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Sasha Volokh on Constitutional Issues in Public Pension Reform

Leonard Gilroy
September 25, 2013, 11:53am

Sasha Volokh has a new article on Reason.org discussing the re-emergence of the Contract Clause as an area of litigation amid the wave of legal challenges mounted by public employees and retirees against pension-reform laws. Here's the intro:

Faced with public pension crises, many states have recently enacted pension-reform laws—increasing the rates at which their employees must contribute to their pension funds, reducing or eliminating cost-of-living adjustments, increasing the retirement age, or even converting to an entirely different type of pension system. Public employees and retirees have aggressively challenged these reforms, arguing that the makeup of their pension plans was part of the employment contracts they agreed to years ago. One of their main weapons is a relatively forgotten part of the constitution: the Contract Clause.

The text is simple: “No State shall . . . pass any . . . Law impairing the Obligation of Contracts.” The Contract Clause is one of the few restrictions against states to be contained in the original constitution, rather than in the Bill of Rights or the post-Civil War amendments, and is also one of the few economic-rights provisions. In the early Republic, courts used this clause aggressively to protect the obligation of private and public contracts alike: states were restricted in how much they could relieve debtors of the obligation to pay their creditors, just as they were restricted in repudiating their own bonds or reneging on their promises of tax exemption. James Ely writes that the Contract Clause was “the most litigated provision in the Constitution and was the chief restriction on state authority.”

This changed gradually throughout the late 19th and early 20th centuries, as the Supreme Court increasingly deferred to state economic regulation, especially during “emergencies.” The protection of public contracts was the quickest to go, but private contracts lost protection as well. Since the New Deal, the Contract Clause, much like other economic rights, has been afforded a relatively low level of protection.

But examining the current crop of cases by public employees and retirees challenging pension-reform laws—there are at least a dozen such cases just in 2013 so far—shows that the Contract Clause (as well as similar state constitutional Contract Clauses) nonetheless remains a vibrant area of litigation.

Read the full article here. And for more, all of Volokh's recent legal analyses written for Reason Foundation on an array of privatization-related topics are archived here.


Leonard Gilroy is Director of Government Reform


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