Merit Decision: No State Teachers’ Retirement Benefits for Virtual Learning Instructors. State ex. rel. Nese v. State Teachers Retirement Bd. of Ohio.

On May 2, 2013, the Supreme Court issued a merit decision in State ex. rel. Nese v. State Teachers Retirement Bd. of Ohio, Slip Opinion No. 2013-Ohio-1777. The issue in the case was whether a group of instructors at a virtual learning academy were entitled to participate in the State Teachers’ Retirement System (STRS). By a vote of 4-3, in an opinion authored by Chief Justice O’Connor, the Court held they were not. Justice O’Donnell wrote the dissent. The case was argued January 9, 2013. Read the oral argument preview here, and the analysis of that argument here.

Some Definitions

An Education Service Center (ESC) provides services to charter schools and to school districts by contract and by statute.

A Virtual Learning Academy (VLA) is an internet-based educational delivery system designed for students from K-12. It is not a school. Think of it as a curricular option delivered in cyberspace. In today’s world, why not? If you are interested in knowing more about this aspect of the case, read ¶¶4-9 of the opinion.

Who Wanted to Participate in STRS?

John Nese, Donald Williams, and Catherine Miles. Nese and Williams were already traditional teachers in local school districts; Miles retired as a teacher in 2009.   All three were hired by Jefferson County to provide instruction to students in the VLA.   To avoid some confusion, the Court refers to them as “the instructors” and so shall we. The instructors did not have contracts with Jefferson County.  They just signed a form provided by the county, agreeing to take on VLA students.  The county receives a per student participation fee for each VLA student, a portion of which is passed through to the VLA instructor. VLA instructors submit a stipend form to the Jefferson County ESC to receive that pay.

The Source of Confusion as to the Status of the Instructors

The Jefferson County ESC originally considered its VLA instructors to be independent contractors, and not employees, and thus did not deduct retirement contributions from their pay.  Initially the instructors received 1099 forms.  But at some point, the ESC decided to treat its VLA instructors as employees, withheld contributions for retirement, and began issuing them W-2 forms instead of 1099’s.

Crunch Time With STRB

In November of 2008, the State Teachers Retirement Board (STRB) decided that the VLA instructors were independent contractors, and not employees.  It refunded all contributions made by the Jefferson County ESC on behalf of the VLA instructors.

Challenging the STRB Decision

How does one do this? By filing a writ of mandamus, which is what the instructors did.  They filed a writ in the Tenth District Court of Appeals to compel the Jefferson County ESC to make employer contributions for their VLA instruction, to compel STRS to accept employer and employee contributions based on their work for the VLA, and to include their VLA pay in calculating their final average salary for retirement purposes.

The case was assigned to a magistrate, who determined that STRB had abused its discretion in finding that the VLA instructors were independent contractors, and recommended that a writ of mandamus be issued. STRB filed objections to the magistrate’s conclusions of law.

In a split decision  the Tenth District Court of Appeals sustained STRB’s objections, and denied the writ. The instructors and the Jefferson County ESC appealed to the Supreme Court of Ohio.

Standard of Review in a Mandamus Action

To be entitled to the writ, the instructors must establish a clear legal right to be recognized as members of STRS for their VLA work, a clear legal duty on the part of STRS to accept their contributions, and the lack of an adequate remedy at law. They met all this.

But the standard of review of the STRB decision is abuse of discretion.  This is an example of a case where the standard of review is critical.  Ultimately, it sank the instructors in this case.  The question is whether there is some evidence to support STRB’s decision.  If so, the instructors lose.  And the majority decided that there was.

Employees or Independent Contractors?

An analysis of this issue is critical to the majority decision.  By law, public school teachers and their employers must make contributions to STRS. According to the majority, R.C. 3307.01(B)(1) and (5) require individuals to be employees in order  to be teachers. STRB determined that the instructors were independent contractors, not employees, and thus not teachers, and not entitled to participate.

The primary test in deciding if a person is an employee or independent contractor is the right to control the manner or means of performing their work.  This is syllabus law from Bobik v. Indus. Comm., 146 Ohio St. 187 (1946).  But the Court has held that the individual facts of a case drive the determination of who has the right to control the work.  Significant factors include who controls details and quality of the work, hours worked, materials and personnel, routes travelled, type of business, method of payment, and any pertinent contracts.

In this case the record showed the following. The instructors did not have employment contracts with Jefferson County ESC.  They received no fringe benefits, and no health insurance. They set their own work hours, and could create their own exams. They didn’t use the ESC facilities to perform their work. They could work from home. They were paid flat fees per student. They initially received 1099’s.

The instructors relied on a statement of duties adopted after STRB had decided they were independent contractors, and on a statement in the retirement-system manual that “if the teaching duties performed by an independent contractor are the same as those performed by teachers under employment contracts, then there is no difference for [retirement-system] purposes.” The majority found the former inappropriate because it was never presented to STRB.  And as for the latter, the majority found that the instructors had not submitted the requisite clear and convincing evidence to establish that their duties were the same as regular teachers.

Bottom Line

Chief Justice O’Connor emphasized that this case is not one involving de novo review, concluding that STRB’s decision was supported by some evidence, which was good enough to affirm its decision, and that the instructors had failed to prove by clear and convincing evidence that they were employees.  She noted in closing that the General Assembly is free to change the statutory definition of teacher to include VLA instructors and others who do cyber-teaching.

Justice O’Donnell’s Dissent

Justice O’Donnell wrote the dissent, which was joined by Justices Pfeifer and O’Neill. To him, the case turned on whether the instructors were teachers, not on whether they were employees or independent contractors.  He  accepted an argument that the instructors’ counsel really harped on in oral argument, which is that unlike other public employee retirement systems, which statutorily do make membership dependent on employment status, and specifically prohibit independent contractors from participating, membership in STRS depends on one’s status as a teacher, not as an employee. The statute says “employed in,” not “employed by” or “employed as”.  This is a different reading of the statute than that adopted by the majority.

O’Donnell clearly finds that the instructors met the statutory definition of teachers, and that is what is required for participation in STRS. They are employed in the capacity of teachers by a state-supported agency.  They are licensed by the state to teach and provide teaching services through the VLA. They relied on their status as teachers for retirement.

Finally, O’Donnell also criticized the court of appeals majority for adopting the magistrate’s factual findings, but then disregarding those findings when it concluded that STRB had not abused its discretion in concluding that the instructors were independent contractors. He found that the appeals court’s conclusions contradicted its findings.

Case Syllabus

None

Concluding Observations

I called this one pretty much dead on.  Here’s what I wrote after argument:

“Despite the finesse in each side’s issue framing, the case is still likely to turn on the precedent on employees versus independent contractors. The path of least resistance, given the narrowness of the review here, would be to agree with the Tenth District that STRB did not abuse its discretion by determining that the relators were independent contractors because there was some evidence to support the Board’s decision.”

Then I added that I thought Justice Pfeifer, and maybe Justices O’Neill and O’Donnell would go with the dissent in the appeals court.

This decision is also a victory for Justice French.  She had to recuse from the case because she authored the majority decision in the appeals court, which was affirmed in this case. While Justice O’Donnell was quite critical of the decision in his dissent, the majority pretty much bought all of it.

This problem could be fixed fairly easily by the General Assembly. Given the changing nature of teaching and learning in the age of the internet, it needs to be addressed.

 

 

 

 

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