California Supreme Court to Decide “Vesting” Issue Regarding Retiree Health Benefits

Retired Employees v. County of Orange (9th Cir. 09-56026 6/29/10)

Since approximately 1966, Orange County has provided health care benefits to its retired employees. In 1985, the County began “pooling” the retired employees with the active employees in the rate-setting process. Because retirees generally require more health services than active employees, who are generally younger and healthier, pooling the two groups allowed retirees to pay lower premiums and receive greater coverage than they otherwise would. As the cost of health care continued to rise over the years, the County found its employee health plans underfunded and needing adjustment. On September 12, 2006, the
Board of Supervisors approved a resolution to “split the pool,” which created different premium pools for active and retired employees and became effective on January 1, 2008. Retirees then faced significantly higher health insurance premiums.  A group of them brought a lawsuit against the County.

In federal court, the retirees – in essence – argued that the County’s past practice of “pooling” retirees with active employees created a “vested” right that the County could not now eliminate. The court quickly rejected the retirees’ argument, holding that:

“The law is clear: California courts have refused to find public entities contractually obligated to provide specified retirement benefits like those Plaintiff seeks in the absence of explicit legislative or statutory authority. This law also suggests that the requirement to provide lifetime health benefits does not establish a right to a specific method of rate-setting. Here, Plaintiff has failed to provide evidence of any explicit legislative or statutory authority requiring the County to continue providing retirees the pooling benefit in setting rates.”

The retirees then appealed to the Ninth Circuit Court of Appeal. Today, the Ninth Circuit certified to the California Supreme Court the following 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 county employees.

Defendant-Appellee in this case contends that decisions of the Supreme Court of California and the California Courts of Appeal support a conclusion that an implied contract to which a county is one party cannot confer such vested rights. Plaintiff-Appellant contends the contrary.

We understand that the Supreme Court of California may reformulate our question, and we agree to accept and follow the court’s decision. To aid the Supreme Court in deciding whether to accept the certification, we provide the following background."

Having a question certified to the California Supreme Court is fairly rare. More important, how the Court answers this question may have a tremendous impact on the public sector. Everyone knows that there is a huge unfunded liability for future retiree health benefits in the public sector. Many public employers have begun to address this unfunded liability to cutting back on benefits going forward. If the Court rules that employees and/or retirees have a “vested” right to accrue health benefits at a certain level even absent explicit legislature action, that will greatly weaken the ability of public agencies to scale back benefits.

Vallejo Repeals Binding Interest Arbitration

... But Not All the Votes Are Counted Yet ....


It looks like the voters in the City of Vallejo have repealed the City charter provision requiring binding interest arbitration to resolve collective bargaining disputes.  Although it was initially reported that Measure A had passed, the Times Herald was reporting as of this afternoon that thousands of mail-in and provisional ballots remain to be counted. (See article here.)  According to the Solano County Registrar's website, Measure A is currently ahead by 454 votes (7014 to 6065).
Assuming that the measure passes, it may be a harbinger of things to come.  In 1970, Vallejo became the first city or county in California to pass a local provision requiring binding interest arbitration.  Since then 23 other cities and counties have passed similar measures, the most recent (to my knowledge) being the City of Oroville in 2004.  Now, Vallejo has become the first city or county in California to repeal its binding interest arbitration requirement.  I believe many other local entities will try to follow Vallejo's lead by sponsoring similar measures in the November elections.  Whether those measures succeed or not remains to be seen.  Without a doubt, public employee unions will vehemently oppose such measures.  The unions in Vallejo opposed Measure A, but were greatly weakened financially and had lost a lot of public support by the bankruptcy proceedings involving the City.  Unions elsewhere will not face the same financial constraints.  However, will they face the same public backlash?  We'll have to wait to find out.

Carlsbad Imposes Reduced Pension Benefits on New Firefighters

There was an interesting story out of Carlsbad last week.  (See articles in the North County Times here and here.)  The Carlsbad City Council voted to impose a two-tiered retirement system on its firefighters after reaching impasse in bargaining.  Under the two-tiered retirement system, existing employees will continue to accrue benefits under the 3% at 50 formula that is widely used in public safety.  However, new firefighters will be under a 2% at 50 formula.  According to the article, the move was necessitated to keep Carlsbad in "good fiscal health." 

