industrial Accident Fund (IAF) to the General Fund for the purpose of avoiding a state budget deficit. The plaintiff, an employer insured by the State Accident Insurance Fund Corporation (SAIF), contended that the legislation violated Article I, section 21, of the Oregon Constitution by impairing the state's contractual obligation (set out in an earlier statute) to use the funds in the IAF for only workers' compensation purposes. This court concluded that the part of the legislation that eliminated the state's obligation to use the surplus funds in the manner specified in the earlier statute constituted an unconstitutional impairment of the state's contractual obligation. 306 Or. at 399, 760 P.2d 846. The court further concluded that the part of the legislation that directed the transfer of funds amounted to a mandate that the state breach the contract, id. at 400, 760 P.2d 846, which ordinarily would require payment of damages to SAIF employers resulting from the breach, id. at 402, 760 P.2d 846. [25] Hughes involved legislation that had repealed a state income tax exemption for PERS benefits; specifically, the legislation had (1) made that exemption inapplicable to state personal income taxation; and (2) repealed the corresponding provision in the tax statutes. The plaintiffs, who were present and retired public employees, challenged the legislation under Article I, section 21, and this court ultimately held that the two statutory provisions, respectively, unconstitutionally impaired a contractual obligation and breached the PERS contract. 314 Or. at 29-33, 838 P.2d 1018. Most significant to our analysis here, the court in Hughes concluded that PERS was intended to be and is a contract between the state and its employees[.] 314 Or. at 25, 838 P.2d 1018. OSPOA involved challenges to Ballot Measure 8 (1994), which had amended the Oregon Constitution in three ways relating to PERS: (1) by mandating that public employees make six percent contributions to public retirement plans, if so covered, and, correspondingly, by precluding public employers from picking up that contribution on behalf of their employee members; (2) by prohibiting the state from guaranteeing a rate of return on retirement contributions; and (3) by prohibiting any increase of retirement benefits based on unused sick leave. The plaintiffs brought federal impairment of contract challenges to the amendments, and, after applying state law principles to construe the underlying PERS contract, this court invalidated the amendments as unconstitutional impairments of that contract. In reaching that conclusion, the court concluded that each of the statutory PERS provisions at issue  that is, the provisions permitting employer pick-up of the employee's contribution, guaranteeing an assumed earnings rate, and providing for inclusion of unused sick leave in benefit calculations  constituted terms of the PERS contract that applied even to work yet to be performed. 323 Or. at 372-79, 918 P.2d 765. We note some considerations from Eckles and Hughes that guide our analysis in these cases. First, in Eckles, this court clarified that the contracts provision of Article I, section 21, prohibited the impairment of a contractual obligation. Eckles, 306 Or. at 395, 760 P.2d 846. As to the determination whether newer legislation amounts to an impairment of a preexisting statutory contractual obligation, the court focused on whether the legislation would change or eliminate the state's obligation under that contract. Id. at 399-400, 760 P.2d 846. By contrast, the court explained that legislation that mandated a breach on the state's part of such a contractual obligation  but did not change or eliminate the obligation itself  did not contravene Article I, section 21, although, in accordance with that constitutional provision, such legislation ordinarily would require payment of damages resulting from the breach. Id. at 400-02, 760 P.2d 846. In Hughes, this court set out a two-step process for addressing a claim of contractual impairment or breach under Article I, section 21: First, it must be determined whether a contract exists to which the person asserting an impairment is a party; and, second, it must be determined whether a law of this state has impaired an obligation of that contract. General principles of contract law normally will govern both inquiries, even where the state is alleged to be a party to the contract at issue. Hughes, 314 Or. at 14, 838 P.2d 1018. In its ensuing analysis, the court divided the first question into three component inquiries: (1) is there a state contract?; (2) if so, what are its terms?; and (3) what obligations do the terms provide? See id. at 17-29, 838 P.2d 1018 (engaging in those inquiries). Further, as noted above, this court in Hughes concluded that PERS constituted a statutory contract. Id. at 25, 838 P.2d 1018.