Thanks to Roy Harmon for alerting me to this very interesting Seventh Circuit opinion written by Judge Posner : Orth v. Wisconsin State Employees Union Council 24, et al.
The facts as paraphrased from the first of the two lower District Court opinions (no link unfortunately):
The case involves a retiree who retired from a job with the Wisconsin State Employees Union (“WSEU”) Council 24, which was the union representing employees of the State of Wisconsin. The WSEU’s employees were themselves represented by a union, called the Council Employees Union, or CEU. The CEU and WSEU were governed by a collective bargaining agreement (“CBA”). Since 1973 the CBA had provided that, upon retirement, an employee’s unused sick leave would be used to pay insurance premiums: “At the time of retirement, any unused sick leave shall be used to pay Blue Cross–Blue Shield premiums for the employee and spouse and /or dependents.” It also provided that “[p]ayment of premiums will be on the same basis as the benefit is currently paid for employees.” 90% of employees’ premiums were paid by the employer.Between the time that this clause was added to the CBA and Orth’s retirement in 1998, only two individuals retired from the WSEU. Each retiree had his full premiums paid for out of unused sick leave funds–that is, the WSEU did not cover any portion of the premiums. When Orth retired, the same happened. No one seemed to notice until 2006, when Orth received a letter from the WSEU informing him that his sick leave funds (which had totaled some $42,000) had dried up. If he wished to continue funding his health insurance, he would have to pay the monthly premium of $1109.44 out of pocket. After attempting to work out the dispute with his former employer, Orth brought a lawsuit alleging breach of the CBA, which he believed required the WSEU to pay 90% of his health insurance premiums after he retired.
The union tried to argue that there was either a latent or patent ambiguity in the terms of the CBA, or in the alternative, that there had been a modification of the CBA. However, both the District Court and the Seventh Circuit disagreed. (For those who enjoy the old 1864 Peerless case which you probably studied in law school, both the District Court opinion and the Seventh Circuit opinion include a discussion of this case.)
The result? The Seventh Circuit upheld the District Court’s award of $36,000 restored to Mr. Orth’s sick leave account ($40,000 minus 10 percent) plus $7,200 in premium reimbursement, and upheld the defendant’s payment of the plaintiff’s attorneys fees in the amount of $41,000. In addition, Judge Posner chided the defendants and their lawyers:
The defendants challenge the district judge’s awarding attorneys’ fees to the plaintiffs. They argue that the judge was mistaken to think that there had been no reasonable basis (or, equivalently, as the Supreme Court noted in Pierce v. Underwood, 487 U.S. 552, 565-66 (1988), “substantial justification”) for the defendants’ position. . . The judge made no mistake. No careful lawyer could have thought this a case of latent ambiguity or valid modification. And for the defendants to use their deceptive conduct toward the retired employees as a basis for trying to duck liability was shabby. The only questionable aspect of the district judge’s opinion is his statement that the defendants were acting throughout in good faith.
There are some really great lessons for all from the District Court and the Circuit Court opinions:
(1) Statements in collective bargaining agreements can give rise to unintended ERISA plans. The district court opinion includes a discussion of this issue:
An ERISA “plan” is not an entity or a piece of paper, but a more inchoate group of rights, benefits and procedures (literally, a “plan”) set up by an employer to create pension or welfare benefits. See Pegram v. Herdrich, 530 U.S. 211, 223, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (noting that a plan is merely a “scheme decided upon in advance” for the provision of benefits). The plan may be evidenced by a summary plan description (SPD) and any other documents, such as a CBA, that describe the rights of beneficiaries or such things as how the plan is administered, how premiums are collected, etc. In other words, the fact that the plaintiff’s dispute may arise solely from a clause in a collective bargaining agreement does not mean that the dispute does not also implicate the terms of an ERISA plan. In fact, hybrid ERISA/LMRA claims are commonly asserted, even when the dispute is resolved by reference to a CBA rather than merely a plan–specific document.
(Read about another interesting case here which held that a merger agreement acted as a plan amendment to an ERISA retiree medical plan.)
(2) The clause that states “[p]ayment of premiums will be on the same basis as the benefit is currently paid for employees” or similar language occurs in a lot of retiree medical plan language and should be promptly reviewed and revised, if necessary. Normally, such language is meant to portray exactly what the defendant’s lawyers tried to argue in the case:
The defendant also suggests patent ambiguity because the clause refers to both benefits and premiums: “Payment of premiums will be on the same basis as the benefit is currently paid for employees.” In the defendant’s reading, this means only that retirees will receive the same level of benefits as active employees–not that they will have their premiums paid at the same level.
However, with judges reading such language to mean that the employer, by making that statement, is committing to the same level of premiums for retirees as it has for active employees, employers should make sure that they review such language and clarify it to say exactly what they mean. Normally, such language can be revised to make it more clear, but if the language is in a benefits booklet or SPD prepared by an insurance company, you may have more of a challenge getting it revised.
(3) These types of programs should be clearly communicated to active employees and retirees. When changes are made, those changes should also be communicated. One of the things that was sadly absent from the facts of the case, from an employer’s standpoint as well as the employee’s standpoint, was the communication aspect. Excerpt from the district court opinion:
WSEU is a small organization with little experience providing retirement benefits, and thus the issue only emerged from under the radar after Orth, who had no doubt thought he was set for life, found himself with no benefits. Rather than establishing some sort of clear understanding between the employees’ union and the WSEU, the evidence only shows that the parties were not fully cognizant of what the CBA actually provided.
(By the way, you can access a number of links here at Benefitsblog which reference Judge Posner’s court opinions impacting the benefits world.)