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Reporting from the front lines:
An update on statewide vested
rights litigation
Arthur A. Hartinger, Principal
Anya J. Freedman, Associate
November 19, 2014
What is a vested right?
“A benefit is deemed ‘vested’
when the employee acquires
an irrevocable interest in the benefit.”
Retired Employees Assn. of Orange Cnty., Inc. v. Cnty. of Orange,
52 Cal. 4th 1171, 1189 n.3, 266 P.3d 287, 298 n.3 (2011)(“REAOC”).
What’s at stake?
What’s at stake?
What’s at stake?
REAOC: Implied Vested Right
to Retiree Medical Benefit
Certified
Question
• Whether, as a matter of California law, a
California county and its employees can form
an implied contract that confers vested rights
to health benefits on retired employees?
Answer
• Yes, “if there is no legislative prohibition
against such arrangements, such as a statute
or ordinance.”
REAOC Standard
 Gov. Code 25300:
Authority to prescribe
compensation by
resolution or ordinance
 Heavy burden on party
asserting the implied
vested right
 Court must focus on
“legislative body’s intent
to create vested rights”
 Presumption against
intent to create private
contractual rights
 Suspension of legislative
control must be
“unmistakable”
REAOC Standard
Turns On Legislative Intent Evidence
• Right is vested when “statutory
language or circumstances
accompanying its passage
‘clearly’ … evince a legislative
intent to create private rights
of a contractual nature
enforceable against the
[government agency].”
REAOC, 52 Cal. 4th 1171, 1187 (2011)
Six Principles for Public Agencies
1. Adopt internal laws
or rules prohibiting
the creation of implied
rights to compensation.
2. Think twice before
moving to dismiss.
3. Use durational language.
− Never say “future.”
− Tie compensation to the
term of the MOU.
4. Reserve your rights.
5. Tie reform language
to original legislative
intent.
6. Be very precise when
making compensation
commitments.
Six Principles for Public Agencies
REAOC
Adopt internal laws
prohibiting the creation
of implied vested rights.
Adopt internal laws prohibiting
the creation of implied vested rights.
“The board of supervisors shall prescribe the
compensation of all county officers and shall
provide for the number, compensation, tenure,
appointment and conditions of employment of
county employees....”
Cal. Gov’t Code § 25300 (West)
Adopt internal laws prohibiting
the creation of implied vested rights.
Retired Emps. Ass’n of Orange Cnty., Inc. v.
County of Orange, 742 F.3d 1137 (9th Cir. 2014)
• Relied on the Government Code
and County Ordinances
• These laws required the Board of
Supervisors to set compensation.
Six Principles for Public Agencies
Think twice before
moving to dismiss.
SCARE; Contra Costa County; Redding; Harris
Think twice before moving to dismiss.
Sonoma Cnty. Ass’n of Retired Emps. v. Sonoma Cnty.
(“SCARE”) 708 F.3d 1115 (9th Cir. 2013) N.D. Cal. Case
No. C 09-4432 CW
•
•
•
•
In August 2008, the County’s Board of Supervisors
enacted a resolution to limit the County’s healthcare
benefit contributions to $500 per month for retirees,
with a five-year phase-in period.
SCARE sued in federal district court, alleging breach of contract.
The district court granted a motion to dismiss.
Held: Complaint adequately alleged an implied contract that
County would pay “all or substantially all” costs as to retirees
covered by specific MOUs, expressly adopted by specific
resolutions (attached to the complaint)
Think twice before moving to dismiss.
SCARE: Ninth Circuit’s Pleading Standard
• Here, in order to survive a motion to dismiss,
the Association’s complaint must plausibly
allege that the County:
1. Entered into a contract that included
implied terms providing healthcare benefits
to retirees that vested for perpetuity; and
2. Created that contract by ordinance or resolution.
SCARE, 708 F.3d 1109, 1115 (2013)(citing REAOC, 134 Cal.Rptr.3d 779, 266 P.3d at 289)
Think twice before moving to dismiss.
Retiree Support Group of Contra Costa Cnty. v.
Contra Costa Cnty., N.D. Cal. Case No. 12-cv-00944-JST
•
•
•
•
In 2010 County capped its contributions to retirees’
health benefits to a flat dollar amount.
Federal complaint alleged County breached implied
contract to pay 80% or more of costs of retiree healthcare
benefits for retirees and dependents for retirees’ lifetime.
District court denied motion to dismiss, applying
SCARE/REAOC.
Complaint adequate: identified specific MOUs and
resolutions with express terms regarding retiree medical
benefits – even though MOUs contained durational language.
