Health benefits for government retirees may not be eliminated if state and local governments had clearly promised workers those benefits, the California Supreme Court ruled in an Orange County case Monday.
The unanimous ruling is expected to make it more difficult for state and local governments to shave costs by cutting health benefits to retirees if elected officials in previous years made it clear that those benefits would last a lifetime.
The state high court decided that retired Orange County employees may be able to show they had an implied contract that prevented the county from changing a healthcare plan in a way that caused the premiums of many retirees to skyrocket.
“Under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution,” Justice Marvin R. Baxter wrote for the court.
Retirees sued Orange County in 2007 after it revamped the health benefit program to save money. A federal trial court sided with the county. An appeals court, which is now considering the case, asked the California Supreme Court to clarify state law in the case.
“This decision says that when you are in the process of doing public employee pension reform, you have to respect the rights of current retirees,” said Ernest Galvan, a lawyer who represented more than 5,000 Orange County retirees and their family members.
“If you promised them a particular benefit when they were working and promised that would be part of their retirement, then that is a promise you have to keep.”
But lawyers for cities and counties said they were pleased the court established a hurdle for showing that such promises were made.
“The good news for cities and counties is that the court made it clear that you need very strong evidence that the [elected officials] intended to create a lifetime benefit,” said Jonathan V. Holtzman, who represented associations of California cities and counties.
Arthur A. Hartinger, who represented Orange County, said the county changed the health insurance plan to ensure it could survive.
“This was about saving a plan that was on the verge of bankruptcy,” Hartinger said. “Almost all the retirees have remained covered in group health insurance.”
The case will now return to the U.S. 9th Circuit Court of Appeals. Lawyers said they expect the lawsuit to be sent back to the trial court to determine whether there was evidence of clear promises.