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Retirees Did Not Prove An Implied Contract For The County To Pay Retiree Health Premiums At The Same Rate As Current Employees

CATEGORY: Client Update for Public Agencies, Fire Watch, Law Enforcement Briefing Room
CLIENT TYPE: Public Education, Public Safety
DATE: May 03, 2022

In 1993, the Board of Supervisors of San Benito County contracted with the California Public Employee’s Retirement System (CalPERS) to provide health insurance benefits to County employees and retirees through the Public Employees’ Medical Hospital Care Act (PEMHCA). The Board executed this contract through a County resolution. This resolution required the County to pay retiree health insurance benefits at the same contribution rate it paid to active employees. However, nothing in the resolution prohibited the County from changing its contribution.

Until 2014, the County’s health insurance contributions for active employees were stated in the collectively bargained Memoranda of Understanding.  The County’s contributions covered the full premium cost (100%) of certain CalPERS plans for “employee only” (individual) coverage.

In 2014, the Board adopted resolutions to decrease the County’s contributions for active employees and retirees to amount to less than the lowest cost CalPERS plan. As of January 1, 2015, employees and non-Medicare retirees had to start paying out-of-pocket for health insurance and no longer had the option to select a no-cost, County-paid individual plan.  In December 2016, the Board voted to exit PEMCHA and began providing health insurance benefits as of 2017 under contract with the California State Association of Counties Excess Insurance Authority (CSAC-EIA).

Normandy Rose and Margaret Riopel, both County retirees, claimed that when they were hired, they were told that the County would cover 100% of the cost of an individual health insurance plan throughout employment and retirement.

They sued the County for breaching an implied contract for the County to provide them a “100 percent paid individual plan.” The retirees alleged that the County violated its contractual promise “when it failed to provide a contribution rate equal to an individual plan.”

The trial court did find that the County had an implied contract with its employees promising that, in exchange for working at lower wages, upon retirement, the County would pay their health benefits at the same rate as active employees. However, the trial court also found that the retirees’ claim to fully-paid coverage “was based upon a misunderstanding” stemming from the fact that in 1993 the County did cover 100% of employee contributions.

The trial court made these findings based upon its interpretation of an analytical framework the California Supreme Court established in Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171. In Retired Employees, the Court considered whether a California county can form an implied contract with county employees that would confer a vested contractual right to lifetime retiree health benefits. The Supreme Court held that there is a legal presumption against the creation of a vested contractual right from a resolution or statutory scheme. But, that legal presumption could be overcome by the statutory language or circumstances accompanying the governing body’s passage of the benefit that clearly expressed “a legislative intent to create private rights of a contractual nature enforceable against the [governmental body].” (Retired Employees, supra, 52 Cal.4th at p. 1187.) The intent to make a contract need not be express, but it must be “clear” based on “the statutory language or circumstances accompanying its passage.”

The California Court of Appeal considered all evidence offered regarding the language of the County’s resolution and the circumstances surrounding the passage of the resolution. This evidence included the relevant resolutions and related legislative records (including staff reports, meeting minutes, and testimony that related to or described circumstances informing the Board’s decisions), and the County’s conduct in providing the health insurance benefits.

The Court of Appeal found that the resolutions and legislative record did not contain a clear and express intent to create an implied contract. The Court then considered the County’s conduct over the 21 years at issue. The retirees contended that the County’s conduct to contribute 100% of the cost of their insurance plans for so long, implied that the County intended to be contractually bound to do so indefinitely. The Court of Appeal disagreed, finding that the County’s long-term conduct simply did not rise to the level of clear intent required, particularly because during that time the County was simply following PEMCHA’s “equal contribution” requirements. The Court of Appeal overturned the trial court and held that the retirees had no contractually-vested right to receive the same health insurance premium contributions as the County provides its active, unrepresented employees.

Rose and Riopel v. County of San Benito, 2022 WL 1154621.

Note:

This case illustrates how the wording of a local agency’s resolutions related to retirement benefits, may create implied contracts with the agency’s employees.  Unless the wording of the resolution or the circumstances surrounding the resolution clearly expresses an intent to create an implied contract, however, the law will presume that there is no implied contract.

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