Court Says a Promise Is a Promise

by Patricia Guadalupe  |  November 22, 2011

Imagine relaxing in your golden years, assured that your health benefits will be there for you in retirement as you were promised. Sounds nice, right? Now imagine local and state governments using the current economic downturn as an excuse to cut that coverage. Wait, they can’t do that, you say. The California high court agrees.

In a big win for retired employees of the Golden State that could have implications nationwide, the California Supreme Court unanimously ruled that if a city or county set retirement health coverage at a certain level and implicitly promised to maintain it at that level, it can’t rescind that pledge and reduce benefits for employees who have retired.

“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 Baxter wrote. In other words, a city or county’s dealings with its employees – including in labor negotiations and in the rules and practices of their retirement plans – is considered a “binding promise” of unchanging health benefits. 

California law states a promise is a promise that has to be kept, the court declared in interpreting state law at the request of the U.S. 9th Circuit Court of Appeals, which is considering a lawsuit brought by Orange County retirees.  

In 2007, more than 5,000 retirees and survivors sued Orange County over a proposal to increase their health insurance premiums. The retirees said the increase would have a devastating effect, hitting their limited income an average of $3,000 annually. A state court sided with the county, and the retirees appealed.

An appeals court ruling is expected by next spring.

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