Baltimore County Required To Pay $1.6 Million To Retirees For Health Benefits

In accordance with its charter, Baltimore County engages in collective bargaining with the exclusive representatives of various categories of its employees. Among those categories of employees are police officers below a certain rank, who are represented by Lodge 4 of the Fraternal Order of Police (FOP). The negotiations result in an agreement that is called a “memorandum of understanding.” Under the County Charter, disputes with the representatives of certain public safety employees may be resolved through binding arbitration.

The County maintains a fund known as the Other Post-Employment Benefits Trust Fund. The Fund is the repository of funds appropriated for payment of health and life insurance benefits for County retirees and their beneficiaries. Each year, the County, through its budget process, appropriates an annual contribution to the Fund. The annual contribution is based on an estimate of future costs, based in part on an actuarial analysis of the County’s potential liabilities for such costs.

After the 2007 fiscal year, the County reduced the health insurance subsidy for current employees. Despite the language in the earlier MOUs that the health insurance subsidy at the time of retirement would remain in effect for a retiree until the retiree reached age 65 or was eligible for Medicare, the County also reduced the health insurance subsidy for existing retirees who had retired in years covered by those earlier MOUs. The FOP challenged the County’s decisions through a class action grievance.

An arbitrator concluded that the “unequivocal language” of the earlier MOUs – that “the health insurance subsidy in place at the time of retirement shall remain in effect until the retiree reaches age 65 or becomes eligible for Medicare” – was a binding promise that established a vested right for those retirees to whom it applied. The Arbitrator ordered the County to rescind its modification of the retirees’ health insurance subsidy, continue the previous subsidy in accordance with the MOUs, and reimburse the retirees for the excessive deductions taken by County in the interim.

The County refused to comply with the Arbitrator’s decision, and the dispute wound up with the Maryland Court of Appeals (Maryland’s equivalent of a Supreme Court). The Court ordered the County to comply with the arbitration decision, a decision which required the County to make retirees whole for more than $1.6 million.

The Court held that “judicial review of an arbitration decision is very narrowly limited. Among the limited grounds for vacating an arbitration award is when the award is contrary to an explicit, dominant, and well-defined public policy.

“The County states that the public policy at issue is the County’s executive budget process and the County Charter’s requirement that the County government expend only funds that have been appropriated in accordance with that process. The County argues that the Arbitrator’s decision cannot be enforced because it is at odds with that process, allegedly because funds were not appropriated for this purpose.

“The County has entered into a series of collective bargaining agreements with the FOP. There is no dispute that each of those agreements was approved and accepted by the County Executive and County Council. In addition, as the County Code provides and as the County acknowledged at oral argument, funds are annually appropriated to the OPEB Fund to pay the promised future retiree health benefits.

“The County took the position that certain retirees were not entitled to what it had promised in those MOUs with respect to the health insurance subsidy. The County’s position on that particular issue was determined to be incorrect through the decision-making process that it had agreed to abide by in the MOUs – binding arbitration. This Court upheld that decision. The interpretation of those MOUs has already been decided. It is evident that the County disagrees with the Arbitrator’s decision and with the prior decision of this Court in this case. This appeal is not an occasion to re-litigate that decision. Nor is it an occasion for the County to reset the terms of MOUs it previously agreed to.

“The County’s argument appears to be that, because the County administration takes the position that its (mistaken) interpretation of the MOUs would have it pay a lower percentage of the health care costs of these retirees, the funds that the County government actually appropriated to pay for retiree health benefit costs should not cover part of those costs. Such an argument could convert any dispute concerning contract or statutory interpretation with the County into an alleged violation of the executive budget process.”

Baltimore County, Maryland v. Fraternal Order of Police, Lodge 4, 2016 WL 4499209 (Ct. App. Md. 2016).