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Employers slap lawsuits on retirees to slither out of health care obligations

Date Posted: November 26 2004

Employers are now suing individual union retirees in an effort to lower their company's health care liability.

Until about a decade ago, health care benefits for both union and salaried retirees were considered a fairly rock solid guarantee. But in 1995, the legal gates were opened when GM began reducing benefits or increasing costs to employees not covered by a collective bargaining contract, and other companies followed suit.

Now, the Wall Street Journal reported in a front-page article on Nov. 10, "In the past two years, employers have sued union retirees across the country. In the suits, they ask judges to rule that no matter what labor contracts say, they have a right to change the benefits."

In order to get out from under costly health care obligations, the Journal said companies are now using "creative strategies" in front of the courts, arguing for instance, that "lifetime" health care coverage mentioned in a contract refers only to the life of the contract that was in place when the worker retired. In addition, employers refer to contractual clauses where they "reserve the right" to change benefits - and reduce them.

"There's absolutely no doubt that that there's been an increasing number of cases over the past three years," Richard Brean, associate general counsel of the United Steelworkers, told the newspaper. "And some have been successful," the Journal added.

Why are employers taking the proactive step of suing unsuspecting workers? The Journal said instead of just reducing retiree benefits and waiting to be slapped with a lawsuit, taking legal action first allows the company to start the fight on its own terms, in judicial jurisdictions that have a record of being favorable to employers over employees.

Often, at the same time as the company brings the lawsuits against some individual workers - who were often deemed troublemakers or were union activists - the company simultaneously announces it is reducing health care benefits for retirees.

And if the company loses the case - then they have lost only legal costs and they're back to paying for benefits as they normally would, without having to pay damages or penalties. If the company wins, they have a legal precedent for reducing benefits for all retirees.

"I have never liked to see contracts that allow employers to replace insurance carriers or change coverage as long as it is 'essentially' the same as the old coverage," said building trades attorney Doug Korney. "There's too much potential for employeers to make a change that is not acceptable to the workers."

Korney said multi-employer retirement plans that cover building trades retirees by their nature offer greater protection against such employer shenanigans - but groups of employers can still come to the same conclusion to reduce benefits.

"It's a sad commentary," Korney said. "Employers are looking to reduce costs wherever they can in today's economy - that's the rule, not the exception. Employees who think they're retiring with a steadfast agreement are outraged, and rightfully so."

Individual workers who are sued are left with poor choices - do they pay to hire a lawyer, accept the lesser benefits or just opt of the employer's health plan?

The Journal said union representation is often the workers' only recourse, and unions will fight for retirees. But a spokeswoman for the U.S. Labor Department told the Journal, retired workers "aren't our constituents any more."

Until GM pushed through changes in 1995 that reduced health care for salaried employees, most U.S. courts rejected employers' claims that "lifetime" retirement benefit coverage expires when contracts expire. But now, the Journal said, "some courts in the past decade have accepted these employer arguments. The federal circuits are split."

Korney suggested that union members be more careful who gets their vote.

"People get captivated by social issues when they vote, and that's fine," Korney said. "But the reason workers lose these rulings is because workers' candidates lose elections. Union members who vote for these anti-worker judges, or who vote for the president or a governor who appoint these kinds of judges, are finding that there's an unpleasant payback at the end of the day."