Can Texas change how state employees are paid for unused vacation accrued years earlier?

Plain-English summary

Texas used to pay departing state employees for unused vacation by multiplying their pay rate on the day they left by the hours of vacation they had banked. In 1997 the Legislature changed the formula in Government Code section 661.063: for an employee who leaves while holding a job that does not accrue vacation, payment is now based on the final pay rate in the last position that did accrue vacation. The Texas A&M University System pointed out that this hurts people who transferred, before September 1, 1997, from a vacation-accruing job to a non-accruing one and got raises along the way; they will be paid less for their old banked vacation than if they had quit before the change. A&M asked whether the amendment wiped out a vested right and violated the Texas Constitution, leaning on a 1972 opinion (M-1075) that called vacation entitlement a vested right.

The Attorney General concluded it did not. Even granting that a worker has a vested right to be compensated for accrued vacation, that right is a right to be paid for the time, not a right to any particular rate or formula. The opinion treated the older M-1075 opinion as of doubtful merit but declined to formally overrule it, because the answer came out the same either way. The controlling principle, drawn from a line of Depression-era and later pension cases, is that benefits the Legislature creates are subordinate to the Legislature's power to change them; a person has only an expectancy based on the continued existence of current law, not a vested right in the law staying put. The Texas Supreme Court said as much in City of Dallas v. Trammell (pension reductions), the U.S. Supreme Court said it in Dodge v. Board of Education and National Railroad Passenger Corp. v. Atchison (laws set policy, they are not contracts unless clearly meant to be), and Texas courts reaffirmed it in Cook, Lack, and Reames.

Applying that, the opinion held that while the 1997 amendment did materially reduce the cash value some A&M employees would have realized had they separated by August 31, 1997, those employees had no vested right to that value or to the old computation method. They had a mere expectancy, and the Legislature had every right to change the formula. The opinion did not construe any particular A&M employment contract, since contract disputes turn on facts the opinion process cannot resolve, and it did not reach A&M's second question because, like the first, it assumed a vested right that the opinion found did not exist.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Texas A&M University System and state employers (what the opinion held for them): The opinion held that the 1997 amendment to section 661.063 abrogated no vested right and did not violate the impairment-of-contracts clauses, so applying the new formula to employees who transferred before the change created no constitutional injury. It declined to construe any specific A&M employment contract.

Affected state employees (what the opinion held for them): The opinion held that employees who transferred from vacation-accruing to non-accruing positions before September 1, 1997, had only an expectancy, not a vested right, in the old higher-value formula, so the reduced payout under the new method took nothing they were constitutionally entitled to.

The 1972 opinion M-1075 (what the opinion held about it): The opinion held M-1075's broad statement that vacation entitlement is a vested right to be of doubtful merit but declined to overrule it, because even assuming a vested right to be paid for accrued time, no vested right attaches to the rate or formula of payment.

Common questions

Can Texas reduce what a state worker gets paid for vacation banked years ago?
Under this opinion, yes. The Attorney General concluded employees have no vested right to the particular formula used to value accrued vacation, so the Legislature could change it even though the change lowered some workers' payouts.

Doesn't a 1972 AG opinion say vacation is a vested right?
It does, and the requester relied on it. This opinion treated that 1972 opinion (M-1075) as doubtful but did not overrule it, reasoning that even a vested right to be paid for accrued time does not include a right to a fixed rate or computation method.

Why isn't changing the formula an unconstitutional impairment of contract?
Because a statute setting benefits is generally treated as a policy, not a contract. The opinion relied on cases holding that benefits the Legislature creates remain subject to its power to change them, so an employee has only an expectancy, not a protected contractual right, in the old law.

Did the opinion decide any individual A&M employee's contract claim?
No. The opinion said it does not construe particular employment contracts in the opinion process because those turn on disputed facts; it addressed only the general legal question about vested rights.

Background and statutory framework

Before the 75th Legislature's amendment, section 661.063 paid all state employees for accrued vacation by multiplying their rate of compensation on the date of separation by the hours accrued. As amended, section 661.063(b) provides that for an employee who separates while holding a position that does not accrue vacation time, payment is computed using the final rate of compensation in the last position held that accrues vacation time, multiplied by the hours determined under section 661.064. The amendment took effect September 1, 1997.