Think twice before moving to dismiss.
International Brotherhood, etc. v. City of Redding,
210 Cal. App. 4th 1114 (2012)
•
•
•
March 2010, the City unilaterally cut the retiree health benefit to
provide a 2% subsidy per year of service, up to a maximum of 50%.
Petition alleged ratified MOUs promised active employees that the
City would pay 50% of their future retiree medical insurance
premiums. Trial court dismissed the case.
Court of Appeal reversed, finding allegations satisfied REAOC
standard:
− MOUs contained express language promising payment
of 50% of the premiums “for each retiree in the future”
210 Cal. App. 4th 1114, 1119 (2012).
− MOUs were ratified by the city council.
Think twice before moving to dismiss.
Harris et al. v. County of Orange
Ninth Circuit Case No. 13-56061
• Class action companion case to REAOC.
• The district court dismissed the case.
• Ninth Circuit opinion pending…
Six Principles for Public Agencies
Use durational language.
• Never say “future.”
• Tie compensation to term of MOU.
REAOC; South Pasadena
Use durational language.
Generic sample language:
• “During the term of this MOU the parties agree
to the following…”
Language from court opinion in government’s favor:
• “’This Memorandum of Understanding sets forth
the terms of agreement reached…for the period
beginning July 23, 1993 through June 23, 1994.”’
Sacramento Cnty. Ret. Emps. Ass’n v. County of Sacramento, MSJ Order
at p. 16 (emphasis added) (quoting Harris v. County of Orange, 682 F.3d
1126, 1135 n.4 (9th Cir. 2012)).
Use durational language.
Other durational language relied upon by the court
was included in resolutions:
• “…in the years that the subsidies were approved
by the Board of Retirement, the resolutions provided
the payments would terminate after one year unless
extended.”
Sacramento Cnty. Ret. Emps. Ass’n v. County of Sacramento, MSJ Order
at p. 9 (emphasis added).
Use durational language.
South Pasadena Police Officers Ass’n v. City of South
Pasadena, LASC No. BS141204; Court of Appeal No. B254176
• City paid 100% of retiree medical premiums in past MOUs
• In 2012, after impasse, City imposed term that future
retirees would receive only amount City pays for active
employees (PEMHCA, Gov’t Code § 22892 - $625)
• No express language in MOUs binding city to any
contribution amount after expiration of MOU
(again, compare to Redding)
• Superior court denied petition for writ of mandate
− Now on appeal
Six Principles for Public Agencies
Reserve your rights.
Sacramento County; San Jose; Harris; LACAA; Fry
Reserve your rights.
Sacramento Cnty. Ret. Emps.’ Ass’n v. Cnty. of
Sacramento E. D. Cal. No. CIV S-11-0355 KJM-EFB
• Vested rights challenge to County’s decision
to reduce or terminate the health and dental
insurance subsidy for several classes of employees
• Application of REAOC standard
• Legislative intent evidence fell short
• Retirement materials replete with statements
reserving the County’s right to change the benefits
• MSJ granted in County’s favor; appeal abandoned
in Ninth Circuit
Reserve your rights.
“For the last twenty years, since 1993, the Board’s Retiree Health
Policies have expressly stated that the Retiree Health Program does
not create any contractual, regulatory or other vested entitlement
to health care benefits; since 2003, the policies also state that
subsidies, if provided, are not a vested benefit….”
“…letters from the County’s retirement administrator stated that the
plan ‘does not create any contractual, regulatory, or other vested
right or entitlement to either present or future retirees…to any
particular level of subsidization of health care costs, or to
subsidization at all.”
Sacramento Cnty. Ret. Emps. Ass’n v. County of Sacramento, MSJ
Order at pp. 9,10 (emphasis added).
Reserve your rights.
San Jose Police Officers’ Ass’n v. City of San Jose, SCSC No. 112-CV-225926 Court of Appeal, Sixth District, Case No. H040979
• Measure B – a pension and retiree medical charter
reform measure passed by 70% of the City’s voters,
June 2012 election; severable
• Included reservation of voter authority over any
pension plan changes
• 15 out of 18 provisions survived challenge
(Trial July 2013; decision Feb. 20, 2014)
• Now on appeal
• Parallel Seal Beach challenge….
Reserve your rights.
