Monday, November 5, 2012
Court Revives Challenge to City’s Cut in Health Benefits
By a MetNews Staff Writer
A city is bound by a promise to pay a specified portion of retiree health benefits, where made in a memorandum of understanding negotiated with an employee union and ratified by the city council, the Third District Court of Appeal ruled Friday.
The justices reversed a Shasta Superior Court judge’s dismissal of a writ petition brought by the International Brotherhood of Electrical Workers, Local 1245. The panel, in an opinion by Justice George Nicholson, said a recent California Supreme Court ruling makes it clear that such promises create vested rights.
The IBEW filed its petition after the Redding City Council tried to cut the city’s contribution to retiree health insurance benefits for its electrical workers from 50 percent for all retirees to 2 percent per year of service, to a maximum of 50 percent. Employees with at least five years of service are allowed to retire at age 55.
The 50 percent benefit had been included in every MOU between the city and the union since 1979, the union alleged, and when negotiations began on a new contract in 2008, the city acknowledged that the benefit was vested. In 2010, however, the city reversed its position and demanded that the union accept a reduction in future retiree medical benefits; when the union refused, and a contract could not be reached, the city imposed the cut unilaterally.
The union alleged that the city’s promises created vested rights, and had been relied upon by current employees in accepting employment, remaining in their jobs, and accepting lower wages than they would have been willing to work for had the benefit not been available.
Superior Court Judge Bradley Boeckman ruled that an MOU cannot create vested retirement rights for current employees because those rights are subject to the collective bargaining process, and because each MOU has a fixed expiration date. He sustained the city’s demurrer and dismissed the petition.
High Court Opinion
While the union’s appeal was pending, the state Supreme Court decided Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, holding that a local government may be bound by an express or implied promise made to employees by contract or ordinance.
The IBEW, Nicholson wrote Friday, had clearly pled the existence of such a binding promise.
“The fact that the future right of active employees to receive retiree medical insurance benefits remained subject to the collective bargaining process does not necessarily mean that prior MOUs, ratified by the city council, did not already create a contractual obligation that survived the expiration of the MOUs,” the justice wrote.
An MOU is interpreted by the same rules as a private contract, absent a legislative exception, the justice wrote, and the language of Redding’s MOUs with the IBEW is clear in promising the benefit.
“Put simply, the MOUs at issue here promised to ‘pay fifty percent (50%) of the group medical insurance program premium for each retiree and dependents, if any, presently enrolled and for each retiree in the future’ . . . .This provision provided not only for ‘each retiree’ during the term of the MOU but also for ‘future’ retirees. ‘Presently enrolled’ could refer only to those retirees enrolled during the term of the MOU. Therefore, the most reasonable interpretation of ‘for each retiree in the future’ is that the benefit was promised to active employees when they retired, even beyond the term of the MOU…. The City has failed to make any persuasive argument against applying this most-reasonable interpretation”
The case is International Brotherhood v. City of Redding, C067709.
Copyright 2012, Metropolitan News Company