At a time when public employers across Pennsylvania are seeking to reduce or at least contain the skyrocketing costs of post-retirement health care benefits, the Commonwealth Court has virtually handcuffed municipalities from achieving any genuine relief for decades. The Commonwealth Court ruled in FOP, Flood City Lodge No. 86 v. City of Johnstown, No. 1873 C.D. 2010 (February 22, 2012), that the elimination of post-retirement health benefits for active police officers and firefighters by an Act 111 interest arbitration panel constitute an unlawful diminishment of contractually guaranteed benefits under the Home Rule Charter Law. This decision will likely have broad implications, as it signals how the Commonwealth Court will interpret a similar provision in the Pennsylvania Constitution that applies to all municipalities.

In Johnstown, the City and the FOP entered into a collective bargaining agreement effective from 2007 through 2009, which provided post-retirement health care benefits to police officers hired prior to October 11, 2007, as well as to those officers’ spouses. Thereafter, the FOP and the City proceeded to Act 111 interest arbitration to dictate the terms of the successor labor agreement to the 2007-2009 contract. In its decision, the arbitration panel revised the post-retirement health care language and eliminated the benefit for the police officers’ spouses. This provision only applied to officers who were active employees at the time the arbitration panel issued its award.

In voiding this provision as illegal, the lower court relied upon the language in the Home Rule Charter Law, which provides as follows: a municipality shall not “[b]e authorized to diminish the rights or privileges of any former municipal employee entitled to benefit or any present municipality employee in his pension or retirement system.” 53 Pa. C.S. § 2962(c)(3). The Commonwealth Court upheld the lower court, relying exclusively on the Pennsylvania Supreme Court’s decision in Appeal of Upper Providence Township, 526 A.2d 315 (1987), which reversed an arbitration panel’s reduction of medical benefits for current retirees.

However, Upper Providence dealt only with current retirees and never considered whether a union may voluntarily agree in the context of collective bargaining to reduce retirement benefits for active employees, and by extension, whether such action is within an arbitration panel’s authority. In his strongly worded dissent, Judge Pellegrini, joined by Judge Leadbetter and Judge Cohn Jubelirer, argued that Upper Providence was distinguishable for this very reason. The dissent emphasized that the statutory language was intended to protect statutorily granted benefits, but does not preclude the diminishment of retirement benefits through collective bargaining or interest arbitration, where such give-and-take over employee wages and benefits is expected and encouraged.

If appealed, the Pennsylvania Supreme Court will likely hear the Johnstown case, as it conflicts with prior Commonwealth Court precedent that was neither expressly overturned nor distinguished by Johnstown. City of Wilkes-Barre v. City of Wilkes-Barre Police Benevolent Ass’n, 814 A.2d 285, 288 (Pa. Cmwlth. 2002). In Wilkes-Barre, the court found that while the Home Rule Charter Law prohibited a home rule municipality from unilaterally diminishing post-retirement benefits of any former or current employee, “there is no corresponding limitation on consensual modification of existing benefits, nor is there authority limiting arbitrators’ ability to modify retirement benefits as part of a statutory dispute resolution process.”  Id. (Emphasis added.)

While the Johnstown decision is limited in applicability to home rule municipalities, the decision signals that the Commonwealth Court would reverse any arbitration award that reduces post-retirement benefits, regardless of the type of municipality, based upon the Constitutional guarantee against diminishment of contractually promised benefits. Until our Supreme Court provides certainty on this issue, public employers are encouraged to take precaution in reducing post-retirement benefits for their current employees, as such a reduction could be reversed. Further, when agreeing to provide any post-retirement benefits for new employees, the language in the labor agreement should note that the benefits are subject to change through collective bargaining and are therefore not contractually guaranteed for life.