Last month, the Illinois Supreme Court added to its rapidly increasing jurisprudence on the state constitution’s pension protection clause, delivering a mixed verdict for transit authority retirees, affirming in part and reversing in part in Matthews v. Chicago Transit Authority. Our detailed summary of the underlying facts and lower court holdings is here. Our report on the oral argument is here.

The individual plaintiffs in Matthews are five current and retired employees of the Chicago Transit Authority, each of whom began working for the CTA before 2001. Before May 1980, the CTA contributed up to $40 per month for each retiree’s health care premium. At that time, an arbitration panel ordered the CTA Retirement Plan to increase its contribution to $60 per month through the end of 1980, and to $75 per month thereafter. In 2007, another arbitration panel directed that a Retiree Health Care Trust be established. The panel directed that retired employees should contribute up to 45% of the total amount expended under the Plan for their health care, and that the trustees have the discretion to increase or decrease contribution and benefit levels. The panel also directed that current employees contribute to their health care costs through a payroll tax equal to 3% of their compensation. On or about February 2009, the Health Trust Board instituted a “plan redesign” requiring retirees hired before September 5, 2001 to pay 45% of the total cost of their health care benefits.

The plaintiffs sued the CTA, the Retirement Plan for CTA Employees, the Plan’s Trustees, and various other entities, asserting claims for breach of contract, promissory estoppel, breach of fiduciary duty and declaratory relief. One plaintiff sought to represent a class – referred to in the opinion as Class I – who began working before September 5, 2001 and retired before January 1, 2007. The remaining plaintiffs sought to represent a class which began working before September 5, 2001, but retired after January 1, 2007 (Class II).

The circuit court dismissed the complaint for failure to state a claim. The Appellate Court affirmed in part and reversed in part, holding that CTA retirees had a vested right to receive retiree health care benefits. The Appellate Court further held that retired CTA employees were entitled to pursue their claims for promissory estoppel.

In an opinion by Justice Freeman, the Supreme Court affirmed in part and reversed in part. Before the Court, the defendants argued that all plaintiffs lacked standing because they were represented by the Transit Unions during the collective bargaining process. The Court agreed that the CTA recognizes the transit union as the sole and exclusive collective bargaining agent for the employees. Ordinarily, a member of the union may file suit to challenge an arbitration award only if the union breached its duty of fair representation – an allegation not made by the complaint. Since the Class II plaintiffs who retired post-2007 were indisputably represented by the union during the negotiations which led to the arbitration award, the Class II plaintiffs lacked standing.

The plaintiff seeking to represent Class I, however, was another matter. He was retired by the time of the negotiations ending in the arbitration award. Unions may represent the interests of retirees in collective bargaining if retirees agree to it. Since there was no indication in the complaint that the plaintiff seeking to represent Class I had agreed to have the union represent him post-retirement, that plaintiff had standing to proceed.

The Court turned next to the Class I representative plaintiff’s argument that the 2004 CBA created vested rights to paid health care benefits. The Appellate Court agreed. The Supreme Court reversed in this regard, holding that the Pension Protection Clause of the state Constitution does not transform a nonvested right to retirement benefits into one that is vested. “[S]ection 5 of article XIII does not establish any ‘vesting rules,’” the Court wrote. “Rather, it simply protects the actual contract that governs the retirement system membership.”

The plaintiff seeking to represent Class I argued that the union lacked the authority to agree to a diminishment of retiree health care benefits because a union cannot agree to waive its members’ constitutionally protected rights. The Court disagreed, finding that “a union can waive statutory and economic rights on behalf of its members.” The plaintiff further argued that pension rights couldn’t be the subject of collective bargaining because they were individual statutory rights. The Court disagreed, finding that the argument was “inconsistent with the overall purpose of collective bargaining.”

The Court explained that although contractual obligations generally cease upon the termination of a particular CBA, exceptions could be made pursuant to the parties’ mutual intent. Pointing to the language in Section 20.12(a) of the Retirement Plan Agreement stating that “This benefit terminates when the retiree attains age 65,” the Court concluded that the parties had indeed intended that benefits survive the CBA. Ultimately, because the plaintiff seeking to represent Class I had retired before the 2004 CBA expired, and was not a member of the bargaining unit at the time of the 2007 arbitration, he had an enforceable, vested right to continued health care benefits which was protected by the Pension Protection Clause of the state Constitution.

The Court concluded by briefly rejecting the Class I plaintiff’s claim for promissory estoppel, noting that the plaintiff had not pointed to any particular statement through which the Transit Authority had promised to continue paying benefits, and any such statement by an individual employee would be ultra vires without Board approval anyway.

In sum, the Court held that the Class I plaintiff could proceed with his claims for breach of contract and violation of the Pension Protection Clause, but not with his claim for promissory estoppel. Dismissal of the Class II plaintiffs was affirmed.

Justice Theis specially concurred with the judgment, declining to join only the majority’s discussion of whether or not the Class I plaintiffs’ claims were “vested.” Justice Karmeier also specially concurred, both joining in Justice Theis’ concurrence and adding the additional comment that the majority should not have discussed the authority of unions to waive their members’ constitutionally protected, statutory or economic rights in a collective bargaining agreement.

Image courtesy of Flickr by Toshiyuki Imai (no changes).