By Jim Cline
Several weeks ago, we published an article on the decision of Pierce County Judge James Orlando to strike the retroactive increase in the Kitsap deputies’ insurance premiums that had been ordered by interest arbitrator Howell Lankford. Because this article seems to have sparked quite a bit of interest, I decided it was worth taking some time to explain the issues and the court’s reasoning in greater detail. Although the County has appealed this decision, and, therefore, an appellate court could modify this result, at the current time, labor unions seeking to resist retroactive changes in their health insurance have a strong argument to present simply by citing to Judge Orlando’s ruling.
First, let’s review the key terms and background of the interest arbitration decision that led to the lawsuit. Kitsap County and its Deputy Sheriffs’ Guild were involved in protracted negotiations to replace a contract that expired in 2009. Kitsap County, like many counties at that time, was pleading poverty, citing their depleted reserves and significant program and spending reductions. The deputies’ Guild recognized the County had suffered a significant drop in revenues, but in arbitration argued that some wage increase was warranted because by 2012 the County had rebuilt its reserves.
Given the uncertainty on the County’s financial situation, neither the Guild nor the County presented this matter into arbitration. In the meantime, both parties stipulated that the agreement would be 3 years and term and, therefore, would terminate on December 31, 2012. Going into 2012, no arbitration date had been selected.
Also simultaneously the County was in a contract dispute with its corrections officers. Both Guild’s and the County were represented by the same respective sets of attorneys, and the same arbitrator had been selected for both arbitrations. The parties agreed to submit the Corrections Guild contract to arbitration first, perhaps with the hope that that would set a pattern to settle the deputies’ contract. The Corrections contract was arbitrated in March 2012 and a decision was issued in June.
In that decision, Arbitrator Lankford awarded the corrections officers a raise equal to 3 years of CPI, but back-loaded the increase into the final year of the agreement. Lankford also improved the corrections officers’ health insurance coverage, increasing the amount that the County would have to contribute to the premiums. In the end, this decision did not prove to be a “template to settlement.” The County declined to agree to the same wage increase for its deputies that Lankford had awarded the corrections officers and the County also still insisted on changing the deputies health insurance plan, reducing the benefits offered by the plan and increasing the premium contributions. (Deputy Sheriffs had the best coverage of all the County employees, including the corrections officers even after Lankford’s ordered improvements.)
The County, though, had made one tactical mistake in its efforts to change the deputies’ health plan. Because of the delays in bargaining and scheduling of the deputies arbitration, the hearing was not scheduled until October 2012, which meant that, with the presentation of post hearing briefs and the required decision writing time, no award could reasonably be anticipated until early 2013, after the already stipulated expiration date of December 2012.
The Guild was always prepared to oppose retroactive health insurance, but the County’s tactical errors strengthened the Guild’s hand. The County had stipulated to a December 2012 termination date and had agreed to an arbitration date which almost guaranteed no award would be issued before the termination of the contract. As a result, the Guild argued in arbitration not only that the County’s proposed retroactive change in health insurance had to be rejected, but that because there was no remaining prospective term on the expired contract, no ordered change in the insurance language was possible.
The County presented evidence at the hearing that the deputies insurance coverage, at least benefits offered, was significantly better than the benefits offered by the comparables. The deputies had 100% paid employee only coverage and a 90/10% split on dependent coverage. Because at least a couple the comparables had 100% coverage, the deputies’ premium contributions were actually somewhat higher than the average of the comparables.
Arbitrator Lankford faced an expired CBA and the admission of the County’s own witnesses that retroactive changes in the benefit specifications were not a practical option. In the face of that, he apparently concluded that his only possible change in the health insurance plan was to increase the deputies’ premium contributions. Over the Guild’s strong and detailed arguments that a retroactive change in contributions would be unconstitutional and would violate the wage withholding statute, Lankford went ahead and ordered it anyway, imposing a 3% employee contribution and increasing the dependent contribution from 10% to 15%. Lankford ordered a 2% wage increase effective in January 2012 and coincided the insurance premium increase on July 1, 2012 with a .5% wage increase which he expressly indicated was designed to offset the insurance increase.
Although the value of the 2.5% wage increase given over the course of 2012 seemingly exceeded the out-of-pocket cost of the increased health premiums, clearly the .5% July wage increase, which was expressly offered as the insurance offset, did not. The Guild asserted that regardless, the wage increase could not be used as an offset for the health insurance premium increase and filed a lawsuit in the Superior Court of the adjoining county, Pierce County. The Guild’s lawsuit (available for review on the premium website) asserted a violation both of the Constitution and the State wage withholding law.
