Gloria R. Smith v. Ronald E. Sorensen, Commissioner of Labor, Department of Labor, State of Nebraska William R. Loder, Director, Comprehensive Employment & Training Unit, Department of Labor, State of Nebraska Department of Labor, State of Nebraska Director of the Merit System of the State of Nebraska and State of Nebraska, Richard Gettemy and Donna Polk v. Ronald E. Sorensen, James L. Baudler v. Ronald E. Sorensen

Citation: 748 F.2d 427Docket: 83-2136

Court: Court of Appeals for the Eighth Circuit; December 5, 1984; Federal Appellate Court

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Gloria R. Smith, Richard Gettemy, Donna Polk, and James L. Baudler, employees of the Comprehensive Employment Training Unit (CETA) within the Nebraska Department of Labor, were notified of layoffs due to a reduction in force (RIF) guideline that only considered their seniority within CETA, disregarding their overall employment with the Department. They filed a lawsuit against several state officials under 42 U.S.C. Sec. 1983, claiming this limitation on seniority rights constituted a violation of their due process rights and impaired their employment contracts. The district court issued preliminary injunctions to halt the layoffs, ruled that the plaintiffs were entitled to retention points based on their total service with the Department, determined bumping rights, and awarded attorneys' fees. The court also noted that Baudler's layoff was influenced by his political affiliation during a Republican administration. The state and its officials appealed the district court's decision, which was ultimately reversed. The case emphasizes issues surrounding employment rights, seniority considerations, and the legal implications of state actions in employment terminations.

In early 1981, Nebraska's Commissioner of Labor, John Hanlon, instructed Loder to develop guidelines for a Reduction in Force (RIF) for the Comprehensive Employment and Training Act (CETA). Loder indicated that the RIF was driven by anticipated funding cuts and a desire to restructure management to allocate more budget to program delivery rather than administration. The restructuring led to the elimination of positions held by Gettemy and Baudler. The RIF guidelines established a retention point system based on employees' tenure and performance ratings, detailing bumping rights for employees to other positions within CETA or to previously held classifications.

During the trial, plaintiffs Smith, Gettemy, Polk, and Baudler contended they were entitled to more retention points, arguing that their seniority should encompass all divisions of the Department of Labor. Gettemy and Baudler sought rights to bump into the Operations Manager role, while Polk wanted rights to a personnel officer position. The district court recognized the plaintiffs' property interest in their employment, affirming their entitlement to retention points based on their full tenure. It also acknowledged that employees transferred to CETA with the promise of retaining their seniority.

The court evaluated bumping rights, concluding that Gettemy could bump to the Operations Manager position and Polk to a Personnel Officer II role. It found that Baudler's layoff was partly motivated by political affiliation, representing a deprivation of a protected right. Ultimately, the court ruled that the employees had been denied their rights without due process, dismissing the adequacy of the Merit System rules' appeal process as they lacked a neutral arbiter. Furthermore, the court determined that the 1978 Merit System rules constituted express employment contracts, which were violated by the defendants through incorrect retention point calculations, denial of bumping rights, and political discrimination against Baudler.

The district court determined that Baudler had no First Amendment claim regarding his layoff due to political affiliation, ruling that he held a policymaking position not protected from patronage-based dismissals under Elrod v. Burns. The court concluded that it was unnecessary to heavily weigh the Merit System's interpretation of rules. It specified relief for affected employees, granting retention points based on total service with the Department of Labor, limiting bumping rights to positions within CETA, and awarding Gettemy injunctive relief to recognize his Operations Manager role. Baudler was allowed to bump to a Planning Specialist position without pay reduction, while Polk could bump to a Personnel Officer II position in CETA. Attorneys' fees totaling $29,930.25 and costs of $852.97 were awarded to Baudler, Polk, and Gettemy, with Smith receiving $29,593.21 in fees, costs, and expenses.

The state and its officials appealed, claiming errors in the district court's rulings. Baudler did not appeal the adverse First Amendment ruling. The state contended the court incorrectly determined retention points should be based on total service with the Department of Labor rather than CETA, arguing that property interests arise from state law and employment contracts established by Merit System rules. These rules, binding under Nebraska's Administrative Procedures Act, represented an express contract between the state and employees. The court's ruling that these rules create enforceable contractual rights was upheld, noting that unauthorized assurances by state officers cannot alter these rights. Testimony regarding representations made to employees during their transfer to CETA was deemed unnecessary for consideration.

