Ongoing Retiree Benefit Obligation May Continue Even After MOU Expires
In 2011, in its decision in Retired Employees Association of Orange County, etc. v. County of Orange, 52 Cal.4th 1171, the California Supreme Court held that under California law a “vested right to health benefits for retired County employees can be implied under certain circumstances from a County Ordinance or Resolution.” On November 2, 2012, the California Court of Appeal issued its decision in IBEW Local 1245 v. City of Redding, Case No. C067709. This is the first published case of which we are aware which applied the Retired Employees standard.
In City of Redding, employees sued claiming that the City had unilaterally retracted its prior promise to pay fifty percent of City employees’ medical insurance premiums after they retired. The Union based its claim on a variety of facts, but primarily on language in the MOU between the City and Union. In its decision, the Court of Appeal reinstated the lawsuit, finding that the trial court was mistaken by dismissing it. The Union had claimed that beginning in 1979 in a series of contracts the City had promised its employees that the City would pay “fifty percent of the group medical insurance premium for retirees and their dependents.” The lawsuit alleged that in March 2010, the City unilaterally cut that benefit substituting a formula which provided a much smaller subsidy. The Court’s analysis focused on the MOU which provided that the City would pay fifty percent of the “group medical insurance program premium for each retiree and dependents, . . . presently enrolled . . . and for each retiree in the future . . . .” The Court noted that the MOU was adopted by the City Council by Ordinance each time the contract was bargained.
One of the significant aspects of the case is that the Court of Appeal rejected the City’s claim that these benefits could not be “vested” in the legal sense, because they were subject to bargaining and renegotiation each time the contract was renewed. By rejecting this claim, the Court of Appeal left for trial whether that was the mutual intent of the parties, but also noted that the language in the agreement may have already created “a contractual obligation that survived the expiration of the MOUs.”
Author: Vin Harrington