The constitutional backdrop is article I, section 10 of the United States Constitution and article I, section 16 of the Texas Constitution, which forbid laws impairing the obligation of contracts. The opinion explained that courts presume a statute fixing salaries, tenure, or benefits does not create private contractual or vested rights, but merely declares a policy that the Legislature may change. It drew that presumption from Dodge v. Board of Education of the City of Chicago and applied the Texas Supreme Court's parallel holding in City of Dallas v. Trammell, where a retired officer could not block a Depression-era pension reduction because his right to continued payments was subordinate to the Legislature's power to diminish accrued benefits. The opinion quoted the Illinois Supreme Court's Dodge decision (a right must be more than an expectancy based on the continuance of existing law) and Justice Marshall's statement in National Railroad Passenger Corp. v. Atchison, Topeka and Santa Fe Railway Co. that policies, unlike contracts, are inherently subject to revision. It cited Cook v. Employees Retirement System of Texas, Lack v. Lack, and Reames v. Police Officers' Pension Board of the City of Houston as Texas reaffirmations of that rule, and noted its own prior opinions M-1075 (1972) and H-126 (1973).

Citations

Statutory and constitutional provisions:

• Tex. Gov't Code Ann. §§ 661.063(b), 661.064 (Vernon Supp. 2000)
• Tex. Const. art. I, § 16
• U.S. Const. art. I, § 10

Cases:

• City of Dallas v. Trammell, 101 S.W.2d 1009 (Tex. 1937)
• Dodge v. Board of Educ. of the City of Chicago, 302 U.S. 74 (1937)
• Dodge v. Board of Education, 5 N.E.2d 84 (Ill. 1936)
• National Railroad Passenger Corporation v. Atchison, Topeka and Santa Fe Railway Company, 470 U.S. 451 (1985)
• Cook v. Employees Retirement Sys. of Texas, 514 S.W.2d 329 (Tex. Civ. App.—Texarkana 1974, writ ref'd n.r.e.)
• Lack v. Lack, 584 S.W.2d 896 (Tex. Civ. App.—Dallas 1979, writ ref'd n.r.e.)
• Reames v. Police Officers' Pension Board of the City of Houston, 928 S.W.2d 628 (Tex. App.—Houston [14th Dist.] 1996, no writ)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0302
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2000/jc0302.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

November 2, 2000

Mr. Donald E. Powell
Chair, Board of Regents
The Texas A&M University System
P.O. Box C-1
College Station, Texas 77840-9021

Opinion No. JC-0302

Re: Validity of section 661.063, Government Code, with regard to payment for vacation balances accrued prior to September 1, 1997 (RQ-0246-JC)

Dear Mr. Powell:

The Texas A&M University System ("A&M") has asked this office whether section 661.063 of the Government Code might abrogate the vested vacation rights of certain A&M employees which accrued prior to September 1, 1997, and therefore violate article 1, section 16 of the Texas Constitution. Assuming arguendo that vacation entitlement is "a vested right of the employee that cannot be destroyed or impaired by his resignation, dismissal or separation from State employment," Tex. Att'y Gen. Op. No. M-1075 (1972) at 2, we conclude that the right which has vested is a right to be compensated for the time accrued, not a right to be so compensated at a particular rate or according to a particular formula. To hold otherwise, in our view, would violate "the established rule that all pension funds, financial assistance funds, annuities and such other benefits created by the Texas Legislature for the benefit of employees and other personnel of this State and the political subdivisions thereof as designated by statute or otherwise by law shall be subordinate to the right of the Legislature to abolish the system, diminish the accrued benefits, increase the benefits, change the eligibility for benefits or to otherwise alter or modify the method of payments of the benefits of any or all such funds." Cook v. Employees Retirement Sys. of Texas, 514 S.W.2d 329, 331 (Tex. Civ. App.—Texarkana 1974, writ ref'd n.r.e.). Accordingly, the change in the method of computing payment for vacation balances for certain state employees which became effective, pursuant to section 661.063 of the Government Code, on September 1, 1997, does not impair any vested right of an employee who leaves state service after that date.

As you explain the situation that gives rise to your question, prior to the amendment of section 661.063 by the 75th Legislature, all state employees were compensated for accrued vacation time "by multiplying the employee's rate of compensation on the date of separation from employment by the total number of hours accrued."[1] However, as amended, section 661.063(b) reads in relevant part, "The payment under this subchapter to a state employee who separates from state employment while holding a position that does not accrue vacation time shall be computed according to this subsection. The employee's final rate of compensation in the last position held that accrues vacation time shall be multiplied by the employee's total number of hours of vacation time determined under Section 661.064." TEX. GOV'T CODE ANN. § 661.063(b) (Vernon Supp. 2000).

