Retired County Employees Sufficiently Alleged County's Implied Contract to Provide Healthcare Benefit in Perpetuity

The court of appeals affirmed in part and reversed in part a district court judgment. The court held that retired county employees made a sufficient showing of an implied contract to provide them a certain healthcare benefit in perpetuity to support their claim that the county breached that contract by reducing the benefit.

Retired employees Gaylan Harris and others sued the County of Orange after it restructured various benefits previously provided them. The retirees argued, among other things, that the restructuring violated an implied contract to provide them a monthly grant (the "grant benefit") to defray the cost of health care premiums.

The district court granted the county's motion to dismiss.  However, the court of appeals reversed in part, holding that the district court erred in dismissing the retirees' contractual claim.

In order to survive the county's motion to dismiss, the retirees' complaint needed to plausibly allege that the county (1) entered into a contract that included implied terms providing healthcare benefits to retirees that vested for perpetuity; and (2) created that contract by ordinance or resolution. The retirees made such a showing. They alleged the existence of annual memorandums of understanding (MOUs) establishing a right to the grant benefit. They further alleged that they "had an implied contractual right to receive the grant benefit…throughout their retirement." In support, they made specific allegations regarding the basis for this implied right, including allegations regarding the course of negotiations for the grant benefit. These allegations plausibly supported the conclusion that the county impliedly promised a lifetime benefit that could not be unilaterally eliminated or reduced. Among other things, they alleged the establishment of a long-term funding mechanism, including the commitment of a large sum of money.

This allegation undermined the county's contention that there was no promise to provide the grant benefit beyond the duration of any single one-year MOU. They further alleged that active employees were required to contribute 1% of their wages to fund the grant benefit, which allegation supported the notion that the parties intended the benefit to be available for employees throughout their retirements, rather than eliminated or reduced before employees could fully benefit from their earlier contributions. Because the county did not dispute that the annual MOUs were adopted by resolution of the county board of supervisors, the district court erred in dismissed the retirees' contract claim regarding the grant benefit.


Harris v. County of Orange, Septembner 7, 2018

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