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.
