COURT OF APPEAL FINDS NO “VESTED” RIGHT TO RETIREE HEALTH BENEFITS PROVIDED FOR IN FIXED LABOR AGREEMENT

BACKGROUND
In 2008, the City of Vallejo declared bankruptcy. In the midst of the bankruptcy proceedings, the City and the Vallejo Police Officers Association (VPOA) entered into an agreement for the period of 2009 to 2012 (the “2009 Agreement”) that modified the parties’ existing labor contract. Among other things, the 2009 Agreement provided that VPOA retirees would receive the same direct contribution as active employees and capped the City’s direct contribution toward active employees’ medical benefits at 100% of the Kaiser North rate.When the 2009 Agreement was set to expire, the City initiated negotiations with VPOA over a successor labor contract. The parties eventually reached impasse in negotiations – the main sticking point being VPOA’s insistence that any agreement expressly recognize a vested (i.e., irrevocable) right to a direct retiree medical benefit contribution equal to 100% of the Kaiser North rate.

After participating in state-mandated advisory factfinding, the City unilaterally implemented its final offer on retiree medical contributions, reducing its direct medical contribution to $300 per month for active VPOA members and retirees. Thereafter, VPOA filed a petition for writ of mandate with the Solano County Superior Court, claiming that the City engaged in bad faith bargaining in violation of the Meyers-Milias-Brown Act (MMBA) and unlawfully impaired its members’ vested right to receive retiree health benefits at the full Kaiser North rate. The superior court denied VPOA’s petition and entered a judgment in the City’s favor. VPOA appealed.

COURT OF APPEAL’S DECISION
A unanimous panel of the First Appellate District affirmed the superior court’s decision.
Initially, the First District addressed VPOA’s vested right claim. Applying the standards articulated in REAOC, the court recognized that obligations provided for in labor agreements ordinarily cease with the agreement’s expiration and a party asserting that contract rights survive the agreement’s expiration “must overcome the presumption” that the agreement does not create such rights. Turning to the agreement at issue, the court found that the “language of the 2009 Agreement does not explicitly confer a vested right to retiree medical benefits in the amount of the Kaiser rate, nor does it provide a clear basis for implying such vested right.”

The court also found that VPOA failed to present “convincing extrinsic evidence” of a vested right. During the superior court proceedings, VPOA submitted declarations on behalf of individuals who signed the 2009 Agreement as evidence of the parties’ intent to provide a vested right to fully-paid retiree health benefits. The court, however, held these declarations were irrelevant since under REAOC, only “the City’s intent determines the rights, express or implied, created by the 2009 Agreement” and, therefore, “[t]he subjective understanding of individuals, as well as understandings communicated outside the approval process, are not admissible as evidence of the City’s intent.”

Additionally, the court noted that during the negotiations preceding the 2009 Agreement, VPOA submitted a proposal that “could be read to provide a vested right to the full Kaiser premium.” The court found the City’s rejection of that proposal contradicted VPOA’s claim that in entering into the 2009 Agreement, the City intended to provide a vested right to a retiree medical benefit at the full Kaiser rate.

With regard to VPOA’s MMBA claim, the court found that substantial evidence supported the superior court’s finding that the City did not engage in surface bargaining, noting that “[t]he City stood firm on its position that it would contribute only $300 per month toward retiree medical premiums, but that does not in itself constitute surface bargaining.” Similarly, the court rejected VPOA’s claim that the City prematurely declared impasse, explaining that “[t]he extended period of negotiation, the parties’ exchanges of proposals and the two-month period between the last exchange of proposals and the declaration of impasse constitute substantial evidence that the City did not rush to impasse, but rather declared impasse in response to deadlock.”

IMPACT
Future retirement benefits for active employees – as opposed to employees who have already retired – generally constitute mandatory subjects of bargaining under the MMBA and similar labor relations statutes. As a result, many collective bargaining agreements contain provisions addressing future retirement benefits for active employees. While currently unpublished, the First District’s Vallejo decision is important because it recognizes that the presumption against vesting recognized in REAOC applies to MOUs and other labor agreements that are fixed in time and subject to specific durational limits. Under REAOC (and now Vallejo), the fact that a retirement benefit is provided in a MOU is not sufficient to establish vesting – there still must be clear legislative intent to grant the specific benefit beyond the term of the agreement.

A copy of the Vallejo decision is available here:
http://www.courts.ca.gov/opinions/nonpub/A144987.PDF