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November 2012: Court of Appeal Rules in Favor of Union Fighting for Retiree Health Benefits

A California Court of Appeal has ruled in favor of the International Brotherhood for Electrical Workers, Local 1245 (IBEW), in its fight to protect retiree health benefits for workers at the City of Redding. Since 1979, the City has promised employees that it would pay 50% of employees’ medical insurance premiums when they retired, but in March 2010, the City unilaterally cut this benefit to provide a subsidy of only 2% per year of service, up to a maximum of 50%.

Represented by Leonard Carder, LLP, IBEW filed suit on behalf of its members to enforce the City’s promise that it would pay the 50% retiree health benefit subsidy. In particular, IBEW’s lawsuit alleged that its members had a vested right to the retiree health benefits, and that the City had violated the Contract Clause in the state and federal constitutions by unilaterally slashing the benefit.

The trial court ruled in favor of the City on a motion to dismiss the lawsuit, but on appeal the Court of Appeal reversed and found in favor of the union. The court was guided by the California Supreme Court’s recent decision in Retired Employees Association of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, which held that a vested right to health benefits can be granted in a collective bargaining agreement or other act by a public employer, if the language or circumstances indicate an intent to make the benefit vested. The Court of Appeal ruled that IBEW had sufficiently alleged that the City had promised to pay 50% of future retirees’ health insurance premiums, because the City had agreed it would pay the benefit “for each retiree in the future.” The case now goes back to the Shasta County Superior Court, unless the City decides to appeal to the state Supreme Court.

This decision is an important one for public employees seeking to protect their retirement benefits, because it confirms that they can have a vested right to retirement benefits promised by their employer. Public sector employees are, on average, under-compensated when compared with similar private sector employees, and they often rely on the promise of better retirement and other benefits as an inducement to work in the public sector.

A copy of the Third Appellate District Court of Appeal’s decision is here. Coverage of this decision by the San Francisco Chronicle is also available online.

IBEW is represented by Matthew Ross and Arthur Liou.

LEONARD CARDER, LLP

San Francisco: (415) 771-6400 | Oakland: (510) 272-0169