Court Opinion

ID: 8597907
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:05:21.948903+00
Date Added: 2024-06-11T16:55:02.657735
License: Public Domain

KASHIWA, Judge,
dissenting:
I respectfully dissent from the majority’s decision.
The basic issue herein is whether the cost of living allowance (COLA) paid to federal workers in Hawaii must be considered as a "rate of basic pay” for purposes of other adjustments to General Schedule (GS) pay allowed by 5 U.S.C. § 5334(a) or 5 U.S.C. § 5333(b). Under 5 U.S.C. § 5334(a), an employee transferred to the GS pay system from the prevailing rate wage system (WS) may have his initial GS salary adjusted upwards if his "rate of basic pay” would not otherwise exceed his former WS wages. Under 5 U.S.C. § 5333(b), a GS supervisor’s salary may be adjusted if the supervisor’s "rate of basic pay” does not exceed the wages of the WS employees he supervises.
"Rate of basic pay” is defined as follows for purposes of both statutes:
* * * "Rate of basic pay” means the rate of pay fixed by law or administrative action for the position held by an employee before any deductions and exclusive of additional pay of any kind. [5 C.F.R. § 531.202(i) (1974) (defining the phrase for 5 U.S.C. § 5334(a) purposes); emphasis supplied.]
Accord: 5 C.F.R. § 531.302(b) (defining the phrase for 5 U.S.C. § 5333(b) purposes). The rate of basic pay of plaintiff GS supervisors, as "fixed by law,” is found in 5 U.S.C. § 5332, which is entitled "The General Schedule” and fixes by law the rate of basic pay of all GS employees. COLA is *615not included in the basic rate of pay "fixed” by 5 U.S.C. § 5332 and would therefore be a "kind” of "additional pay,” not to be taken into account for either statutory adjustment. This conclusion seemingly is obvious, but there are several additional reasons why COLA is not a part of a GS employee’s "rate of basic pay.”
First, all GS employees in the 48 contiguous states, none of whom receives COLA, have basic rates of pay set by 5 U.S.C. § 5332. It is absurd to argue that plaintiffs somehow have a different rate of basic pay than all these other GS employees, for plaintiffs’ compensation is governed by the same basic pay statute as all other GS employees.
Second, COLA is not and was never intended to be basic pay. The very nomenclature, "allowance,” belies the argument that COLA is basic pay. Under 5 U.S.C. § 5941, COLA is clearly an allowance in addition to rates of basic pay fixed by statute:
SUBCHAPTER IV. — MISCELLANEOUS ALLOWANCES
§5941. Allowances based on living costs and conditions of environment; employees stationed outside continental United States or in Alaska.
(a) Appropriations or funds available to an Executive agency, except a Government controlled corporation, for pay of employees stationed outside the continental United States or in Alaska whose rates of basic pay are fixed by statute, are available for allowances to these employees. The allowance is based on—
(1) living costs substantially higher than in the District of Columbia;
(2) conditions of environment which differ substantially from conditions of environment in the continental United States and warrant an allowance as a recruitment incentive; or
(3) both of these factors.
The allowance may not exceed 25 percent of the rate of basic pay. Except as otherwise specifically authorized by statute, the allowance is paid only in accordance with regulations prescribed by the President establishing the rates and defining the area, groups of positions, and classes of employees to which each rate applies. [Emphasis supplied.]
*616Although ignored by the majority, the case law interpreting 5 U.S.C. § 5941 and predecessor provisions has long recognized COLA is an allowance additional to the GS rate of basic pay. E.g., Shadduck v. United States, 142 Ct. Cl. 516, 517 (1958); Kalv v. United States, 128 Ct. Cl. 207, 124 F. Supp. 654 passim (1954); Curlott v. Campbell, 598 F. 2d 1175, 1177 (9th Cir. 1979), modifying Curlott v. Hampton, 438 F. Supp. 505 (D. Alas. 1977).
Third, the COLA percentage can be adjusted up or down based on regulations prescribed by the President with respect to living costs substantially higher than those in the District of Columbia and as a recruitment incentive allowance. By its very nature, then, COLA is geared to factors which have nothing to do with basic compensation for work performed, duties, and qualifications.
