In January 1993, the County of Orange and the Orange County Employee Retirement System (OCERS) entered into a memorandum of understanding (MOU). That MOU allowed the County to access surplus investment earnings controlled by OCERS and to deposit a portion of the surplus into an Additional Retirement Benefits Account (ARBA) to pay for health insurance of present and future County employees. In April 1993, the County adopted the Retiree Medical Plan, funded by investment earnings from the ARBA account and mandatory employee deductions. The Retiree Medical Plan explicitly stated that the plan did not create any vested rights to benefits. The County’s intent was to induce employees to retire early.
Labor unions then entered into MOUs with the County providing that the County would administer a Retiree Medical Insurance Plan and retirees would receive a Retiree Medical Insurance Grant. As a result, County employees received a monthly grant to defray the cost of health care premiums from 1993 through 2007. However, beginning in 2004, the County negotiated with its labor unions to restructure the retiree medical program, which was underfunded. The County ultimately approved an agreement with the unions that reduced benefits for retirees.
A group of County retirees, then filed a class action complaint alleging, among other claims, that the County intended in the 1993 MOU to create an implied vested right to the monthly grant, and then breached that MOU by reducing the benefit in 2004. The district court granted judgment in the County’s favor, and retirees appealed. The case made its way to the Ninth Circuit.
First, the Ninth Circuit held that the April 1993 Retiree Medical Plan did not create any vested right to the monthly grant benefits. Under California precedent, a person bears a “heavy burden” to overcome the presumption that the legislature did not intend to create vested rights. The evidence of a vested implied right in an ordinance or resolution must be “unmistakable.” Since the April 1993 Retiree Medical Plan explicitly said that the plan did not create any vested right to the benefit, the retirees’ claim to an implied vested right was foreclosed.
Next, the Ninth Circuit rejected the retirees’ argument that the MOUs contained a contradictory implied term. The court held that at the summary judgment stage, the County provided evidence that the Retiree Medical Plan was adopted by resolution and therefore became governing law with respect to the monthly grant benefits. As existing County law, the Retiree Medical Plan became part of the MOUs, which were of limited duration and expired on their own terms by a specific date. Absent express language that the monthly grant benefits vested, the right to the benefits expired when the MOUs expired.
Moreover, the Ninth Circuit disagreed with retirees’ argument that the plan was void because the County drafted and imposed the anti-vesting provisions in the Retiree Medical Plan without collective bargaining. As a preliminary matter, the court held that any claim the Retiree Medical Plan was void based on a failure to bargain was barred under the three-year statute of limitations in effect at that time for unfair practice charges. In any event, the Ninth Circuit further held that the Retiree Medical Plan was not unilaterally imposed on the unions and their employees without collective bargaining because the unions had the option to reject the plan or to negotiate different terms. Instead, the unions signed the MOUs that adopted the Retiree Medical Plan. Thus, the process was consistent with the Meyers-Milias Brown Act.
Finally, the Ninth Circuit concluded that the monthly grant benefits were not deferred compensation, which would vest upon retirement like pension benefits. The court reasoned that the Retiree Medical Plan did not provide insurance benefits, but rather it provided the opportunity for employees to purchase health insurance at a reduced cost. Unlike deferred compensation, which is earned by merely accepting employment, access to the health benefit required the employee to choose to pay his portion of the health insurance premium.
For these reasons, the Ninth Circuit affirmed the district court’s decision in favor of the County.
Harris v. Cty. of Orange (9th Cir. 2021) 17 F.4th 849.
NOTE:
One judge on the panel dissented in part. That judge argued that in order to prevail at the summary judgment stage, the County needed to demonstrate – without relying on the Retiree Medical Plan’s anti-vesting term – that the retirees had no evidence proving that the pre-plan MOU created an implied vested right. Because the County did not do this, that judge would have reversed the district court’s decision. The majority stated that the dissent relied upon the “mistaken assumption” that the Grant Benefit was deferred compensation, instead of an optional benefit.
