| The long and famous legal battle between Orange County and the Retired Employees Association of Orange Country (“REAOC”) concerning the vesting of retiree health benefits took a decisive turn favoring Orange County and other public employers last week, when the Ninth Circuit issued its long-awaited decision in Retired Employees Ass’n of Orange County v. County of Orange (9th Cir. 2014) — F.3d –, Case No. 12-56706 (“REAOC VI“). In the underlying case, retirees sued the County over its decision to discontinue a longstanding arrangement whereby the costs of retiree health benefits were “pooled” with those of active employees.The Ninth Circuit’s decision marks the fourth time a court (including the California Supreme Court ) has decided certain aspects of the case. Closing what is probably the final chapter of this epic saga, the Ninth Circuit, siding with the County, held that the retirees had not proven that they had an implied vested right to the pooling arrangement previously utilized by the County. The Ninth Circuit therefore affirmed the lower district court’s decision granting the County’s motion for summary judgment, thereby preventing the case from going to trial.Based on the previous decisions of the federal district court and the California Supreme Court in this case, commentators believed that the retirees would have a tough time prevailing on their claims. This was primarily for two reasons – one legal and one factual.
First, in the progression of cases, the courts clarified what had been a very murky area of law – the question of when, how and whether retiree health benefits are “vested” (i.e., guaranteed and immutable) for retirees’ lifetimes. The California Supreme Court ended up articulating a general and imperfect standard for judging cases involving such issues. On the one hand – and to the consternation of employers – the California Supreme Court held that under some circumstances, the vesting of health benefits did not need to be codified in a written contract, resolution or ordinance, but instead could be” implied under certain circumstances from a county ordinance or resolution.” Retired Employees Ass’n of Orange County v. County of Orange, 52 Cal. 4th 1171, 1194 (“REAOC III“), On the other hand, the California Supreme Court held that in the absence of a written contractual guarantee, plaintiffs bear a heavy burden to prove vesting: they must show that “the statutory language or circumstances accompanying its passage clearly . . . evince a legislative intent to create private rights of a contractual nature enforceable against the [governmental body].” REAOC III, 52 Cal. 4th at 1187. This somewhat vague language, too, was troublesome for employers. However, the court cautioned that “implied rights to vested benefits should not be inferred without a clear basis in the contract or convincing extrinsic evidence.” Id. at 1191. Moreover, the evidence must be “unmistakable” so “that neither the governing body nor the public will be blindsided by unexpected obligations.” Id. at 1189. Second: vesting cases usually boil down to the question of whether there’s sufficient evidence that the employer committed to providing the benefits or advantages in perpetuity. The retirees in REAOC adequately alleged that they had a contractual guarantee of health benefits for life. Their evidence on vesting of the poolingarrangement, however, was far less clear. They argued that pooling was a central feature of the benefits for life program and that there was a bargained for exchange for lifetime benefits. In its recent decision, the Ninth Circuit rejected these arguments as insufficient. The retirees also alleged that statements by County officials established an implied contract right and that continuous annual adoption of resolutions over many years of the same pooling arrangement showed an implied commitment to continue pooling into perpetuity. The Ninth Circuit held that this was not credible (much less “unmistakeable” evidence) evidence of an implied contract continuing vesting. Thus, the court affirmed the district court’s summary judgment decision, disposing of this case.
IMPORT Except in the unlikely event that either the Ninth Circuit conducts en banc (full court) review of REAOC VI or the United States Supreme Court grants hearing and reverses, the decision of the Ninth Circuit will prove to be the final chapter in this longstanding saga. While the resolution of REAOC is welcome by public employers, it leaves open the door for claims of vested retiree benefits where employers have not been careful to confine those benefits by way clear of annual resolutions.
FINAL NOTE The Public Employment Relations Board (“PERB”) has created very liberal rules relating to the negotiability of retiree health benefits. PERB has held that retiree health benefits are generally negotiable. See County of Sacramento (2009) PERB Decision No. 2045-M. Despite REAOC‘s good news, employers proceed at the peril in making unilateral changes in retiree health benefits, even when the evidence is clear that they are not vested.
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For more information, contact: Jeffrey Sloan, Partnerjsloan@publiclawgroup.com415.678.3806415.678.3806
Steve Cikes, Associate Attorney 415.678.381415.678.3817
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