The application of the Merit System rules is a legal interpretation issue, not subject to a clearly erroneous standard of review. Parties have equal rights to challenge state law interpretations on appeal. The CETA Personnel Officer calculated retention points based solely on CETA service, aligning this interpretation with the Merit System's guidelines, which were a restatement of Rule 12. The district court did not accord weight to the Merit System's interpretation, but the Supreme Court mandates that courts consider administrative interpretations when regulatory language is ambiguous. An agency’s interpretation typically receives significant deference. 

The district court examined earlier versions of the Merit System rules, noting that the 1971 rules specified retention points should include additional points for seniority and military service, and defined seniority based on continuous service. The rules differentiate between employees with breaks in service, providing criteria for crediting service time based on the nature of the break. Article XII, Section 4 of the 1971 Rules clarifies that retention points should be derived from total service across Joint Merit System agencies, not just the current agency.

The interpretation of seniority and service credit within the Merit System is contingent upon the contextual reading of specific paragraphs in the governing rules. Paragraph (2)(c)(4) establishes that seniority is based on 'continuous service,' though this term is not explicitly defined. However, paragraph (2)(c)(3) clarifies that 'continuous service' pertains to service within a specific agency, emphasizing that the interpretation should not extend to cumulative service across all agencies within the Joint Merit System. The district court's reliance on a particular sentence is deemed narrow and does not imply that retention points are based on total service across all agencies.

Additionally, a letter from the Merit System Director, dated May 22, 1974, asserts that seniority rights are confined to individual agencies, a stance the district court dismissed. The current interpretation supports this letter, reflecting a consistent understanding of the 1971 rules. 

The district court also evaluated Rule 12(1)(c)(iii)(A) from the 1978 Rules, which governs the calculation of length of service credits, allowing one point for each month of service while detailing exclusions for certain absences. The term 'original appointment' remains undefined in these rules. The district court concluded that the lack of a definition indicated no intent to alter the calculation method for retention points. This interpretation aligns with prior rules and reinforces the consistency in the application of these guidelines.

The term 'original appointment' is ambiguous, potentially referring to the start of employment in a specific agency or the first employment in any Merit System agency. The 1975 Rules defined it as the first appointment to a position, while the 1971 Rules differentiated between probationary periods for promotions and original appointments, implying it referred to first employment within the Merit System. However, the 1978 Rules omitted explicit references to 'original appointments,' weakening this implication. Retention points in the Merit System are based on length of service and performance evaluations, the latter being filed in the employee's agency personnel file. Rules do not require retention of performance evaluations, nor do they allow access to personnel files from other agencies, suggesting these evaluations cannot be used for retention point calculations. 

The district court ruled that employees were deprived of property interests related to continued employment without due process, specifically regarding retention points and bumping rights for two employees. Merit System rules outline procedures for layoffs, including notification of the RIF formula and at least fourteen days' notice before layoffs, with an appeal process to the Merit Council available for affected employees. The appeal process allows for written appeals within fourteen days of adverse employment actions, with a hearing to follow within thirty days, leading to written recommendations from the Council and a final decision from the Appointing Authority.

Employees can seek a binding declaratory ruling under Rule 20(4), which must be answered within fifteen working days, or following the Council's next meeting if a response from the Council is needed. According to Neb.Rev.Stat. Sec. 84-911 (1981), employees may also obtain a declaratory judgment from the state district court without exhausting administrative remedies. Decisions made by the Commissioner of Labor can be appealed to the state district court under the Nebraska Administrative Procedures Act.

The document raises due process concerns regarding the lack of a pretermination hearing and the Merit Council's advisory role in the appeal process. Citing Parratt v. Taylor, the Supreme Court emphasizes the necessity of a hearing before a state deprives individuals of property interests, although it does not mandate a pretermination hearing in every case due to practical constraints. The establishment of Reduction in Force (RIF) guidelines, based on Merit System rule interpretations amid funding shortfalls, makes pre-implementation hearings impractical, as requiring them could significantly hinder government decision-making.

Furthermore, in Arnett v. Kennedy, the Court found that established discharge procedures under a federal act did not violate due process even without a pretermination hearing. The document concludes that the protections afforded to employees after the RIF guideline's implementation were sufficient to mitigate due process concerns, despite the absence of a pretermination hearing.

The district court identified a due process violation based on the Merit Council's role, which only provides a recommendation, leaving the appointing authority as the final decision-maker. This situation was compared to Nevels v. Hanlon, where a similar argument about bias in the decision-making process was rejected.