What is interesting is that the city is also planning a ballot initiative that would require voter approval to increase pensions in the future.  That will likely require additonal bargaining with the union under Seal Beach Police Officers Association v. City of Seal Beach (1984) 36 Cal.3d 591.  However, once bargaining has been completed (or impasse reached) there is nothing preventing the citizens of Carlsbad from adopting such an initiative.  Up in Northern California, Menlo Park is attempting a similar type of initiative.  (See article here.)  There are also several other cities considering similar measures.  It will be interesting to see which of these pass on election day. 

Public Safety Employer-Employee Cooperation Act of 2009: What California Public Employers Need to Know

According to some reports, the Senate may be voting on S. 3194 as early as this week as part of a larger appropriations bill. S. 3194 is titled the “Public Safety Employer-Employee Cooperation Act of 2009” and would establish collective bargaining for state and local firefighters, police officers, and paramedics throughout the nation. Currently, state and local employees are excluded from the National Labor Relations Act (NLRA). Under S. 3194, state and local public safety employees would come under the jurisdiction of the Federal Labor Relations Authority (FLRA). Upon enactment, the FLRA would have 180 days to determine, “whether a State substantially provides for the rights and responsibilities” provided in S. 3194. If the FLRA finds that a state already provides the rights and responsibilities set forth in S. 3194, then the state would be exempted from the requirements of the new law.

Pursuant to S. 3194, a state would have to provide substantially the following rights and responsibilities in order to be exempted from the law:

(1) Granting public safety officers the right to form and join a labor organization, which may exclude management employees, supervisory employees, and confidential employees, that is, or seeks to be, recognized as the exclusive bargaining representative of such employees.

(2) Requiring public safety employers to recognize the employees' labor organization (freely chosen by a majority of the employees), to agree to bargain with the labor organization, and to commit any agreements to writing in a contract or memorandum of understanding.

(3) Providing for the right to bargain over hours, wages, and terms and conditions of employment.

(4) Making available an interest impasse resolution mechanism, such as fact-finding, mediation, arbitration, or comparable procedures.

(5) Requiring enforcement of all rights, responsibilities, and protections provided by State law and enumerated in this section, and of any written contract or memorandum of understanding between a labor organization and a public safety employer, through--

(A) a State administrative agency, if the State so chooses; and

(B) at the election of an aggrieved party, the State courts.

In California, state law (EERA, HEERA, MMBA, and the Dills Act) already provides all of these rights to public safety employees with one possible exception. Under S. 1394, a state would have to make available “an interest impasse resolution mechanism, such as fact-finding, mediation, arbitration, or comparable procedures.” I'm not sure what this means.  The term “interest” when used with “arbitration” has a very distinct meaning in labor relations.  In California, there is a statute providing for interest arbitration for police and firefighters. (See CCP, §1299.) However, that statute has been found unconstitutional by the courts and never enforced. So would S. 3194 require interest arbitration? It’s not clear. What’s confusing is that S. 3194 also allows for “fact-finding” and “mediation.” However, there really is no such thing as “interest fact-finding” or “interest mediation” in the labor relations world.  So it's really not clear from the statute what meaning is attached to the term "interest."  The fear would be that because of the ambiguity, the FLRA might promulgate regulations interpreting S. 3194 as requiring some form of interest arbitration. If so, that would definitely be a change for California public employers.

Regardless of whether S. 3194 requires interest arbitration, it certainly does require some type of “impasse resolution mechanism.” That may be an issue under the MMBA which does not require any form of mediation or anything similar upon impasse. However, the vast majority of local agencies have mediation or fact-finding as part of their local rules. So this particular requirement won’t affect the vast majority of local employers, but may affect a few.

Supreme Court to Review State Furlough Case

California Attorneys, Administrative Law Judges and Hearing Officers in State Employment v. Schwarzenegger (2010) 182 Cal.App.4th 1424, review granted, 106 Cal.Rptr.3d 702.

The California Supreme Court has granted review in CASE v. Schwarzenegger. Pursuant to the order granting review, the issue before the Court is, “Does the Governor have the authority to furlough the state employees at issue in this case by executive order?” While this sounds like something that might have far-reaching effect throughout the state, the reality is that the decision will likely be much more limited. In CASE v. Schwarzenegger, the issue is whether the Governor’s furlough authority extends to employees of the State Compensation Insurance Fund (SCIF). Both the trial court and appellate court held that the Governor could not impose furloughs on SCIF employees because of Insurance Code section 11873, which provides:

“Notwithstanding any provision of the Government Code or any other provision of law, the positions funded by the State Compensation Insurance Fund are exempt from any hiring freezes and staff cutbacks otherwise required by law.”

