Court Upholds Arbitration Decision Imposing Cap On Retiree Medical Benefits

When the City of Pittsburgh and Lodge No. 1 of the Fraternal Order of Police (FOP) were unable to agree on a contract in 2002, in 2003 they submitted their disputes to an interest arbitration panel. The award of the Arbitration Panel contained a provision capping the City’s contribution for the healthcare costs of retirees. The precise contract language was “for those retiring after January 1, 2004, the City shall contribute toward the cost of husband and wife coverage for each employee so electing an amount equal to the amount charged for such insurance by the carrier providing such coverage on the date of his/her retirement.”

The FOP challenged the arbitration decision in court, alleging that the Panel’s decision violated the contract clauses of the United States and Pennsylvania constitutions and worked an unconstitutional retroactive reduction in retirement benefits. The Pennsylvania Supreme Court rejected the FOP’s challenge.

In fact, the Court found that the contract language awarded by the Arbitration Panel was effectively no different than prior contract language. For example, the immediately prior contract, in effect for 2001-2002, contained a provision that “the City shall contribute toward the cost of husband and wife coverage for each employee so electing an amount equal to the amount charged for such insurance by the carrier providing such coverage on the date of his/her retirement.”

As the Court put it, “a comparison of the Arbitrator’s opinion with comparable provisions from prior contracts revealed that the provisions are identical with regard to the premiums to be paid for retiree health care. As there is no material difference between the language awarded by the Arbitrators and comparable provisions in the preceding two working agreements, we cannot conclude that the 2003-04 retiree premium cap worked to diminishment of anyone’s benefits. In fact, the 2003-04 retiree premium cap merely carried forward and renewed a mutually agreed to contractual right in place since January 1, 1996.”

The FOP argued that the new language did in fact work a diminishment because the City had historically provided fully-paid medical benefits to retired police officers even though the contract between the FOP and the City had not compelled it. The Court was unpersuaded, holding that “this line of attack is simply not responsive to the question of whether the Arbitrators exceeded their powers. In fact, it does not concern the Arbitrators’ actions at all. Instead, it focuses on the City’s ostensible application and interpretation of this provision following the entry of the 2003-04 arbitration award. Such an argument regarding the City’s interpretation of the retiree cap provision has no place in our analysis of whether the Arbitrators committed an illegal act when they merely readopted the premium cap for the contract.”

City of Pittsburgh v. Fraternal Order of Police, Fort Pitt Lodge No. 1, 2007 WL 4180131 (Pa. 2007).

This article appears in the February 2008 issue