Court cuts $42.4 million state back pay award

The Indiana Court of Appeals today significantly slashed a $42.4 million damages award against the state, cutting the period from which employees can recover back pay from 20 years to about two months.

In its ruling in Richmond State Hospital, et al. v. Paula Brattain, et. al., No. 49A02-0908-CV-718, a three-judge appellate panel found that thousands of past and present state workers can still recover money they should have earned on the job. But the judges reversed one part of a Marion Superior judge’s decision from last year that some of those employees could recover back pay for a period from 1973 to 1993.

Instead, the appellate court held that certain employees shouldn’t be able to recover for that two-decade period but instead only for a time limited to 10 days before the class-action suit was filed July 29, 1993, to when the state courts abolished the split class system in September 1993.

While attorneys are studying the 54-page decision, initial estimates gleaned from the ruling are that it reduces the damages for merit-based employees from $23.5 million to an estimated couple million dollars. The remaining $18.6 million awarded to non-merit employees would not be affected by this change and the appellate court affirmed that aspect.

This appeal by the Indiana Attorney General’s Office follows a July 2009 decision by Marion Superior Judge John Hanley, which awarded a total of $42.4 million to as many as 15,000 or more past and present state workers who’d fought to recover back pay for unequal wages earned during those two decades. The trial judge found that by requiring plaintiffs and others to work 40 hours a week in “split classes” during those years, the state violated the “equal pay for comparable work” regulation and breached its employment contracts.

In total, the judge’s analysis of the four classes translated to: $20.9 million for overtime-eligible merit employees, $2.7 million for overtime-exempt merit employees, $16.7 million for overtime-eligible non-merit employees, and $1.9 million for overtime-exempt non-merit workers.

On the merit employee aspect, the state AG’s Office had argued for the limited liability period rather than 20 years based on an Indiana Supreme Court decision made almost a decade ago: State Employees’ Appeals Commission .v Bishop, 741 N.E. 2d 1229 (Ind. 2001), (Bishop II), which was a consolidation of Indiana State Employees’ Appeals Commission v. Greene, 716 N.E. 2d 54, 57-58 (Ind. Ct. App. 1999), and Indiana State Employees’ Appeals Commission v. Bishop (Bishop I), 721 N.E. 2d 881, 884-85 (Ind. Ct. App. 1999). In those cases, the Court of Appeals found employees were entitled to back pay for only a limited period starting 10 days before the respective complaints were filed. The Supreme Court upheld that finding.

Reaching its conclusion, the panel noted that Indiana Code Section 4-15-2-35 and former 31 Indiana Administrative Code 2-13-1 apply only to merit employees and that Greene, Bishop I, and Bishop II are dispositive.

“However, we recognize that the effect creates an apparent anomaly. Indiana Code Section 4-15-2-35 and former Indiana Administrative Code 2-13-1 do not apply to non-merit employees and cannot be considered part of their contractual relationship with the State, so their back pay is not limited by the ten-day rule,” the court wrote. “Nevertheless, we are constrained to follow our supreme court’s pronouncement in Bishop II. The enterprise of creating law is outside our sphere of authority. Although our supreme court has the ability to revisit the issue and redefine the law, until that time, we are obliged to apply it as it currently exists.”

This panel – made up of authoring Judge Terry Crone with Chief Judge John Baker and Judge Michael Barnes concurring – instructs the Marion Superior Court to recalculate the merit-employees’ award based on the limited time period in 1993. Exactly when that ending period date should be is something the trial court will also have to examine because the Greene, Bishop I, and Bishop II rulings aren’t clear on whether the split class system was abolished on Sept. 19, 1993, or Sept. 12, 1993.

In addition to the liability period and damages aspects, the Court of Appeals found that statutory requirements for class certification were met; the trial judge didn’t err in finding that merit employees were excused from exhausting administrative remedies because to do so would have been futile; the trial court correctly determined which class the employees belonged in; there weren't any errors in admitting certain evidence; and that the state failed to establish all the elements of laches to bar the employees’ claims.

The state AG’s office was reviewing the ruling and not able to comment by early afternoon, while Indianapolis attorney John Kautzman for the plaintiffs said this is a mixed ruling that can be seen both as a victory and a defeat for the state employees.

“We’re seeing it as a resounding success that the court affirmed the state’s liability and that we got a victory on the non-merit employees, but that’s tempered by the merit employees’ (damages) being substantially reduced.”

Kautzman and his legal team are reviewing what comes next, but he said one step may be to ask the Court of Appeals for a rehearing to offer a clarification on its methodology in order to determine when the state actually received notice of the issue – 1988 or the time the suit was filed in 1993.

“We believe that there’s evidence showing the state was put on notice prior to that date, and so that’s when it should start,” he said. “Even if we’re using this Greene and Bishop methodology and the 10 days applies, we would extend the period from 1988 to 1993 and put a good amount of the money back on the table.”