Katosh v Sonoma County Employees’ Retirement Association
Filed May 19, 2008, First District

Inclusion of Sick Leave and Vacation Pay Affirmed in Employees Regular Compensation Claim

Donna Katosh worked for the Sonoma County Department of Human Services from 1989 through June 2000. In February 2002, Katosh applied for a service-connected disability retirement with the Sonoma County Employees’ Retirement Association (SCERA).

After a preliminary denial of her application by SCERA, an administrative law judge recommended granting Katosh’s application for a service-related disability retirement.

Katosh asked SCERA to set the effective retirement date as the last date she received regular compensation, pursuant to Government Code section 31724,

Government Code section 31724 states that “a disability retirement application to have been filed on the date following the date for which a member last received regular compensation where filing of the application was delayed by an inability to ascertain the permanency of the member’s incapacity”.

In response, SCERA held that in order for Katosh to receive health benefits, she had to have active health insurance at the time of retirement.

However, for unknown reasons, Katosh had been returned to ‘in pay’ status with the County for a two-week period in late 2002, at which time she received regular compensation but did not have active health insurance.

SCERA offered to return Katosh to ‘in pay status’ effective October 12, 2004, and to allow her to run out her sick leave and vacation to give her the 40 hours necessary to reinstate her health insurance. This would mean that her retirement date would be in October 2004.

Katosh agreed and returned to the county’s payroll, and used a combination of sick leave and vacation time to achieve the 40 hours required to reinstate her health insurance.

In a subsequent meeting of the Sonoma County Employees’ Retirement Board (Board), the board confirmed that sick leave was ‘regular compensation’ and set Katosh’s retirement date as the day after her last day on payroll, or October 28, 2004.

Consequently, Katosh petitioned for a writ of mandate, contending that the Board abused its discretion and acted contrary to law by characterizing the payment of sick leave and vacation compensation as ‘regular compensation’ for purposes of section 31724.

The trial court denied the petition, concluding that section 31724 required “that a successful disability retirement applicant exhaust accrued sick leave before a disability retirement could become effective”. Because Katosh did not do so until October 28, 2004, her retirement could not be effective until after that date.

Katosh appealed, arguing that because her delay in filing her application was due to an inability to ascertain the permanency of her incapacity, her effective retirement date should be the date following her last day of actual work as so defined.

In review, the First District Court of Appeal affirmed the decision, holding that ‘regular compensation’ included Katosh’s compensation for sick leave and vacation taken as time off.

The appellate cited Section 31724 which provides in pertinent part “that a worker’s disability retirement allowance is effective not earlier than the day following the last day for which the worker received regular compensation”.

Further, the section states that, notwithstanding any other provision, “the retirement of a worker who was granted or is entitled to sick leave shall not become effective until the expiration of such sick leave with compensation unless the member consents to his retirement at an earlier date”.

Still further, the components of section 31724 also defined the earliest retirement allowance date as the later of the date of application or the day following the last day the employee received ‘regular compensation,’ effectively preventing double-dipping in the form of an employee’s simultaneous receipt of regular compensation and retirement benefits. The section also allowed to address exhaustion of sick leave, essentially protecting a disabled worker from being retired before having an opportunity to receive such sick leave benefits.

The court also observed that the section’s legislative history confirmed that the Legislature intended to allow a worker to use all accumulated sick leave prior to disability retirement.

The trial court and the Board did err in finding that section 31724 ‘required’ a disabled employee to exhaust accrued sick leave before a disability retirement could become effective.

However, it did not resolve the issue because in some counties that would be to an employee’s advantage, as some counties grant cash payments to workers for all unused sick leave as of the time of separation.

But in Sonoma County a covered disabled worker could consent to retirement before using accumulated sick leave and still recover the lump sum payment for accrued sick leave and vacation upon retirement. This did not mean, though, that the employee could use the sick leave and then consent to a retirement date before the sick leave was taken. That would be prohibited ‘double-dipping.’

As a matter of policy, the court said, Katosh’s approach would create an incentive for a disabled employee to retire, rather than to attempt to return to work, while SCERA’s would not discourage an employee from attempting to return to work.

Because the court was persuaded that the term ‘regular compensation’ in section 31724 included compensation received for sick leave and vacation when taken by Katosh as time off, the trial court did not err in denying Katosh’s petition for writ of mandate.

The First Appellate District therefore affirmed the judgment, which held that a county worker’s regular compensation, for purposes of establishing the effective date of her disability retirement, included compensation received for accrued sick leave and vacation days taken as time off.