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In mid-February, the New York State Court of Appeals issued a decision with important collective bargaining implications for public employers in New York State, including school districts. The ruling in Donohue v. Cuomo [38 N.Y.3d 1 (2022)] stated that health insurance benefits for retirees – specifically premium contributions – may be subject to modification by a public employer after a collective bargaining agreement (CBA) expires, unless there is specific language expressly guaranteeing a lifetime benefit. As a result, public employers can expect union representatives to seek new language in CBAs to explicitly promise retirees lifetime access to health insurance coverage with premiums at a fixed contribution rate. Also, superintendents and other administrators are likely to ask for more explicit language on retiree health benefits in their contracts. The Court of Appeals emphasized the importance of exactitude in contract language.

This decision may result in the lengthening of the collective bargaining process and possibly litigation, as both employers and employee organizations attempt to reconcile the Donohue decision with typical contract language that simply promises health care coverage “during retirement” rather than “for life.”

Changes to retiree health insurance benefits

Donohue v. Cuomo involved retirees’ rates of contribution for health insurance provided by the New York State Health Insurance Plan (NYSHIP), an optional health-benefit plan established by the Legislature in 1956 for both active and retired government employees. A majority of New York school districts provide NYSHIP coverage as “participating municipalities.”

From 1956 until 1982, the state paid 100% of employees’ and retirees’ cost for individual NYSHIP coverage and 75% of costs for dependents. Pursuant to an agreement entered into in 1982, the state reduced its contribution rate for individual coverage from 100% to 90%, effective Jan. 1, 1983.

In 1982, the Civil Service Employees Association (CSEA) entered into a memorandum of understanding that reduced the state’s contribution to the cost of premium charges to 90% for individual coverage. Importantly, the memorandum did not explicitly fix these contribution rates for retirees for life, which became the main issue in Donohue v. Cuomo. Over the next 28 years, the labor agreements simply promised the continuation of health care coverage “during retirement.”

The Great Recession prompted state officials to explore ways to reduce state expenditures. In June 2011, CSEA and the state agreed to a CBA for 2011-16 reducing the state’s contribution to NYSHIP premiums based on employee salary grade by 2%. In August 2011, the Legislature amended Civil Service Law section 167(8) to allow the state budget director to extend these new modified premium contributions to retirees who were not subject to the 2011-16 CBA. The state then unilaterally applied the reduced payment of premiums to CSEA retirees who retired under prior CBAs.

This led to a federal lawsuit on behalf of CSEA members who retired under a CBA in effect from 2007-11. The U.S. District Court for the Northern District of New York concluded that the 2007-11 CBA unambiguously did not provide for a perpetually fixed contribution rate in retirement [347 F.Supp.3d 110 (N.D.N.Y 2018)].

No “vested right” to unchanging insurance premiums

When the plaintiffs appealed, the federal court certified two questions to the New York State Court of Appeals seeking answers regarding New York law [930 F.3d 53 (2d Cir. 2020)]. The question answered by the court is paraphrased below:

Could it be inferred from contract language that the retirees have a “vested right” under the 2007-11 CBA to have their rates of contribution to health insurance premiums remain unchanged during their lifetimes?

The New York Court of Appeals said that our state’s law does not permit an inference to be drawn of a vested right to lifetime fixed health premium contributions based upon a simple contract “promise” to provide health care “during retirement.” It is significant because simple language promising “health care coverage during retirement,” rather than for life, appears in most public sector labor contracts in New York State.

This decision will raise anxiety among countless school district unions and district employees because they may be required to pay higher health insurance premiums after the termination of their current CBA. Even more daunting, the question is now open as to whether the absence of a lifetime promise in current contract language gives employers the option to cease providing a health insurance benefit to retirees altogether after a given CBA expires. As such, unions can be expected to seek to negotiate with public employers to provide an express contractual promise of lifetime fixed premium contributions.

Undecided issues

The Court of Appeals failed to address certain laws and policies relevant to the issues at hand. In that regard, it is important to note that the court did not address the May 15, 2009, amendment to Chapter 729 of the Laws of 1994, which requires that employer health insurance premiums for retirees may not be reduced unless there is a corresponding reduction during the same school year to the premiums paid by employers for active members of the bargaining unit from which the retirees retired. Arguably, this amendment would bar the elimination of retiree benefits.

Additionally, the decision did not discuss or even mention conflicting NYSHIP policy that requires a certain level of employer contribution. NYSHIP policy and the Civil Service Law Section 167 requires participating agencies to provide a minimum employer contribution rate of 50% for individual coverage and 35% of the difference between individual and family premiums for dependent family coverage during retirement.

Furthermore, the court’s sparse analysis failed to address the Triborough Amendment of the Taylor Law, which makes it an improper practice for a public employer or its agents to deliberately “refuse to continue all the terms of an expired agreement until a new agreement is negotiated” unless the employee organization has engaged in a prohibited strike. Does the Triborough Amendment require continued coverage after the expiration of a CBA for any unit members retiring in between the expiration and settlement of a new agreement?

Moving forward, Donohue may significantly impact public labor negotiations in New York State. Unions will likely propose to amend CBAs that do not contain an express lifetime promise for premium contribution rates during collective bargaining. Public employers should be aware that the issue transcends CBAs and may affect employee health care coverage provisions contained in board policies for unaligned employees, individual terms and conditions agreements, superintendent contracts, and, in city school districts, employment agreements for cabinet-level employees.

While the New York Court of Appeals attempted to settle an area of law which lacked a conclusive ruling, it opened the door to questions likely to be contested in subsequent litigation.

Members of the New York State Association of School Attorneys represent school boards and school districts. This article was written by John H. Gross and Claire J. Lippman of Ingerman Smith, LLP