May 08, 2013
Was Massachusetts retiree entitled to healthcare reimbursement?

Under the terms of an employment contract, a retired North Brookfield superintendent of schools was supposed to be reimbursed annually for 70 percent of his healthcare insurance premium. When the town and school committee refused to reimburse him, he took them to court.

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What happened. “George” was hired as superintendent in the spring of 1998. Until his retirement in July 2005, he had a series of employment contracts.

His last two contracts included a provision entitling him—upon retirement—to be reimbursed annually for a fixed percentage of the premium cost of an individual health insurance plan. The provision specified that he was entitled to reimbursement of 10 percent of the annual cost of the plan for each year of completed service—up to 80 percent.

A written memorandum of agreement regarding his retirement stated that he agreed to retire on July 8, 2005, in exchange for, among other things, receipt of all benefits due to him under his then-existing employment contract.

With 7 years of service, he was entitled to reimbursement for 70 percent of his annual insurance plan costs. However, despite his two written requests for reimbursement, George was notified in March 2006 that he would not be reimbursed. “[S]ince you are no longer an employee, the [t]own is under no obligation to continue to honor any terms of your prior contract upon your retirement,” the town told him.

George filed suit. The superior court ruled in his favor and ordered that he be paid $46,052.57 (the amount that he should have been reimbursed for health insurance premium costs since August 15, 2005, plus interest and costs) and reimbursed annually going forward for 70 percent of his healthcare premiums.

The committee and town appealed, arguing that the obligation to reimburse George for a percentage of his health insurance premium annually for life meant that his final employment contract was a lifetime agreement and, as a result, was unenforceable, because it exceeded the 6-year limit for contracts for a superintendent under state law.

What the court said. The Supreme Judicial Court disagreed and affirmed the lower court’s decision, saying, among other things, that the reimbursement derives directly from his 7-year employment as superintendent, is a bargained-for fringe benefit of his employment, and is a benefit that is authorized under state law. O’Neill v. School Committee of North Brookfield et al., Massachusetts Supreme Judicial Court, No. SJC-11108 (2013).

Point to remember: In general, employers should be prepared to honor written contracts promising certain benefits in retirement.

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