The Mastagni Firm won a landmark decision from the Los Angeles Superior Court invalidating the City of Los Angeles’ attempt to cap employees’ retiree medical benefits. In an order issued last week, the court held that the cap impaired Deputy City Attorneys’ vested rights to a retiree medical subsidy. The court granted LACAA’s petition for a writ directing the City to compute and provide the health insurance subsidy without regard to the freeze ordinance. The impact of this decision has been estimated at approximately $71,000,000. The ruling follows the Mastagni Firm’s similar victories in Pacific Grove and Stockton defending employees’ constitutionally protected vested rights against contract impairments.
In 1973, the City enacted a retiree medical premium subsidy to provide its retirees no-cost or low-cost health insurance. Over the years, the City amended the program to ensure the subsidy kept pace with increases in retiree medical costs. In 2011, the City froze the retiree medical subsidy at $1,190 per month, claiming employees did not have a vested right to increases and that the savings were needed to address the City’s supposed “fiscal emergency.”
The Los Angeles City Attorneys’ Association (“LACAA”) sought a writ of mandate to prevent the City from enforcing the freeze ordinance and requiring the City to set the subsidy without reference to the freeze. The City denied the existence of any vested right, asserting that it had the legislative authority to make whatever changes to retirement benefits it wanted.
The court ruled the freeze unconstitutionally impaired a vested right to receive the subsidy. The court found that the City’s Administrative Code “evidence[d] a clear legislative intent to create private contractual rights in the provision of a medical subsidy that covers all or part of the cost of an employee’s medical plan.” The court further found the Administrative Code “create[d] a vested right in a medical subsidy that covers part or all of the costs of a medical plan to eligible employees.” The court rejected the City’s defense, ruling the “reservation of rights” did not defeat the finding.
To survive constitutional scrutiny, any changes in pension benefits must be materially related to the theory of a pension system, and any change that results in disadvantages to the affected employees must be accompanied by comparable new advantages.
The court found that the freeze resulted in a disadvantage to LACAA’s members because “a fixed benefit system is disadvantageous when compared to fluctuating or fluid benefit system.” The court then found the freeze ordinance “merely establishes a disadvantage – a frozen subsidy amount of $1,190 – and fails to establish any comparable new advantages.” Rejecting the City’s claim that the disadvantages resulting from the freeze ordinance were offset by the subsidy the City created for employees whose unions agreed to increase their pension contributions, the court noted that “getting the same benefit as before, at the expense of contributing an extra 4%, hardly constitutes a comparable new advantage.”
The court further found that the freeze ordinance was not materially related to the theory of the pension system. According to the court, “because the apparent goal of the freeze ordinance is to resolve the City’s pending fiscal emergency, the ordinance is not materially related to the theory of a pension/medical subsidy system and its operation.” The court was also troubled that the freeze was not a temporary measure, stating “it is a permanent and progressively more onerous impairment of a vested right to a medical premium subsidy.”
The court affirmed that retirement benefits are constitutionally protected, and cannot be impaired to address fiscal woes. In these difficult economic times, employee organizations must be vigilant in protecting the benefits their members earned through years of public service. We strongly urge every employee organization to promptly consult qualified legal counsel to determine the legality of any attempt to cut employees’ retirement benefits.