Last year, as part of its many faceted effort to reform educational legacy costs, the Michigan Legislature passed a law requiring teachers to contribute 3 percent of their pay to their own health care benefits, regardless of what their labor agreements said. Naturally, teachers were apoplectic and sued, claiming the Legislature essentially rewrote their collectively bargained employment terms.
In AFT Michigan et al. v. State of Michigan, The Michigan Court of Appeals agreed, finding the statute, MCL 38.1343e unconstitutional. Specifically, the majority, in an opinion written by Judge Douglas Shapiro, found that the statute violated the Contracts clause of the U.S and state constitutions, constituted an unlawful governmental taking of private property and a substantial impairment of employment contracts between the districts and unions.
The state argued that they weren’t taking from the teachers, but that they were borrowing the money to fund retiree benefits, which the teachers will receive back when they retire.
This, however, is an overly-general characterization that gives the false impression that the plaintiff employees are being required to contribute toward the funding of their own retirement benefits. The mandatory contributions imposed on current public school employees, do not go to fund their own retirement benefits, but instead to pay for retiree healthcare for already-retired public school employees. While present employees and retired employees share a common employer, that does not mean that their interests as individuals (or even as groups of employees) are identical.
Defendants have offered no legal basis for the conclusion that it comports with due process to require present school employees to transfer three percent of their incomes in order to fund retirement benefits of others. Rather, it is a mandatory direct transfer of funds from one discrete group, present school employees, for the benefit of another, retired school employees. The fact that these groups share employers does not render the scheme outside the constitutional protection of substantive due process.
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We cannot envision a court constitutionally approving a statute that requires certain individuals to turn a portion of their wages over to the government in return for a “promise” that the government will return the monies with interest in twenty years where the government retains the unilateral right to “cancel” the “promise” at any time and will not even agree that if they do so, the monies taken will be returned. School employees cannot constitutionally be required to “loan” money to their employer school districts, with no enforceable right to receive anything in exchange and without even a legal guarantee assurance that the “loan” will be repaid.
The majority also shot down the state’s “fairness” argument, i.e. that it’s only fair that the teachers contribute to their own health care.
Judge Henry William Saad dissented, stating that the statute doesn’t violate the respective Contracts clauses.
Indeed, MCL 38.1343e cannot possibly implicate these constitutional provisions because it does not affect, much less impair, any contract. Simply put, to constitute an impairment of contract, there must first be a contract that is impaired. Thus, to state a claim, MCL 38.1343e must have altered either (1) a contract between the state itself and the public school employees, or, (2) the public school employees’ contracts with some third party. MCL 38.1343e does neither. And, because no contract has been impaired, this claim must fail.
Saad also argued that the statute doesn’t affect any “constitutionally protected property interest.”
In related news, on Wednesday, the Legislature passed more changes to the way public school employee pensions are funded, including “pre-funding” retiree health benefits, the type of contributions the Court found unconstitutional. According to a press release from Gov. Rick Snyder’s office, Snyder is expected to sign the bill. A message left for Snyder’s spokesperson asking whether this decision changes his plan to sign the bill was not immediately returned.