In a development that may help Sacramento County retirees regain lost health-care subsidies, the California Supreme Court ruled Monday that counties can be bound by an “implied contract” with retired employees.
In a federal lawsuit that was filed in April, the Sacramento County Retired Employees Association is challenging the county’s drastic reduction of subsidies that help retirees pay for medical and dental insurance.
As a cost-saving measure in tough economic times, the Board of Supervisors slashed the subsidy in 2010 by $100 a month – from a maximum of $244 to $144 – and then, in 2011, to a maximum of $80.64 a month.
The association, which claims a membership of approximately 8,000, alleges in its complaint that the board’s actions breach an implied contract in violation of the U.S. and California constitutions.
The “substantial subsidy” provided by board actions from 1993 through 2009 is evidence of “a legislative intent to create a contractual right, because it induced plaintiffs to remain employed with the county and they relied upon it in deciding when to retire,” attorney Mark Merin wrote in a brief opposing the county’s motion to dismiss the suit.
“Sacramento County’s effort to balance its budget, in part by eliminating time- honored benefits its employees and its retirees have enjoyed for years, is not unique, but is being attempted by cities, counties, and even states across the country,” Merin wrote. “Lean times, however, do not excuse breaches of contract.”
Supervisors adopt a policy each year governing retired employees’ eligibility for, and access to, the county’s medical and dental insurance plans and subsidies.
“Since at least 1998,” according to the county’s motion to dismiss, “each of those policies has expressly stated that the retiree health program does not create any contractual, regulatory or other vested entitlement to health care benefits or subsidies at any particular level, or at all. Since 2003, the policies also state that subsidies, if provided, are not a vested benefit.”
The plaintiffs “have not pointed to a specific ordinance or resolution whereby the Board of Supervisors promised to provide a health insurance subsidy in perpetuity, and … none exists,” wrote Supervising Deputy County Counsel Krista Whitman in the motion to dismiss.
But a unanimous state Supreme Court concluded in Monday’s opinion that “a county may be bound by an implied contract under California law if there is no legislative prohibition against such arrangements, such as a statute or ordinance.”
“Whether an implied term creates vested rights, in the absence of a legislative bar, is a matter of the parties’ intent,” the seven high court justices agreed in a 28-page ruling authored by Associate Justice Marvin R. Baxter.
To determine intent, Baxter wrote, the language and circumstances accompanying passage of an ordinance or resolution should be examined.
The Supreme Court had been asked by the 9th U.S. Circuit Court of Appeals to address the implied-contract issue in the context of state law.
The Circuit Court has before it a case in which Orange County retirees are challenging the validity of changes to their health benefits.
Merin said Monday he believes the high court’s decision favors his clients.
“It’s a major statement on the obligations of counties under the terms of implied contracts,” he stated. “It clearly says these obligations can arise from conduct, especially long-term conduct.”
Merin said he believes the case will be decided at trial.
“It’s going to be fact-dependent: who said what to whom and how often, and who relied on what was said,” Merin said. “Given that, I think there will be issues of fact that will have to be tried.”
County Counsel Robert Ryan said he anticipates little, if any, impact by Monday’s decision on the Sacramento case.
“We still feel there is no implied or express contract in Sacramento County,” he said. The Orange County dispute is different, in that it is over premiums, not subsidies, Ryan added.
Oral arguments on Sacramento County’s motion to dismiss the suit against it are scheduled next Tuesday before U.S. District Judge Kimberly J. Mueller.