You point out that this change in the method of calculating the value of accrued vacation may significantly diminish that value for persons who transferred from positions which accrued vacation to those which did not at some time before September 1, 1997, and who had received one or more raises in pay in the interim. Request Letter, supra note 1, at 2-3. "[I]f they had separated from state employment prior to September 1, 1997 they would have received a greater amount for payment of their accumulated vacation than they will when they ultimately leave state employment." Id. at 3. You note that an opinion issued by this office in 1972, Attorney General Opinion M-1075, averred that "vacation entitlement is . . . a vested right of the employee that cannot be destroyed or impaired by his resignation, dismissal or separation from State employment. It is a right that becomes vested in him as it is earned and a State employee should be compensated for all vacation time duly accrued." Tex. Att'y Gen. Op. No. M-1075 (1972) at 2. In light of Opinion M-1075, you ask whether, in the context of this particular class of employees, the amended version of section 661.063 abrogates their vested rights. Request Letter, supra note 1, at 2-3.

As a preliminary matter, we note that, because contract questions usually involve disputed issues of fact of the sort this office cannot determine in the opinion process, this office does not construe such contracts in that process. Accordingly, we are not here making any conclusion about the particular contractual relation between A&M and any of its employees. We are concerned purely with the legal question of whether section 661.063 may violate the vested rights of the class of employees under consideration. We conclude that it does not.

Attorney General Opinion M-1075, on the basis of which your question is premised, is in our view of doubtful merit. It makes the rather broad assertion quoted above on the basis that the 1969 Appropriations Act described vacation entitlement as "accrued," and that "Webster's Third New International Dictionary defines the word accrue as follows: 'To come into existence as an enforceable claim; vest as a right.'" Tex. Att'y Gen. Op. No. M-1075 (1972) at 2. We are loath to overrule an opinion which does not appear to have been seriously questioned in the intervening twenty-eight years, but see Tex. Att'y Gen. Op. No. H-126 (1973), and accordingly we do not do so. But assuming arguendo that a right to be compensated for accrued vacation time is a vested right, it does not follow that an employee has a vested right to be compensated at a certain rate or according to a certain formula.

As Attorney General Opinion M-1075 itself notes, "These accumulations of rights are limited by statute." Tex. Att'y Gen. Op. No. M-1075 at 2. The Supreme Court of the United States noted in a related context in Dodge v. Board of Education, "[A]n act merely fixing salaries of officers creates no contract in their favor, and the compensation named may be altered at the will of the Legislature. This is true also of an act fixing the term or tenure of a public officer or an employee of a state agency. The presumption is that such a law is not intended to create private contractual or vested rights, but merely declares a policy to be pursued until the Legislature shall ordain otherwise." Dodge v. Board of Educ. of the City of Chicago, 302 U.S. 74, 78-79 (1937).

The presumption of which the Supreme Court speaks is a necessary one because of the impairment of contracts clauses of both the United States and Texas Constitutions. Article I, section 10 of the United States Constitution provides that "No State shall . . . pass any . . . Law impairing the Obligation of Contracts . . . ." Similarly, article I, section 16 of the Texas Constitution provides that "No bill of attainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts, shall be made." If therefore any act of the Texas Legislature were construed to create a contractual obligation or grant a vested right, such act might be beyond the power of a later legislature to alter, amend, or abolish. The Supreme Court of Texas analyzed this difficulty in the same year in which the U.S. Supreme Court considered the Dodge case, and in relation to the same issue, the reduction of government pensions necessitated by the Great Depression. In City of Dallas v. Trammell, 101 S.W.2d 1009 (Tex. 1937), a retired policeman sued the City of Dallas, arguing that by reducing his pension pursuant to a statute enacted by the 44th Legislature, the City had deprived him of a vested right.

