Post Retirement Benefits-Contract Clause Table of Cases

Case CitationDescription
Vuksanovich-Dunn v. Miami Unified School Dist. No. 40, 2013 WL 6813908 (9th Cir. 2013)After three years of receiving no-cost health insurance pursuant to an early retirement agreement, retirees were required to contribute to the cost. The Court held that absent a clear and unmistakable indication that that the employer intends to bind itself, the contracts clause of the U.S. Constitution does not apply. Because the parties disagreed on the meaning of “furnish” in their agreement, there was no clear and unmistakable intent proved. The Court returned the case to state court for the parties to litigate the breach of contract claims.
Underwood v. City of Chicago, 2013 WL 6578777 (N.D. Ill. 2013)The City provided retirees with subsidized healthcare for decades. The healthcare benefit was changed several times by the Ill. legislature resulting in lawsuits that were settled with legislative modifications to the subsidies. In May, 2013, significant cuts were made to the healthcare benefits. The Court ruled that despite a provision of the Ill. Constitution making membership in a “pension system” an “enforceable contractual right,” that could not be “diminished or impaired” retirees were not entitled to the healthcare benefit. The Court held that term “pension” is defined as a fixed and stable sum and does not include the relatively unstable and fluctuating cost of healthcare.
Brown v. New York, 2013 WL 5464646 (N.D. N.Y. 2013)The Court ruled that active and retired state employees were could pursue a claim that the State violated the Contracts Clause when it amended its Civil Service Law (CSL) decreasing State’s percentage of health insurance contribution rates because State had contractual obligation, based on collective bargaining agreements (CBAs) and past practice, to maintain health insurance contribution rate at or above what was provided in CSL at time last CBAs were executed. The Court ruled that new reduced contribution rates resulted in increase in cost of health insurance and decreased wages and pension payments, that the State unilaterally altered the terms of CBAs after they had been negotiated and executed, and that there was no legitimate public purpose to reduce State contribution rates or that reduction was necessary and reasonable to accomplish that purpose. Whether the State could prove sufficient facts to establish that the change was necessary due to an economic emergency could not be determined in a motion to dismiss proceeding.
Sacramento County Retired Employees Ass’n v. County of Sacramento, 2013 WL 5486817 (E.D. Cal. 2013)Even though County Supervisors consistently adopted and renewed a policy to subsidize retiree health and dental benefits, doing so did not create contract right to the subsidy in perpetuity. The subsidy paid over time was done by adopting policy, not a Memorandum of Understanding (MOU) or other contract. Non-union retiree’s benefits were reduced or terminated by the County. The Court found that the County did not intend to promise a perpetual benefit and that the retirees’ belief that they were entitled to receive benefit for life was insufficient. Treating non-union retirees differently from union retirees did not violate the equal protection clauses of the state and federal constitutions.
Taylor v. City of Gadsden, 2013 WL 3929957 (N.D. Ala. 2013)Court ruled that agreement by retired firefighters to move into a single fund with a temporary 5% supplemental contribution in addition to a base 6% contribution to make up for deficits did not create a contractual right to a permanent 6% contribution. The Court also stated that even if a contractual relationship existed with the state, the requirement that firefighters increase their contributions did not substantially impair that relationship; firefighters had not shown or argued that keeping employee compensation rate at 6% for firefighters forever was central part of either their agreement to enter into ERS in the first place, or to pay for three years an additional 5% toward unfunded liability of the previous retirement fund. Retirement fund’s handbook stated that members’ contribution rate was determined by statute and subject to change by legislature.
Maine Ass’n of Retirees v. Board of Trustees of Maine Public Employees, 2013 WL 3212360 (D. Me. 2013)The Court ruled that an amendment to the state’s public employment retirement statutes that reduced the amount of COLA to be paid to retirees on an annual basis did not violate the contracts clause because 1) the statute by its express terms did not provide contract rights to COLA for some retires based upon the timing of previous statutory amendments and 2) those retirees who retired prior to the previous amendment were not deprived of a benefit because the previous version of the statute only required that no benefit payment already “due” be reduced. The Court reasoned that COLA is an increase that is not due until it is calculated and that a reduction of a possible increase does not affect the benefit already due. Not getting an increase is not a reduction.
Scott v. Williams, 107 So.3d 379 (Fla. 2013)The Court held that the statutes creating the Florida Retirement System (FRS) did create contract-like rights in the preservation of rights provisions but statutory amendments to FRS requiring a 3% employee contribution as of certain date, and continuing thereafter, and elimination of cost-of-living adjustment (COLA) for service performed after that date, were prospective changes within the authority of the legislature to make and the preservation of rights provision did not create binding contract rights for existing employees to future retirement benefits and actions of the legislature did not impair any statutorily created contract rights. On their face, statutory amendments to Florida Retirement System (FRS), requiring a 3% salary contribution and elimination of the cost-of-living adjustment (COLA) for service performed after certain date, did not unconstitutionally impair or abridge the right of public employees to bargain collectively on the issue of retirement benefits; nothing in amendments prohibited public employees from collectively bargaining on the issue of retirement pensions or benefit. The Court made specific findings that FRS was actually sound and one of the healthiest public pension funds in the U.S.
Justus v. State, 2012 WL 4829545 (Colo. App. 2012)Retired public employees receiving benefits under Colorado Public Employees’ Retirement Association (PERA) had a contractual right, for purposes of the Contract Clauses of the state and federal constitutions, to the cost-of-living adjustment (COLA) in effect when their rights vested at the time they became eligible to retire or retired but did not have a contractual right in any increase in the cost-of-living adjustment (COLA) that went into effect after their rights vested at the time they became eligible to retire or retired; any such increase would be a mere gratuity on top of the COLA right that they earned during their employment. There is no contractual right to a specific COLA or a specific COLA formula.
AFT Michigan v. State, 825 N.W.2d 595 (Mich. App. 2012)Statute that governed public school employees’ contributions to the public school employees retirement system (PSERS) violated the state and federal Contract Clauses; the statute impaired contractually set wages by requiring employers to pay employees three percent less than the contractually set wages, and the impairment was not a temporary impairment and was not a matter of last resort used to address a fiscal emergency. The Court found that the increase was an illegal taking of property, money, which was intended to be used fund the employer’s contribution and was being used to fund healthcare for those already retired. The Court found this was improper because the current employees had no vested right to the benefit for which they were paying.
Barker v. County of Lyon, 813 N.W.2d 424 (Minn. App. 2012)Non-union employees working without a contract sued the employer for making changes to the employees’ post retirement benefits as described in a policy manual. The Court ruled that the employees’ reliance the manual provision setting forth the employer’s contribution to post-retirement health care costs, or on oral promises, was not reasonable because the manual stated that county board reserved the right to alter or eliminate the manual’s provisions. The Court also stated that employees who had not retired at time county changed health insurance premium contribution calculation for retirees did not have any vested right in the contribution, and thus the change did not violate the constitutional prohibition against the impairment of contracts.
Cloutier v. State, 42 A.3d 816 (N.H. 2012)The Court ruled that pensions are as much a part of the compensation of an employee as wages. Public employees’ retirement benefits constitute a substantial part of compensation and become vested upon the commencement of permanent employee status. The application of amended statutes that modified method of calculating retirement benefits was a substantial impairment of contract rights in violation of the New Hampshire Contract Clause if it was not offset by compensating benefit.