Ninth Circuit Finds Implicit Vesting of Public Employee Retiree Health Benefits Plausible, Reverses District Court’s Decision to Deny Leave to Amend
February 27, 2013 by Teague Paterson
Sonoma County retirees sued their former county employer for reducing the value of their retiree health benefits, alleging their benefits were contractually guaranteed or vested under state law. The U.S. District Court for the Northern District of California dismissed their complaint, without further leave to amend, on the basis that because no county statutes or ordinances contained any express guarantee of benefits, in the absence of any county legislative action to the contrary the retirees’ claims failed as a matter of law. On appeal, the Ninth Circuit reversed the denial of leave to amend, citing the California supreme court’s decision in Retired Employees Association of Orange County v. County of Orange (“REAOC”), issued in the interim, which held that because collective bargaining agreements are binding contracts adopted through official action pursuant to the Meyers-Milias-Brown Act, and like any contract may include implied or unexpressed terms, implied vesting of retiree health benefits can may arise under them. Turning to the facts alleged in the Sonoma County retiree’s complaint, the Ninth Circuit found the amended complaint contained sufficient allegations of implicit vesting of retiree health benefits, supported by the text of collective bargaining agreements, written communications, a long-standing course of conduct and indications of the County’s intent to provide the benefits in perpetuity. If proved, the Ninth Circuit reasoned, these allegations were sufficient for a trier of fact to reasonably conclude the benefits were vested. Because the complaint lacked allegations indicating that these promises were made attendant to agreements ratified or adopted through official legislative action, as in REOAC, the Ninth Circuit affirmed dismissal, but found it was error not to grant leave to amend in order to provide the opportunity to include such allegations consistent with REAOC, and remanded the case on that basis.
The case is Sonoma County Association of Retired Employees v. Sonoma County, No. 10-17873 (9th Cir., Feb. 25, 2013).
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