Los Angeles City Attorneys’ Association v. City of Los
Angeles, LASC No. BS135294
• 2011 ordinance freezing amount of retiree medical subsidy
• Petition for writ of mandate filed by unions representing city attorneys
• City attorneys had refused to agree to contribute 4 percent of their
paychecks to the Los Angeles City Employees' Retirement System (if
they had done so, they would have been exempt from the freeze)
• Superior court order Sept. 13, 2013: no right to specific or indexed
subsidy amount; noted reservation of rights in Charter preserved
legislative flexibility to Council to modify the program; writ granted
on limited ground that freeze ordinance lacked explicit mechanism
to revisit and change subsidy amount
• Settled – now all city attorneys are contributing to the program
Reserve your rights.
Los Angeles Airport Peace Officers Ass’n v. City of Los
Angeles, LASC No. BS148475
• Union representing airport police filed petition for writ of
mandate challenging freeze ordinances applicable
to LACERS (same program at issue in LACAA case, supra)
• Filed May 23, 2014, after LACAA case settled (LAAPOA
not a party)
• Allege vested right to “a fully funded and/or substantial
retiree medical premium plan subsidy”
• LAAPOA opted in, so also seeking refund of 4%
contributions
• Hearing on Writ of Mandate set for April 15, 2015
Reserve your rights.
Fry v. City of Los Angeles LASC No. BS140201;
Court of Appeal No. B259814
• Since 1970s, City provided subsidy to defray
cost of retiree medical premiums
• 2011 Ordinance froze amount of subsidy
for members who opted not to contribute 2%
of salary to LAFPP
• Superior court granted limited writ of mandate
• Court of appeal just granted writ of supersedeas;
trial court order stayed pending appeal
Reserve your rights.
Six Principles for Public Agencies
Tie reform language to
original legislative intent.
CCSF
Tie reform language
to original legislative intent.
Protect Our Benefits v. City and County of San
Francisco SF Superior Court No. CPF-13-512788
Court of Appeal No. A140095
• Nov. 2011 proposition amended SF Charter’s Supplemental
Benefit Retiree Reserve feature to make clear that
supplemental COLAs would be paid only years when
retirement system is fully funded - “To clarify the intent of
the voters when originally enacting this Section in 2008….”
• Text of 2011 proposition made explicit the intent to return
to the original legislative purpose
• Superior court denied petition for writ of mandate
− In briefing stage in court of appeal
Tie reform language
to original legislative intent.
Contra Costa County Deputy Sheriffs’ Ass’n et al. v.
Contra Costa County Employees’ Retirement Ass’n, et al.
CCCSC No. N12-1870, Court of Appeal No. A141913
• AB 197 – state law that outlawed “spiking” under CERL;
unions sued; Contra Costa, Merced, Marin, Alameda;
consolidated in CCCSC
• Spiking – inclusion of vacation cash outs and terminal pay
in final compensation to boost pension
• Unions argued their members had vested right to spiking
based on pre-AB 197 policies of retirement associations
• Court: CERL never permitted inclusion; writ denied in part
Tie reform language
to original legislative intent.
Dailey v. City of San Diego, 223 Cal. App. 4th 237
(2013), review denied April 30, 2014
• San Diego POA failed to reach agreement with City on successor
MOU  City imposed LBF; “froze” the maximum amount City
would reimburse POA members who retired during effective
term of MOU (2009-2011) at $8,880 per year
• Close analysis of benefit under Charter and Municipal Code,
not just labels, chapter headings  retiree health benefits
intended to be “employment benefits” subject to labor
negotiation under MMBA, not retirement benefits governed
by Charter voting requirements
• Relied on San Diego Police Officers’ Association v. San Diego
City Employees’ Retirement System, 568 F.3d 725 (2009).
Six Principles for Public Agencies
Be very precise when
making compensation
commitments.
Burbank
Be very precise
when making compensation commitments.
Burbank City Attorneys Association v. City of
Burbank, C.D. Cal. No. CV14-02140 ABC (CWx)
• Attorneys claimed a vested right
to require the City to continue paying
the PERS employee contribution.
• Case was dismissed.
Six Principles for Public Agencies
1. Adopt internal laws
or rules prohibiting
the creation of implied
rights to compensation.
2. Think twice before
moving to dismiss.
3. Use durational language.
− Never say “future.”
− Tie compensation to the
term of the MOU.
4. Reserve your rights.
5. Tie reform language
to original legislative
intent.
6. Be very precise when
making compensation
commitments.
Statewide vested rights litigation
DISCUSSION
Let’s continue the conversation
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@LaborBuzz
Presenters
Arthur Hartinger
Anya Freedman
Principal
Associate
Chair, Labor and Employment
Law Practice Group
Labor and Employment Law
Practice Group
[email protected]
[email protected]
Meyers Nave
555 12th Street, Suite 1500
Oakland, CA 94607
T: 510.808.2000
www.meyersnave.com
www.laborbuzz.com

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