If this case is decided solely based on Insurance Code section 11873—which is unique to SCIF—then it will have virtually no impact on other public employees.

However, what is interesting is the other part of the Court’s order granting review in which the Court states, “Review in this case may be undertaken in conjunction with possible consideration of similar issues in cases that are pending in the courts of appeal.”  So what does that mean?  It seems like the court is saying that it might extend the CASE v. Schwarzenegger case to include arguments raised in the state employee furlough cases pending in the lower courts.  Those cases directly raise the issue of whether the Governor has the authority to impose furloughs on state employees absent Legislative action.  Thus, CASE v. Schwarzenegger could have far-reaching implications if the Court considers those other cases.

The briefing schedule set by the Court is very quick.  The Governor's brief is due June 9, 2010 and the union's brief is due on June 29, 2010.  With this schedule, we could have oral argument by the Fall.

Mendocino Attorneys Not Entitled To 1% Raise Under Former MOU

[UPDATE (5/20/10): Just received word that MCPAA has filed an appeal of this decision, so it's not yet final.]

County of Mendocino (2010) PERB Decision No. 2104-M (Issued on 4/21/10)
Facts:

In 2006, the Mendocino County Public Attorneys Association (MCPAA) successfully petitioned to remove several attorney classifications from bargaining units represented by two other unions, the Mendocino County Management Employees Association (MCMEA) and Service Employees International Union (SEIU). Under the MCMEA and SEIU contracts, the attorneys would have gotten a 1% salary increase effective September 2006 if they had remained in those bargaining units. The County’s position was that the attorneys were no longer entitled to the 1% salary increase since they were no longer part of the bargaining units represented by MCMEA and SEIU; and because the MCPAA had not yet negotiated a similar raise for its new unit.

However, in September 2006, all the attorney classifications nevertheless received a 1% salary increase. The County claimed that the increases were given by mistake and stopped them after 3 months. The County also took steps to recoup the mistakenly granted increases but stopped those efforts in response to objections from the MCPAA. MCPAA then brought this unfair practice charge alleging that the County committed an unlawful unilateral change by refusing to give attorneys the 1% salary increase. MCPAA also argued that the County’s efforts to recoup the money constituted a separate unlawful unilateral change.

Decision:

With respect to the denial of the 1% salary increase, PERB affirmed the ALJ’s proposed decision dismissing that charge. PERB held that since the attorneys were no longer in the bargaining units represented by MCMEA or SEIU, they were not entitled to the raises negotiated by MCMEA or SEIU. Specifically, the Board affirmed the ALJ’s finding that:

“Not inconsistent with the same line of authority, the NLRB has found that absent other proof [of] interference with employee free choice an employer is entitled to withhold benefits that employees would have obtained had they remained unorganized so long as the employer engages in good faith bargaining. (Chevron Oil Co. (1970) 182 NLRB 445, 449, citing Shell Oil Co. (1948) 77 NLRB 1306; McGraw-Edison Co. (1968) 172 NLRB 1604, 1609-1610.)”

With respect to the County’s attempted recoupment of the mistakenly given increases, PERB also affirmed the ALJ’s dismissal of that charge. In the proposed decision, the ALJ held that:

“Although the complaint alleges that the recoupment action constituted another aspect of the unilateral change, I find no violation because the County in reasonably short order desisted from collection of the overpaid compensation. The evidence does not demonstrate a change of generalized effect or continuing impact (i.e., a conscious creation of a new policy). [citations omitted]”

Comments:

1. This case is instructive because it involves an issue that arises fairly often in the public sector, but not too often with any single employer: what happens when there is a change in representation? Here, PERB affirmed that employees must take the bad along with the good when it comes to exercising free choice in representation. In this case, because the attorneys chose to create their own bargaining unit with a new exclusive representative, they weren't entitled to the salary increases due under their prior contract. That makes sense but its something employees, and employers, often don't realize.
2. My only other comment is on the issue of the County’s attempted recoupment of the money. The ALJ dismissed that charge—and the Board affirmed—because the County never actually recouped the money so there wasn’t any “unilateral change.” However, given that PERB had already held that the attorneys were not entitled to the money, and especially since everyone agreed that the raises were given by mistake, why would it have been a unilateral change if the County actually recouped the money? Seems to me the County would have been within its right to recoup the money; and arguably had a duty to the public to do so. So that part of the decision doesn’t make sense to me. However, one can argue that since PERB found no change, it didn’t have to reach the issue of whether the subject matter (ie recoupment of mistakenly given money) was within the scope of representation. That’s true; and that’s how I think that portion of the case should be interpreted.

