By Chuck Reed

A recent California Appeals Court decision demonstrates that the California Rule is not all powerful.  Public employee unions routinely assert that all aspects of public sector retirement benefits are protected from the first day of employment and they can never be modified, except to sweeten the benefits.  Although dubbed the California Rule, it is followed by a dozen or so states.

In a case from Los Angeles, (Fry v Los Angeles, filed March 7th) the court ruled that LA could refuse to increase the subsidy paid for retiree healthcare despite allegations that the refusal violated constitutional protections for contracts.  Notably, the court applied rules set by the California Supreme Court that public employee unions ignore when they discuss the California Rule:

“The requirement of a ‘clear showing’ that legislation was intended to create the asserted contractual obligation [citation] should ensure that neither the governing body nor the public will be blindsided by unexpected obligations.” (Retired Employees Assn. of Orange County, Inc., supra, 52 Cal.4th at pp. 1188-1189.)

“‘Thus, it is presumed that a statutory scheme is not intended to create private contractual or vested rights and a person who asserts the creation of a contract with the state has the burden of overcoming that presumption.’” (Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, 1185-1186, 1888 [in deciding whether private contractual rights should be implied from legislation, a court should “‘proceed cautiously both in identifying a contract within the language of a . . . statute and in defining the contours of any contractual obligation’”].)

The case is a welcome legal victory for pension reformers and taxpayers.  As the Court of Appeals pointed out, those who assert that a benefit is a vested right have to carry a "heavy burden of demonstrating a clear intent" that the legislators intended to create a vested right.