The County’s first unusual maneuver in response to the lawsuit, which had been properly filed and the Guild in Pierce County under the “County venue” rule, was to try to drag the action back to Kitsap County Superior Court. When Judge Orlando suggested to the County that, among the reasons that a transfer back of venue might not be appropriate, was that the Kitsap County judges would likely not want to get in the middle of a dispute between the County and its deputies, the County’s attorney explained to Judge Orlando that she had already spoken with at least two of the judges and that they wanted to hear the case! Needless to say, the admission of such ex parte communication apparently did not impress the judge and he retained jurisdiction over the lawsuit.
Ultimately, the Guild moved for summary judgment on its claims. (The Guild’s detailed arguments presented in the opening and reply briefs are also available on the premium website.) Judge Orlando agreed with the Guild’s principal claims and ruled that the Lankford arbitration award would be modified with the July 2012 premium increase stricken. Orlando disagreed with the County’s suggestion that the award could only be modified after a remand to the arbitrator. These were the Guild’s principal arguments concerning the legality of the Lankford award:
- Compensation, once “earned,” is considered “vested.”
- “Vested” benefits and compensation are the property of the employee who has earned them and that it is a violation of “substantive due process” rights (guaranteed by the Fifth Amendment of the United States Constitution) to remove such vested benefits.
- Insurance benefits may be changed, but only prospectively. Retroactive changes in insurance plans interfere with “vested” benefits and, therefore, constitute a violation of employee “substantive due process” rights.
- Each form of benefit or compensation must stand on its own. Employees work believing they have fully earned their insurance which they are simultaneously consuming, and that a subsequent retroactive wage increase cannot be applied to take away the insurance benefits retroactively.
- The State wage withholding law requires specific written consent before an employer can deduct wages to apply for otherwise allowable withholdings.
- An employer may deduct wages to pay for health insurance premiums once an employee expressly consents to such withholding but it cannot act unilaterally to withhold money from wages to apply to retroactive insurance increases were no such written consent has been extended.
- Employees are allowed an “open enrollment period” in which to change their insurance coverage as a means of granting or withholding approval of wage deductions to apply to that insurance coverage.
- Increasing insurance premiums retroactively without extending an “open enrollment period” permitting employees to drop depending coverage violates the State wage withholding statute.
- The Kitsap deputies’ contract had an express right of open enrollment written into the CBA and Arbitrator Lankford’s grant of retroactive insurance increases without permitting an open enrollment period to opt out directly conflicted with this requirement and, therefore, was “arbitrary and capricious.”
The Guild also argued that it was entitled to payment of its attorneys’ fees for a successful “wage recovery” action. Judge Orlando denied this aspect of the Guild’s lawsuit, the one ruling that the Guild is cross appealing.
In the ordinary course of appellate court decision-making, a ruling on the County’s appeal can be anticipated in the first half of 2015. In the meantime, this case should provide you strong ammunition to resist employer retroactive insurance proposals.
Although this case is noteworthy, it actually should not dramatically affect the pattern of contract negotiations in interest arbitration. In reality, despite common employer proposals to change insurance retroactively, we are unaware of a single previous instance in Washington arbitration cases where such a proposal has been granted. Common sense indicates (something Judge Orlando commented on in his oral ruling) that insurance can only be changed retroactively.
The County made a couple arguments that it is anticipated they will continue on appeal. First, they argued that the collective bargaining statute expressly allows retroactive awards. The problem with this argument is that the type of retroactive awards that the statute contemplates are improvements, not reductions for work already performed. Taking the County’s argument to its logical extreme an employer could impose a significant wage reduction long after employees had performed services.
The 2nd County argument that will more likely become the focus of the appellate review is that an employer is allowed to retroactively reduce benefits if he can show some other offsetting compensation equal or greater to that retroactive reduction. That county argument will be countered by the Guild that will argue that each form of compensation has to stand on its own, especially insurance benefits in which employees may specific informed decisions about dependent enrollment.
The other significant problem with the County’s argument is that it fails to fully address the requirements of the State wage withholding law. In the face of that Guild argument, the County simply argued that the deputies should have been aware that a retroactive reduction in their benefits was possible since the County was making the proposal and they could have drop dependents in advance of the arbitration award. This ultimately seems to be a serious weakness in the County’s defense and it seems unlikely that the Court of Appeals would adopt this logic.
Another issue that will be addressed on appeal is whether simply excising the retroactive increase from the award is an appropriate remedy. The County argued that the court should remand the entire matter back to the arbitrator to rewrite the award. For obvious reasons, the Guild resisted the idea of a remand. But even if the remand does occur, it is hard to anticipate how the Guild would not eventually come out ahead of where it started when arbitrator Lankford issued his award.
