In what has been called one of the most important cases in years for public agencies, the California Supreme Court heard arguments on October 3, 2011 in Retired Employees Association of Orange County v. County of Orange. At stake is whether or not local governments can take away retirement health benefits from former public employees who are currently retired. The court issued its ruling and basically sided with the employees, but with the following stipulation: clear evidence is necessary to show that the county promised lifetime health benefits. Ernest Galvan, an attorney for the retirees in the case, commented that “This opinion sets up a seawall around people who have already retired.” Orange County basically wanted to shift higher health insurance premiums to existing retirees as a way to rein in costs. CNBC reports the following background to the case’s beginnings:
“Orange County eliminated a subsidy it had been paying for retiree health benefits, amounting to a cash value of more than $3,000 per year for each of its retirees, according to court documents. The Retired Employees Association of Orange County sued in 2007, arguing that the county violated an implied contract with the retirees. The county disagreed, saying in court filings that an unfunded liability of $400 million is at stake. In its unanimous opinion released on Monday, the California high court said the right to benefits could be implied from a county ordinance or resolution.”
Notably, the high court was not consulted to decide whether or not the county in fact promised lifetime benefits; instead, the case will return to a federal appeals court with the high court’s ruling in mind to decide whether a clear promise was made. The central state-law question that remains in the case is whether retired employees have a contract right to receive the aforementioned benefit. The county is arguing it is not a vested right and that reducing unfunded liabilities is paramount. The Register points out that “The decision on the case could have significant implications for local governments across California, many of which are struggling to get a handle on ever-increasing unfunded liabilities.”
From the perspective of cities and counties, attorneys for local governments posited they were pleased the court established that clear intent must be evident for the creation of a lifetime benefit. The court’s opinion read as follows: “Under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution. Whether those circumstances exist in this case is beyond the scope of the question posed to us by the Ninth Circuit.”
Thus, the stipulation about clear intent is allowing Orange County to claim the court handed it the real victory because officials claim there was never a guarantee in regards to the benefit’s terms. Now it is up to a lower court to decide if there is evidence of clear promises. The case could have wide-reaching impacts, as the Bee notes the potential effects on a case in Sacramento County regarding retirees regaining lost health-care subsidies. See here.
You can read the full ruling here.