Pensions

The Supreme Court's Refusal to Reinvigorate the Contract Clause

The Court has said almost nothing interesting about the Contract Clause this millennium, and in 2018 it continued to apply the Clause loosely.

|The Volokh Conspiracy |

Last week I posted about two recent California Supreme Court decisions surprisingly upholding public-employee pension reform. To go with that post, I have another post elsewhere on the Reason site, about the Supreme Court's 2018 Contract Clause decision in Sveen v. Melin. Here's a snippet:

Today, the conservative Supreme Court majority seems even more entrenched than it previously had been. True, no Democratic appointee has been replaced by a Republican appointee in the past 29 years (in fact, the opposite has happened), but moderate Republican appointees have been replaced by arguably less moderate ones: Chief Justice John Roberts, and Justices Samuel Alito, Neil Gorsuch, and Brett Kavanaugh, as a whole, are probably more conservative than Justices William Rehnquist, Sandra Day O'Connor, Antonin Scalia, and Anthony Kennedy (though concepts like "conservative" are admittedly slippery when it comes to various aspects of judicial philosophy).

But, if we wanted to read the tea leaves as to whether a new revival of the Contract Clause was in the works, so far we wouldn't find any indication of a substantial change. After decades of silence, the Supreme Court finally decided a Contract Clause case in 2018—Sveen v. Melin. And, by an 8–1 vote, the court rebuffed the Contract Clause claim. Sveen has nothing to do with public-employee pensions and isn't even a case about state governments trying to abrogate their own contracts, but in the absence of better tea leaves, it's the best clue we have to the current Supreme Court's thinking about the Contract Clause.

. . .

What, if anything, does this tell us about public-employee pensions?

One might be tempted to discount the significance of this case because it involves entirely private contracts—the contract between the policyholder and his insurance company—and we know that the Supreme Court is more deferential (and thus far more likely to uphold the statute) when private contracts are at issue. But note that the question of deference doesn't come in until the back end of the inquiry when the court asks whether the substantial impairment was reasonably necessary to advance the state's legitimate purpose. Here, they didn't even get to that step: the court dismissed the claim at step 1, the existence of a substantial impairment, where deference shouldn't matter.

So if a state seeks to alter public-employee pensions, there seems to be substantial leeway for the Supreme Court to say that the alteration is valid because the impairment isn't substantial. (That governs the federal Contract Clause; as noted above, state courts applying their own state constitutional contract clauses are free to take stricter views. California has long applied its own contract clause, under the "California Rule," in an exceptionally strict way—but even California case law has its escape valves, which, as we saw in a recent post, recent California cases have shown a willingness to exploit.)

There may be some irony here: a strict interpretation of the Contract Clause, whether or not according to its original meaning (as Justice Gorsuch would have it), is often labeled a "conservative" outcome. But as I've noted above, these sorts of labels are slippery when it comes to jurisprudence. Who would benefit the most from this "conservative" reading? Public-employee unions, whose position in the pension cases is often labeled a "liberal" position.

It just goes to show that interpretive techniques, if applied fairly, can often help litigants on either side. Just earlier this year, in Bostock v. Clayton County, Justice Gorsuch himself showed how an apparently "conservative" methodology of interpreting Title VII of the Civil Rights Act of 1964—according to the original meaning (in 1964) of the phrase "discriminat[ion] . . . because of  . . . sex"—leads to the apparently "liberal" result of protecting gay and transgender employees. Ironic or not, the "liberal" current understanding of the Contract Clause is likely to help modern-day "fiscally conservative" pension reformers.

Read The Whole Thing.

You can find my other Reason.org articles on antitrustprivatization, and public-employee pensions here.