PERB: It's Interference To Offer Better Benefits to Non-Union Members

State of California (Department of Personnel Administration) (2010) PERB Decision No. 2106-S (Issued on 4/30/10)

Facts:

The contract between the State of California (State) and the California Correctional Peace Officer Association (CCPOA) provided that dental and vision benefits would be provided to bargaining unit members through the CCPOA Benefit Trust Fund, an independent corporation established by CCPOA.  Through the CCPOA Benefit Trust Fund, an employee with two dependents would pay $41.80 per month for the dental benefit.

In October 2007, CCPOA informed the State that non-members (ie fair share fee payers) would no longer be provided dental and vision benefits through the CCPOA Benefit Trust Fund. As a result, the State informed the fair share fee payers that they would automatically be enrolled in the state-sponsored dental and vision plans. Under the state-sponsored dental plan, an employee with two dependents would pay $30.94 per month.  CCPOA then filed an unfair practice charge alleging both discrimination and interference. CCPOA asserted that the State unlawfully offered a lower cost dental benefit not provided to CCPOA members.

Decision:

In its decision, the Board affirmed the dismissal of the discrimination charge based upon its finding that there was no adverse action. However, the Board reversed the dismissal of the interference charge. The Board stated:

“[T]he lower cost dental benefit was not offered to union members. Providing benefits at a lower cost to non-union members, while excluding union members from this option, tends to result in at least slight harm to employees who choose to exercise the right to join a union. A reduced benefit cost available only to non-union members may influence an employee’s decision to join the union. Accordingly, the charge states a prima facie case of interference.”

The Board noted that because the only issue was whether CCPOA stated a prima facie case, the issue of whether the State’s actions were justified due to operational necessity and/or circumstances beyond the employer’s control would be addressed at a formal hearing.

Member McKeag dissented from the majority opinion. In her dissent, she stated:

"In the instant case, CCPOA members continued to enjoy the exact same dental benefits after the implementation of the State’s last best and final offer. When CCPOA Benefit Trust Fund refused to provide dental benefits to the former CCPOA agency fee payers, the State was faced with a choice to either offer these employees the dental benefit currently offered to non-CCPOA members or to provide no dental benefit. Clearly, the latter option was untenable and would have likely resulted in litigation. Therefore, the State had only one legitimate option, benefits available to other non-Bargaining Unit 6 members simply does not constitute a harm in this instance.”

Comments:

1. My initial reaction was that CCPOA had a lot of nerve bringing this case. This whole situation was started when CCPOA kicked its fair share fee payers out of the CCPOA Benefit Trust Fund. CCPOA had a right to do this—and maybe it even had a good reason—but clearly CCPOA itself was “discriminating” against non-union members. For CCPOA to then bring a charge against the State for “discriminating” against union members is a classic case of the pot calling the kettle black.
2. With respect to the interference charge, it’s a close call if you’re solely focused on the prima facie case. Is it interference for an employer to offer non-union members a better benefit than union members? Sure, by itself that’s a problem. However, here the State had to provide the fair share fee payers a dental plan. Could the State have also offered its plan to union members? We need more facts but that likely would just have brought a separate unfair practice charge by CCPOA.
3. Regardless, it seems clear to me that the State is going to prevail at hearing based on its legitimate business reasons. I’m assuming that the dental-plan the State offered to the fair share fee payers was the same plan offered to other State employees. If so, there’s nothing the State can really do if it just happens that its own plan is cheaper than CCPOA’s.
4. The dissent would have short-circuited the formal hearing by just ruling on the State’s legitimate business reasons at the charge review stage. As a management attorney, I certainly see the benefit of taking that approach. There are a lot of cases where I would like the Board agent to consider my client’s legitimate business reasons before deciding whether to issue a complaint. However, as it stands, the rule is still that a respondent’s affirmative defenses are to be considered at the formal hearing state, and not at the charge review stage.