Court of Appeals Decision on Retiree Health Benefits Likely to Impact Collective Bargaining

The decision by the New York State Court of Appeals (New York State’s highest court) in Donohue v. Cuomo (38 N.Y.3d 1), issued in February 2022, is a significant case impacting New York State law on retiree health insurance. The Court of Appeals held that there is no inference that rights to health insurance in retirement under a collective bargaining agreement “vest”.That is, there is no presumption that they extend beyond the expiration date of the collective bargaining agreement that was in effect when a person retired, so as to guarantee health insurance benefits without change for the life of the retiree. Rather, whether and to what extent there is a right to health insurance after retirement depends on “ordinary principles of contract law”.

The Court explained that it is necessary to consider the specific contract language agreed to by the employer and the union. It may also be necessary to determine whether, in a particular case, the contract language is so ambiguous that it is necessary to consider evidence outside of the contract.

The case generated from lengthy litigation between the State of New York and its largest public sector bargaining unit, the Civil Service Employees Association (“CSEA”). In the 2007-11 collective bargaining agreement, the parties agreed to contribute a certain amount of the premium costs for state employees and retirees, and their dependents. However, the agreement did not specify a time period during which the State would continue to make those specific contributions. CSEA sued New York State over a premium increase imposed in 2011. The increase came about after the State Legislature adopted a resolution changing the state's health insurance premium contributions from 90% to 88% for individual coverage and from 75% to 73% for dependent coverage. Eleven other suits were filed by various groups of retired former state employees, their unions and the unions' officers.

The Court concluded that the agreement did not provide for vesting of retiree health contributions, since it did not expressly state that the contributions toward premiums would continue to be made after the 2007-11 agreement expired. This decision is significant and may be helpful in defending litigation brought by certain retirees in New York State courts based on collective bargaining agreement language, or grievances up to and including arbitration.

However, school districts and BOCES are cautioned that the “retiree health insurance moratorium law” (Chapter 729 of the Laws of 1994, made permanent by Chapter 504 of the Laws of 2009) applies to and regulates district and BOCES retiree health benefits. That law prohibits districts and BOCES from diminishing health benefits or contributions for retirees unless there is a corresponding reduction in such benefit/contribution for the corresponding group of active employees.

Notwithstanding the retiree health insurance moratorium, some unions may propose to modify existing collective bargaining agreements by adding express language that guarantees continued retiree health coverage and contributions for life. School districts and BOCES should tread lightly with respect to considering language to this effect; in that it may impede future discretion in managing retiree health costs and impact the coverage and/or benefits provided to Medicare-eligible retirees.

Please contact our office should you encounter this issue in collective bargaining.