In Withrow v. Larkin, the Supreme Court ruled that administrative boards can both investigate and adjudicate cases without violating due process. In the current case, the Commissioner’s role in initiating Nevels' discharge was deemed less likely to create bias compared to the practice upheld in Withrow. The Commissioner’s involvement was limited to approving guidelines without making specific decisions regarding employee bumping rights, indicating that no unconstitutional risk of bias existed. Consequently, due process claims by the employees were rejected due to a lack of evidence for bias or prejudgment.

The district court also found that denying retention points and bumping rights to employees Gettemy and Polk constituted unconstitutional impairments of contracts under Article I, Section 10 of the U.S. Constitution. This clause prohibits states from passing laws that impair contract obligations, which the Supreme Court has interpreted to require that any impairment must arise from legislative acts, not administrative actions. The court clarified that the drafting of the RIF guidelines and the decisions about bumping rights were administrative and did not alter the underlying Merit System rules or constitute a repudiation of contractual obligations. The employees mistakenly conflated impairment of contract performance with impairment of the contract obligation itself. Therefore, the state did not violate the contract clause in these administrative actions. Additionally, the district court granted relief to James Baudler based on the finding that his layoff was influenced by political affiliation.

A serious question exists regarding the sufficiency of evidence supporting the district court's finding. The court's conclusions were primarily based on two conversations involving Baudler: one with CETA Director William Loder on July 1, 1981, where Loder implied Baudler's capabilities could have warranted a higher position, and another with Deputy Director Daniel York on September 2, 1981, regarding partisan decisions in reductions in force. Loder's comments were interpreted as supportive rather than indicative of political bias, particularly given the patronage system in place. Additionally, Baudler's diary entry about York's comments lacked corroboration, and York denied making such statements. 

An incident where Commissioner John Hanlon allegedly told Baudler, "I hope you choke on it," was not substantiated, as neither Hanlon nor a nearby employee recalled the remark, and there was no evidence it stemmed from Baudler's political affiliation. Other testimonies offered by Baudler, including comments made by Loder and incidents concerning sick leave and telephone credit cards, did not demonstrate political prejudice.

The appellate standard dictates that trial court findings are not to be overturned unless clearly erroneous, emphasizing the trial court's role in assessing witness credibility. Under this standard, the district court's finding may indeed be deemed clearly erroneous, although the decision to reverse Baudler's relief is based on other considerations as well.

The district court determined that Baudler could not pursue a First Amendment claim related to his dismissal due to political affiliation, as established by Elrod v. Burns, which exempts policymakers from such protections. This ruling was not contested by Baudler. However, Baudler was found to have due process rights under the Merit System rules, specifically Rule 1(2)(e), which ensures fair treatment regardless of political affiliation. Rule 13(6) outlines an appeals process for claims of discrimination based on various non-merit factors, allowing employees to appeal within ninety days to the Council, which must issue a decision within thirty days. The Council's decision is final, negating concerns about its advisory role or neutrality. The court agreed that adequate due process was provided for Baudler’s discrimination claim.

Additionally, the court rejected the assertion that political discrimination against Baudler impaired his contract rights, a conclusion supported by earlier discussions. The state and its officials claimed immunity under the Eleventh Amendment, but this issue was deemed unnecessary for resolution based on prior findings. The case highlights that federal courts are not the proper venue for reviewing routine personnel decisions made by public agencies.

The court reversed the district court's findings regarding the calculation of retention points for employees, violations of due process, the impairment of contract rights, and the injunction against reducing Baudler's salary due to political affiliation. While findings related to the positions of Gettemy, Polk, and Baudler were not specifically appealed, they were also reversed since they were linked to claims not cognizable under section 1983. Ultimately, the district court's judgment was reversed.

A "class" is defined by the Merit System rules as encompassing one or more positions with similar functional requirements, necessitating the same minimum qualifications. In Perry v. Sindermann, the Court recognized that a "legitimate claim of entitlement to continued employment" could arise from established rules and understandings by state employees. However, such unwritten understandings are intended to supplement explicit contractual provisions only if no other explicit provisions exist. In this case, the Merit System rules clearly outline the terms of employment, leaving no space for implied contractual agreements. The district court referenced the rules while also considering statements from various supervisors, but the perception of employees regarding their superiors' authority to grant assurances about transferred seniority rights does not alter the conclusion that the Merit System rules are definitive. It is established that individuals dealing with the government bear the risk of agents acting beyond their authority. Additionally, the employees' appeal concerning the RIF guideline's implementation depriving them of property without just compensation under the Fifth Amendment was not previously raised in the district court and, therefore, will not be considered.