In Retired Employees Association of Orange County, Inc. v. County of Orange (November 21, 2011) 2011 WL 5829598, a unanimous California Supreme Court ruled public employees can receive constitutionally-protected vested rights by way of implied contract terms. The holding means public employers can be liable for promises made to employees, even if they do not formally adopt them by ordinance. The case has been closely watched for its broad implications on labor relations, employee compensation, and pension benefits.
The case arose after Orange County substantially increased the cost of retirees' health insurance premiums by splitting retirees into a separate pool from active employees for calculating premiums. The retirees filed suit in federal court, arguing they have a vested right to premiums calculated from a joint pool. The County claimed the retirees have no vested rights because the MOUs under which they retired did not expressly indicate how the cost of retiree health benefits would be calculated. The District Court sided with County, finding the County could not be liable because it did not explicitly confer vested rights through an ordinance. The retirees appealed and the federal Court of Appeals asked the California Supreme Court to decide the issue.
The Court held the County could be held liable for its promises to employees, regardless of whether it expressly adopted them through an ordinance. The Court reasoned employees could hold their employer accountable for the implied terms of a contract, such as the duration of a benefit. As a result, the Court concluded, "[w]hether an implied term creates vested rights... is a matter of the parties' intent" and general contract principles apply to determine the intent.
The Court went on to reject the County's argument that vesting should be treated differently, noting "[n]either County nor amici curiae [] offer any legal authority for this distinction." As a result, the Court concluded, "[v]esting remains a matter of the parties' intent." Once intent is established, the implied terms are treated as part of the contract and are protected by the Contract Clause of the California and federal constitutions.
The case arose after Orange County substantially increased the cost of retirees' health insurance premiums by splitting retirees into a separate pool from active employees for calculating premiums. The retirees filed suit in federal court, arguing they have a vested right to premiums calculated from a joint pool. The County claimed the retirees have no vested rights because the MOUs under which they retired did not expressly indicate how the cost of retiree health benefits would be calculated. The District Court sided with County, finding the County could not be liable because it did not explicitly confer vested rights through an ordinance. The retirees appealed and the federal Court of Appeals asked the California Supreme Court to decide the issue.
The Court held the County could be held liable for its promises to employees, regardless of whether it expressly adopted them through an ordinance. The Court reasoned employees could hold their employer accountable for the implied terms of a contract, such as the duration of a benefit. As a result, the Court concluded, "[w]hether an implied term creates vested rights... is a matter of the parties' intent" and general contract principles apply to determine the intent.
The Court went on to reject the County's argument that vesting should be treated differently, noting "[n]either County nor amici curiae [] offer any legal authority for this distinction." As a result, the Court concluded, "[v]esting remains a matter of the parties' intent." Once intent is established, the implied terms are treated as part of the contract and are protected by the Contract Clause of the California and federal constitutions.
