Under collective bargaining agreements with various unions, Macomb County provides pension plan options to its employees, including “straight life,” in which benefits end with the retiree’s death, and “joint-and-survivor,” in which the retiree’s spouse continues to receive benefits after the retiree’s death. The collective bargaining agreements provided that, upon retirement, “the employee shall receive a retirement allowance as provided in Section 22 of the [Macomb County] Retirement Ordinance.” Section 22 of the ordinance describes how a standard straight life pension benefit is to be calculated, and states that the calculation for union members shall be “as detailed in the collective bargaining agreement in effect” at the time of the union employee’s retirement. Section 26(a) of the retirement ordinance covers various joint-and-survivor options, but requires that all of the options must be the “actuarial equivalent” of a straight life pension. Many of the collective bargaining agreements also contained language referring to §26(a) and the fact that the joint-and-survivor options were required to be the “actuarial equivalent” of straight life pension benefits.
The collective bargaining agreements also provided that disputes regarding those pension provisions were subject to grievance procedures ending in binding arbitration. Except for the contract between the Macomb County Road Commission and AFSCME Local 893, all of the contracts contained the following paragraph:
Retirement Benefits. The Employer shall continue the benefits as provided by the presently constituted Macomb County Employees’ Retirement Ordinance and the Employer and the employee shall abide by the terms and conditions thereof, provided, that the provisions thereof may be amended by the Employer as provided by the statutes of the State of Michigan and provided further that an annual statement of the employee’s contributions will be furnished to the employees [sic].
Before 1982, calculations of optional joint-and-survivor pension benefits factored in the retiree’s gender because the average life spans of men and women differed. But in 1978, the U.S. Supreme Court held that the usage of separate mortality tables for male and female public retirees constituted unlawful gender discrimination. City of Los Angeles Dept of Water & Power v Manhart, 435 US 702; 98 S Ct 1370; 55 L Ed 2d 657 (1978). The Michigan Attorney General later issued an opinion that public pension systems must adopt gender-neutral mortality tables.
In response, the Macomb County Retirement Commission, after an actuarial study, adopted a gender-neutral mortality table based on 100 percent female mortality/0 percent male mortality rates. The commission recognized that doing so would result in higher overall costs to the retirement system, but adopted the table to ensure that none of the retirees would receive a lesser benefit than under the prior table. The county also amended Section 15 of the retirement ordinance to read:
The Retirement Commission shall from time to time adopt such mortality and other tables of experience, and a rate or rates of regular interest, as are necessary in the Retirement System on an actuarial basis. For purposes of determining actuarial equivalent Retirement Allowances, the Retirement Commission is currently using a 7½% interest rate and a blending of male and female rates based on the 1971 group annuity mortality table projected to 1984 with ages set back 2 years . . . .
In 2006, the Macomb County Retirement Commission adopted new gender-neutral tables – 60 percent male, 40 percent female – after an actuarial audit indicated that retirees who elected a joint-and-survivor benefit were receiving more in benefits than they would have received if they had elected to receive straight life benefits. This difference contravened the retirement ordinance’s requirement that all forms of benefits be the “actuarial equivalent” of a straight life benefit. As a result of the 2006 change, employees who retired after July 1, 2007, and elected joint-and-survivor benefits received lower monthly benefits than they would have received if they had retired before that date.
Unions representing the affected employees demanded bargaining over the change, but the respondents – Macomb County, Macomb County Road Commission, and Macomb County Circuit Court – rejected the demand. The unions then filed unfair labor practice charges with the Michigan Employment Relations Commission, claiming that the respondents had violated their duty under § 10(1)(e) of the Michigan Public Employment Relations Act to bargain over benefits. MCL 423.210(1)(e).
An administrative law judge found that pension benefits, and the method of calculating them, are mandatory subjects of bargaining. But the judge recommended that the commission dismiss the unions’ complaint, finding that their claims were covered by the collective bargaining agreements and the retirement ordinance, and that the unions’ avenue of relief was therefore limited to the grievance and arbitration procedure in the collective bargaining agreements. The judge noted that the collective bargaining agreements incorporated § 26 of the ordinance, which describes the optional joint-and-survivor benefits as “actuarially equivalent” to the straight-life benefits. The term “actuarially equivalent” represented a bargained benefit; although the meaning of the term “actuarially equivalent” as used by the parties was ambiguous, the county respondents’ unilateral change in the benefits paid under the optional joint-and-survivor plan did not give rise to an unfair labor practice claim, the judge stated.
