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A Better Partnership
April 21, 2017

COA held vested retirement rights may not be altered without the retiree’s consent

In Kendzierski v County of Macomb, No. 329576, the COA held vested retirement rights may not be altered without the retiree’s consent. The COA held the trial court properly determined retirement rights had vested, however had erred by determining that defendant may reasonably modify the scope and level of the healthcare benefits without plaintiffs’ consent.
 
Plaintiffs represent a class of retirees covered under various Collective Bargaining Agreements (“CBAs”) with defendant. The issue is whether defendant was permitted to make unilateral changes to retiree healthcare benefits outlined in several CBAs. The parties dispute (1) whether plaintiffs have a vested right to lifetime healthcare benefits, and (2) if so, whether defendant was permitted to make unilateral changes to the healthcare benefits.
 
In determining whether plaintiffs’ right to healthcare benefits had vested, the COA first examined the CBAs language at issue in the context of accepted principles of contract interpretation.  The court found, under established contract principles, vested retirement rights may not be altered without the retiree's consent. Harper Woods Retirees Ass’n v Harper Woods, 312 Mich App 500, 511; 879 NW2d 897 (2015). The MSC in Arbuckle v Gen Motors, LLC, 499 Mich 521, 539; 885 NW2d 232 (2016), recently observed that “a union may represent and bargain for already-retired employees, but only with respect to non-vested benefits. By contrast, when an employer explicitly obligates itself to provide vested benefits, that promise is rendered forever unalterable without the retiree’s consent.”
 
Since the contract provision indicated that the parties contemplated that the retirees will receive healthcare benefits far beyond the three-year term of the CBAs, the COA found a latent ambiguity with regard to whether the parties intended for the retiree benefits to vest. Thus, the COA determined that the trial court properly examined extrinsic evidence to determine the meaning of the CBAs by examining a 2014 bond funding proposal, accompanied by a letter from the Macomb County Executive. The bond proposal, read, “The County provides retiree health benefits to eligible County retirees (and their eligible beneficiaries) for their lifetimes.” The proposal acknowledged that the practice of funding retiree healthcare benefits began 20 years earlier. Additionally, the proposal provided, “Historically, Macomb County has offered retiree healthcare to vested employees as part of their benefit package.” Accordingly, the COA concluded that plaintiffs presented unrefuted evidence establishing the intent of the parties to provide lifetime healthcare benefits to retirees and that the retiree's healthcare benefits were vested.
 
The next issue is whether the trial court correctly concluded that defendant maintained the ability to modify the healthcare coverage in spite of the fact that the healthcare benefits are vested. The COA disagreed with the trial court’s conclusion that defendant could modify the healthcare benefits without plaintiffs’ consent. In Harper Woods, this Court clarified that a party to a contract may not unilaterally alter the contract and that when an alteration of a CBA affects a party’s vested rights, the change may give rise to a breach of contract action. See Harper Woods, 312 Mich App at 508. The COA further rejected the trial court’s use of a reasonableness standard to determine whether the defendant properly altered the retirees’ healthcare benefits without the consent of the retirees.

Defendant failed to provide any evidence indicating that plaintiffs' consented to the alteration in the healthcare benefits. Therefore, the COA held that plaintiffs have a vested right to lifetime healthcare benefits and further concluded that the defendant may not reasonably modify the scope and level of the healthcare benefits without plaintiffs’ consent. Accordingly, the COA remanded this case to the trial court for entry of an order granting summary disposition in favor of plaintiffs and granting plaintiffs’ motion for a permanent injunction in conformance with this opinion. 

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