Fourth, the Federal Personnel Manual (FPM) long has specifically excluded COLA from the definition of "rate of basic pay.” E.g, FPM 591(1) (1963); FPM 591(l)a(9) (1969) (currently in effect). Moreover, the FPM long has specifically directed that COLA is not to be included in the base used to determine "any additional pay.” E.g., FPM 591(4-l)d(l) (1963); FPM 591(4-l)d(l) (1969) (currently in effect).
Fifth, COLA received by Hawaii federal employees is subject to fundamentally different federal income tax treatment than is GS pay. GS compensation is fully includible as income and is thus fully taxed; under 26 U.S.C. (Internal Revenue Code of 1954, as amended) §912(2), COLA paid to Hawaii federal employees is excluded from gross income and is fully exempt from tax. This, in my view, underscores the Congressional determination that there is a critical distinction between GS pay and COLA amounts.
Sixth, defendant itself has admitted COLA is not a part of the rate of basic pay by its reversal of policy in Civilian Manpower Management Instruction 531(S2-4)b(2), effective June 26, 1974. Under that Instruction, defendant has eliminated consideration of Hawaii COLA in determining, under 5 U.S.C. § 5334(a), the initial rate at which a GS employee who has moved from a WS position should be paid. Defendant, however, continues to maintain Hawaii COLA can be properly considered (1) in pre-June 26, 1974, initial rate calculations and (2) in portions of the compara*617tive test under 5 U.S.C. § 5333(b) for both pre- and post-June 26,1974, periods.
There are, of course, additional reasons for not considering COLA as part of the basic rate of pay. I have merely underscored the more obvious reasons for rejecting the continued consideration of COLA as basic pay.
The majority repeatedly asserts that only by including COLA can a GS salary truly be compared with WS compensation. For example, the majority says:
Further support for the reasonableness of the Navy’s pre-June 26, 1974 interpretation can be found when one considers what pay rates are being compared. WS pay rates are based upon the prevailing rate in a specific geographic area. By operation, WS pay rates necessarily include a cost-of-living allowance. GS basic pay rates do not include COLA. Therefore, by adding COLA to the GS pay rates and then comparing the total to the WS pay rate, the Navy is comparing equivalents. [At 605, emphasis supplied.]
The majority’s reasoning, obviously, assumes Hawaii COLA only reflects the higher cost of living in the Islands. But 5 U.S.C. § 5941 is clear that COLA may be based on either or both of two factors:
(1) higher living costs
(2) an allowance as a recruitment incentive.
We simply do not know on this record whether Hawaii COLA or WS wages paid in Hawaii reflect any added costs of recruitment. It may well be (so far as we really know) that a recruitment allowance is present in Hawaii COLA to attract white collar workers to Hawaii, but no such recruitment factor is reflected in WS wages paid in Hawaii because of an abundance of local blue collar workers. We simply do not know, and I therefore find no support for the majority’s bald assertion that by including COLA, the Navy is comparing equivalents. Further, even if we assume Hawaii COLA reflects only the higher cost of living there, it still does not follow that by including COLA the Navy is comparing equivalents. The majority’s assumption that WS employees’ pay in general contains the higher cost-of-living factor is nothing more than a guess. If a WS employee’s *618wage does contain this factor, what percent of his pay covers this factor? Is it 25 percent or 5 percent? If the coverage is only 5 percent, it is grossly erroneous to assume 5 percent is equivalent to 15 percent, the stipulated COLA rate in this case.
Moreover, I cannot agree with the majority’s resolution of the substantial constitutional issues herein. In my view, defendant’s COLA policies under 5 U.S.C. § 5334(a) and 5 U.S.C. § 5333(b) have irrationally created two sets or classifications of similarly situated but differently treated groups. The first such set consists of (1) those non-COLA, GS supervisors who are paid more than their subordinates and (2) those COLA, GS supervisors who are or were at times paid less than their subordinates. The second set of unequally and irrationally treated federal employees, created solely by defendant’s policy and its refusal to apply the June 26, 1974, revision to plaintiffs, consists of (1) those COLA, GS supervisors who were promoted from WS to GS positions after June 26, 1974, and are therefore entitled to be paid more than their counterparts and (2) those COLA, GS supervisors who were promoted from WS to GS positions prior to June 26, 1974, and are therefore paid less than their counterparts even though they may have greater seniority. In each of the foregoing groups of supervisors, the former group is the arbitrarily favored class.