The MERC reversed and ordered the respondents to continue using the 100% female/ 0% male mortality table and make whole any retirees whose benefits were reduced, including interest. As did the administrative law judge, MERC held that retirement benefits and the methods of calculating them are mandatory subjects of bargaining. But, the commission said, the term “actuarial equivalent” was ambiguous and the actuarial assumptions were never codified in the retirement ordinance or in the collective bargaining agreements. Moreover, the parties, by their conduct, had effectively amended their contracts to provide that the use of the actuarial table in effect from 1982 to 2007 had become a term and condition of employment because “the parties had tacitly agreed that joint and survivor benefits would continue to be as they had in the past,” the commission stated. Therefore, the unions had valid unfair labor practice charges and were not limited to the grievance and arbitration procedure in the collective bargaining agreements, the commission concluded.
The respondents appealed, but in a 2-1 published opinion, the Court of Appeals majority affirmed the MERC’s decision. The majority agreed with the MERC that the term “actuarial equivalent” was ambiguous, and that the parties’ past practices had rendered the use of the 100 percent female mortality table a term and condition of employment that cannot be unilaterally altered. Even if “actuarial equivalent” was not ambiguous, the parties’ conduct showed they intended to alter the collective bargaining agreements, the majority said.
The dissenting Court of Appeals judge said that the term “actuarial equivalent” is not ambiguous. The retirement commission is vested with the authority to determine and adopt mortality tables and other statistics necessary to ensure that various retirement options are “actuarial[ly] equivalent,” the dissent said, so the matter was not a mandatory subject of bargaining. But even assuming that the change in actuarial tables was a mandatory subject of bargaining, the dissenting judge said, the unfair labor practice complaint should be dismissed because the subject was covered by the collective bargaining agreements and the retirement ordinance.
The majority and dissent both cited the Michigan Supreme Court’s decision in Port Huron Ed Ass’n v Port Huron Area School Dist, 452 Mich 309 (1996). In Port Huron, the school district had, for several years, provided health benefits for the entire summer to teachers hired mid-year, even though the collective bargaining agreement expressly provided for proration of such benefits under those circumstances. After a few years, teachers who were hired mid-year were denied benefits for a portion of the summer, and the union filed an unfair labor practice charge. The parties disagreed as to the meaning of “proration of benefits,” with the union asserting that the parties’ past practice had become a binding condition on the school district. The Court acknowledged that, as held in prior cases, where a collective bargaining agreement is silent or ambiguous, a past practice of the parties can become a binding term or condition of employment. But, the Supreme Court said, a “higher standard of proof is required” where the parties’ past practices conflict with the agreement’s plain language. That higher standard requires “[t]he party seeking to supplant the contract language [to] . . . submit proofs illustrating that the parties had a meeting of the minds with respect to the new terms or conditions – intentionally choosing to reject the negotiated contract and knowingly act in accordance with the past practice. ” The party seeking to enforce the modification must also show “that the past practice was so prevalent and widely accepted that there was an agreement to modify the contract.” In the case of the Port Huron school district, the Court said, there was no basis for such a finding because there was no evidence that “the previous payments of insurance benefits were anything more than a mistake.” The Court added, “Simply because a party ‘knew or should have known’ that it was acting contrary to the agreement is insufficient to overcome [the] express language of the agreement.”
The majority said, citing Port Huron, that the parties’ actions and knowledge showed that the parties intended to make “an unequivocal modification” to the collective bargaining agreements. Relying in part on the 1982 actuarial report, in which the county’s actuary discussed the implications of various male/female mortality blends, the majority said that the parties made a “deliberative acceptance” of that modification “based on a clear understanding of the implications.” But the dissent said that “[t]he retirement commission’s long use of a 100 percent female mortality table to determine that optional retirement benefits were the actuarial equivalent of a straight-life benefit is not the clear and unmistakable evidence necessary to overcome the clear and unambiguous terms of the parties’ CBAs and the retirement ordinance … It also does not evidence that the ‘parties knowingly, voluntarily, and mutually agreed’ to amend the CBAs.”
The Court of Appeals denied the respondents’ request for reconsideration and the respondents appealed to the Supreme Court. In an order dated May 9, 2012, the Supreme Court granted leave to appeal. The Court directed the parties to “address whether the Court of Appeals properly applied the holding of Port Huron Ed Ass’n v Port Huron Area School Dist, 452 Mich 309 (1996), when it concluded that the parties intended to modify the collective bargaining agreement by use of the 100% female/ 0% male mortality tables.”