Last week, the Massachusetts Supreme Judicial Court (SJC) issued a much anticipated decision in City of Somerville v. Commonwealth Employment Relations Board, SJC-11620 (Feb. 3, 2015), in which it held that the City of Somerville and the Somerville School Committee did not violate the Commonwealth's public sector collective bargaining law, M.G.L. c. 150E, when the city unilaterally reduced its percentage contributions for retired employees' ("retirees") health coverage premiums.

By way of background, in 1979, the City of Somerville accepted M.G.L. c. 32B, § 9E, a local acceptance statute that permits municipalities to elect to pay "a subsidiary or additional rate" greater than 50% of a retiree's health insurance premium for an indemnity health insurance plan.  After 30 years of contributing 99% toward retirees' premiums for indemnity plans, the City reduced its premium contribution to 60% on August 1, 2009.   Similarly, it reduced its percentage contribution for retired employees' health coverage under the City's other plans to 75%.  

Neither the City nor the School Committee provided their various labor unions with notice or an opportunity to bargain over the decision to change the contribution rates.  Notably, none of the collective bargaining agreements between the City or School Committee and their various bargaining units addressed contribution rates for retirees' health coverage nor had such contribution rates ever been the subject of negotiation.

In response to the retiree premium contribution change, several unions filed prohibited practice charges with the Department of Labor Relations (DLR) alleging that the City and School Committee violated M.G.L. c. 150E, §§ 10(a)(5) and 10(a)(1) by failing to provide notice and an opportunity to bargain over the future retirement benefits of active employees.  The City and School Committee contended that the authority to set contribution rates for retiree health coverage is vested exclusively with the Board of Alderman and the Mayor, and that such contribution rates are not a mandatory subject of bargaining for current employees.

After investigating the allegations and finding probable cause to believe that the alleged statutory violations had occurred, the DLR issued complaints against the City and School Committee.  Thereafter, the complaints were consolidated into one case that was heard by the Commonwealth Employment Relations Board (CERB) in the first instance.  The CERB issued a decision against the City and School Committee, concluding that retiree health coverage premium contribution rates for current employees are a mandatory subject of bargaining and that the City and School Committee failed to meet their statutory obligations of providing notice and the opportunity to bargain prior to reducing retiree premium contribution rates.  The City and School Committee appealed to the Massachusetts Appeals Court.  The case was transferred to the SJC.

The SJC reversed the CERB's decision and held that current employees do not have the right to bargain collectively over the premium contribution rate they will receive for retiree health coverage.  In confirming that the issue is within the authority of local government, the SJC reasoned that retiree health coverage premium rates are not a mandatory subject of bargaining and to conclude otherwise would undercut municipalities' exclusive authority over premium contribution rates under M.G.L. c. 32B by giving unions veto power over municipalities' decisions on retiree health coverage.  

The SJC further explained that even if it were to conclude that retiree premium contribution rates are a mandatory subject of bargaining, the provisions of M.G.L. c. 32B, § 9E would prevail over the terms of a collective bargaining agreement.  The SJC also explained that retirees cannot bargain over health coverage premium contribution rates as they are no longer employed, and employers' obligations to bargain under M.G.L. c. 150E only apply to employees. 

For those municipal employers that do not have language in their existing collective bargaining agreements addressing retiree health coverage, the Somerville decision makes clear that municipalities (and other public entities such as regional school districts that provide health coverage under M.G.L. c. 32B) are not required to provide notice or an opportunity to bargain with current employees over contribution rates for retiree health coverage.  For those municipal employers with collective bargaining agreements that cover retiree health insurance, we recommend that you consult with your labor counsel about what steps to take to remove such language from your contracts.

Please feel free to contact us if you have questions about the SJC's decision or other labor and employment matters.