California Supreme Court Holds Counties May be Bound by Implied Contracts to Provide Health Benefits to Retired Employees

November 22, 2011, by Arthur A. Hartinger,

In Retired Employees Association of Orange County, Inc. v. County of Orange (“REAOC”), the California Supreme Court addressed a question posed to it by the Ninth Circuit: “Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.”  REAOC, No. S184059, at *1 (Cal., filed Nov. 21, 2011). 

In REAOC, retired employees challenged the County’s 2007 decision to split active employees and retirees into separate pools for purposes of calculating health insurance premiums.  REAOC argued that the County’s decision constituted an impairment of contract, and that the long-standing practice of pooling had created an implied contractual right to a continuation of a single unified pool for retirees and actives. 

The California Supreme Court held “that a county may be bound by an implied contract under California law if there is no legislative prohibition against such arrangements, such as a statute or ordinance.”  REAOC, at *1.  The Court did not address the question of whether an implied vested right existed for Orange County retirees.  Accordingly, the case now returns to the Ninth Circuit for that determination.

For further analysis, click here.  To read the Court’s full decision in REAOC v. County of Orange, click here

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