As the majority points out, the critical test is whether there was a "rational basis” for the creation of these distinctions between similarly situated groups. I perceive no need to repeat the authorities which the majority cites to establish that proposition. Applying this rational basis test to the instant case, it is clear defendant’s policy of considering COLA in determining plaintiffs’ rate of basic pay is unlawful. With respect to the first set of unequally treated supervisors, there is certainly no defensible rationale for defendant’s penalizing COLA, GS supervisors as against non-COLA, GS supervisors. A non-COLA supervisor’s base rate clearly is his rate fixed by the GS schedule. So is that of the COLA, GS supervisor. But solely because Hawaii supervisors receive COLA, they have been denied an increase of their base rate (with all the benefits incident thereto) over their subordinates under 5 U.S.C. § 5333(b), *619while non-COLA supervisors with exactly the same base rates fixed by the GS schedule received these increases. The majority’s argument that this distinction is rational is bottomed on the assumptions that "WS pay rates, by their nature, reflect the cost-of-living” and that "[t]he Navy’s inclusion of COLA in the calculation was reasonably designed to compare equivalents.” As pointed out above, neither assumption is supported by this record. Simply put, COLA and WS wages cannot be presumed equivalent and the majority’s assumption therefore can provide no basis for the distinctions wherein some supervisors receive an increase in their base rate while some do not.
With respect to the second set of unequally treated COLA, GS supervisors, plaintiffs have been arbitrarily and wrongfully penalized a second time. Although COLA, GS supervisors promoted to GS from WS positions after June 26, 1974, have enjoyed significant pay increases and incidental employment benefits caused thereby, plaintiffs, who were promoted prior to June 26, 1974, have been denied equal treatment even though their circumstances are identical. Defendant concedes that the effect of not applying the June 26, 1974, reversal in policy to plaintiffs has been an anomalous and inequitable pay situation where plaintiffs are discriminated against vis-a-vis later-promoted supervisors and plaintiffs’ subordinates. There is no rational basis for this discrimination. Defendant’s reasons for arbitrarily denying the increases to plaintiffs are apparently that there are not very many plaintiffs and that they will be replaced through attrition:
Because the problem exists for only a limited number of employees, however, and since it will exist only until the current General Schedule supervisors are replaced, through attrition and refilling of the positions, it is not considered appropriate to request the Civil Service Commission to revise [the methods for computing these employees’ pay]. [Letter from the Director, Office of Civilian Manpower Management, United States Navy, to the Regional Director, Office of Civilian Manpower Management, United States Navy (December 19, 1974).]
I know of no authority which allows unconstitutional treatment merely because the impacted class is numerical*620ly small. Wisely, the majority does not justify the distinction on this basis. Instead, the majority asserts that recognition of this equal protection claim would
* * * inhibit any legislative or other governmental body from amending its statutes or regulations. Our laws would become written in stone, thereby failing to account for changing times and changing demands of our citizens. [At 612.]
The point of constitutional significance, however, is not whether an agency may change its interpretation of the controlling law. Obviously, the agency may. The constitutionally relevant point is whether, in implementing that change, the agency has acted in a manner creating arbitrary and unreasonable distinctions. Put another way, an agency may act, but must always act constitutionally. I cannot say the distinction drawn in supervisors’ pay solely on the basis of when each was promoted is constitutionally permissible. In conclusion, I note the Supreme Court has long recognized construction of a statute (and presumably supporting regulations) should '"go in the direction of constitutional policy.’” Regional Rail Reorganization Act Cases, 419 U. S. 102, 134 (1974), citing United States v. Johnson, 323 U. S. 273, 276 (1944). An agency, it seems to me, has an obligation to avoid implementing policies which raise even a colorable constitutional claim.
It follows from the foregoing that (1) the Navy improperly considered COLA in its 5 U.S.C. § 5334(a) calculations for pre-1974 periods and (2) the Navy improperly considered COLA in its 5 U.S.C. § 5333(b) calculations for all periods. I would allow the plaintiffs recovery, the amount of which would be determined under Rule 131(c). To repeat, I respectfully dissent.