As the court framed the question presented, "[I]s the Legislature without constitutional power to repeal the laws upon which the pension system of the City of Dallas is based, or to modify their provisions in such way as to diminish the pensions payable to those who have become qualified to receive them so long as any one who has been granted a pension shall live?" Trammell, 101 S.W.2d at 1011. The court answered this question in the negative: "In our opinion, the rule that the right of a pensioner to receive monthly payments from the pension fund after retirement from service, or after his right to participate in the fund has accrued, is predicated upon the anticipated continuance of existing laws, and is subordinate to the right of the Legislature to abolish the pension system, or diminish the accrued benefits of pensioners thereunder, is undoubtedly the sound rule to be adopted." Id. at 1013. In so holding the Trammell court quoted with approval the following language from the Supreme Court of Illinois' decision in the Dodge case: "A right, to be within the protection of the Constitution, must be a vested right. It must be something more than a mere expectancy based upon an anticipated continuance of an existing law. If before rights become vested in particular individuals the convenience of the State induces amendment or repeal, such individuals have no cause to complain." Id. at 1014 (quoting Dodge v. Board of Education, 5 N.E.2d 84, 86 (Ill. 1936)) (emphasis added).

The principle underlying these decisions was clearly enunciated by Justice Marshall in National Railroad Passenger Corporation v. Atchison, Topeka and Santa Fe Railway Company, 470 U.S. 451 (1985): "[T]he principal function of a legislature is not to make contracts, but to make laws that establish the policy of the state. Policies, unlike contracts, are inherently subject to revision and repeal, and to construe laws as contracts when the obligation is not clearly and unequivocally expressed would be to limit drastically the essential powers of a legislative body." Id. at 466.

That principle, and the Trammell case itself, have been repeatedly reaffirmed by Texas courts in a variety of contexts. In Cook v. Employees Retirement System of Texas, the Texarkana appellate court denied a claim by the widow of a deceased fireman that her children were entitled to continue to receive certain benefits until they were twenty-one years of age, despite the fact that the legislature had lowered the age of majority to eighteen. "Appellant's position is that Article I, Sec. 16 of the Texas Constitution, Vernon's Ann. St., and Article 1, Sec. 10 of the United States Constitution forbid[] any retroactive laws from being passed which would impair the obligation under any contract. Appellant states that the rights of the children were vested before the 'eighteen year old law' . . . became effective on August 27, 1973." Cook, 514 S.W.2d at 330. The court rejected this contention, reaffirming "the established rule that all . . . benefits created by the Texas Legislature for the benefit of employees and other personnel of this State . . . shall be subordinate to the right of the Legislature to abolish the system, diminish the accrued benefits, increase the benefits, change the eligibility for benefits or to otherwise alter or modify the method of payment of the benefits of any or all such funds." Id. at 331.

Similarly in Lack v. Lack, 584 S.W.2d 896, 899 (Tex. Civ. App.—Dallas 1979, writ ref'd n.r.e.), it was held that the inchoate contingent interest of a pensioner's ex-wife in his death benefits could be divested by the Legislature; and in Reames v. Police Officers' Pension Board of the City of Houston, 928 S.W.2d 628 (Tex. App.—Houston [14th Dist.] 1996, no writ), the court held that it was not an impairment of a vested right for a retired policeman who had been effectively re-employed by the City of Houston when it restructured the airport police for whom he had been working to be divested of his pension: "[A] pensioner in a statutory pension plan does not have a vested right to his pension. He merely has an expectancy based upon anticipated continuance of existing law. 'The Legislature which created it can recall its bounty at its discretion.'" Reames, 928 S.W.2d at 632 (quoting Trammell, 101 S.W.2d at 1014).

Based on the principle and the precedents we have set forth, it is our view that, while the cash value which might have been realized by certain A&M employees had they separated from state service on or before August 31, 1997, was materially diminished by the amendment of section 661.063 of the Government Code effective September 1, 1997, those employees had no vested right to that cash value, or to the method of computing payment for accrued vacation leave by which it was arrived at. They had a mere expectancy based upon the anticipated continuation of the old computation formula. The Legislature had every right to change that formula, and by the amendment of section 661.063 it exercised that right. Accordingly, the A&M employees in question have suffered no constitutional injury by the amendment of section 661.063.

As your second question, like your first, presupposes a vested right to the former method of computation, we do not consider it.

SUMMARY

State employees have no vested right in the method of calculating compensation for vacation benefits that pre-dated the amendment of section 661.063 of the Government Code by the 75th Legislature. Accordingly, such amendment abrogates no vested rights, and does not violate article I, section 10 of the United States Constitution or article I, section 16 of the Texas Constitution.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

James E. Tourtelott
Assistant Attorney General - Opinion Committee

[1] Letter from Mr. Howard D. Graves, Chancellor, The Texas A&M University System, to Honorable John Cornyn, Attorney General of Texas at 2 (June 14, 2000) (on file with Opinion Committee) [hereinafter Request Letter].