Letter from Retired Firefighters  attorney!!!


​From: Kevin McGovern <kmcgovern@msmlaborlaw.com>

Date: April 19, 2021 at 11:17:06 AM EDT

Cc: Lee Mondelli 

Glen – Attached is the decision of the Appellate Division in the Paterson Health Benefits case, which I received today from Craig Gumpel.  The court has reversed the decision of the arbitrator and the trial court, and remanded the case back to the trial court, with instructions to send it back to the arbitrator on the issue of remedy.


The court’s decision to reverse boils down to four factors, which appear on pages 31-32 of the award.  First, the court found that the arbitrator did not have the legal authority to “carve out” police and fire unions from coverage under the SHBP.  Second, the court ruled that the arbitrator erred by concluding that a reimbursement remedy was an impermissible and otherwise insufficient remedy.  Third, the court found that the arbitrator did not give sufficient consideration to the City’s financial condition. And finally, the court found that the trial court did not have the legal authority to require the City to retore all of its employees (including all of its civilian employees) back into the self-insured plan and therefore reversed the court’s order that it do so. This ruling is strange, in that the trial court’s order was in response to the State’s claim that the police and fire unions could not be carved out; they cured that problem by putting everyone in. So, the appellate court is essentially saying that the trial court’s attempt to comply with the law was unlawful.  Frustratingly, there is no discussion in the award of retirees as a separate and distinct group that was entitled to continued coverage in the self insured plan pursuant to the specific language of the contract. This may be due to the City’s admission that it did violate the contract provisions (including those pertaining to retirees) and that the only issue on appeal was the remedy.  But I do think the unique position of the retirees should have been acknowledged as part of the discussion about the appropriate remedy, and it was not.


What the court effectively concluded was that while the arbitrator’s decision on substance was correct (that is, his decision that the City violated the contract) his remedial award was unlawful, because it required police and fire unions to be carved out of the SHBP.  The court’s decision specifically points to reimbursement as an appropriate and lawful remedy for all police and fire actives and retirees, so that appears to be where this will land. The reimbursement may take the form of a health savings account (funded by the City) or a pre-funded debit card of some sort.  Unless the unions file an appeal to the Supreme Court, the only question left is what the reimbursement remedy will look like, and how it will work. In terms of an appeal, I have put that question to Craig, but I assume it is too soon in the process to get a clear answer.  Once he gets back to me, I will provide you with an update.


I am available at your convenience today, and most of the day tomorrow, to discuss this with you if you would like to call.  Also, if you want to convene a socially-distanced meeting with the members I would be happy to attend. I am now fully vaccinated from Covid, and hope that many if not most of your members are as well.  So, let me know your thoughts on that.


Be well.


Kevin McGovern


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The Award is 126 pages long, but the first 62 ages are devoted to setting forth the relevant contract provisions from each of the effected contracts.  I will not attempt to recite those provisions here, other than to note that all of the subject contracts contained language providing that retirees were vested in the health care benefits the had at the time of retirement, regardless of what changes were later negotiated to the contract or with the applicable health care provider.


Facts:    Pages 63-99 of the Award are the arbitrator’s finding of facts.  The most important points are set forth below:


  • Up until January 1, 2019, employees and retirees in Paterson were covered by a self-insured plan administered by Blue Cross/Blue Shield
  • Paterson is a “distressed” municipality, which has had some of its transitional aid conditioned on moving employees (but not retirees) into the SHBP
  • Discussions were held between the City and the State in 2017 and 2018 about moving into the SHBP
  • As part of those discussions, in 2017 Dena Cortese prepared an “executive summary” about the differences in costs and coverage; she concluded that given these differences, the associated savings were not compelling enough to make the change
  • A new Administration took over the City in July 2018, which conducted its own analysis, and believed it would save @$65 million over three years by moving to the SHBP; these efforts were encouraged by the State
  • Starting in July and continuing into the late fall of 2018, the City conducted meetings with union representatives to discuss the transition to the SHBP; the unions objected to the change
  • Prior to the regular Council meeting on September 25, 2018, Cortese provided BA McKoy with her 2017 summary of the transition to SHBP
  • On September 25, 2018, the Council voted to move all employees and retirees into the SHBP, effective January 1, 2019
  • Notices of the intended change were sent to employees and retirees in October 2018; the City set up a reimbursement procedure for retirees who it believed would lose coverage as a result of the change to the SHBP
  • In October 2018, the union’s health care expert compared the self-insured plan with the SHBP and concluded that the plans were not “substantially similar”, and that the City was therefore in violation of the union contracts
  • In December 2018, following a series of meetings between the City and the unions, the City agreed to move active employees only into the SHBP health care plan, and “carve out” the prescription plan for all actives and retirees, and the health care plan for all vested retirees
  • The City sought the consent of the Division of Pensions to carve out retirees from the health care plan, and to carve out all employees and retirees from the prescription plan; the Division denied that request
  • Effective January 1, 2019, all retirees and active employees were transferred into the SHBP, over the objections of the police and fire unions


From page76-99 the Arbitrator summarized the testimony of the union’s expert regarding the differences in cost and coverage between the two plans, as well as the testimony of the City’s insurance expert regarding the substantial overlap between the plans. Notably, the Arbitrator observed that on cross-examination, the City’s expert “acknowledged [certain] reductions in the level of benefits, some of them substantial, between what is now offered to City employees, retirees, and their dependents by the SHBP and the former City self-insured plan.” (p. 96-97). The arbitrator also summarized the testimony of Cortese, who admitted that her executive summary indicated that the City would own retirees $3.1 million in prescription reimbursements if it made the switch to the SHBP, and that no such reimbursements had ever been made after January 1, 2019.


Positions of the Parties: Pages 99-112 of the Award set forth the respective positions of the parties.


The Unions – The Unions argued that the City had failed to comply with the contractual procedures for changing health care benefits, including by ignoring the report of the union’s health care expert on the differences between the plans, and by failing to provide the required 120 days notice to members. (p.100). The unions also argued that retirees were vested in the coverage they had at retirement, which could not be changed under any circumstances. Most importantly, the union’s argued that plans were not “substantially similar” and that the City violated the contract by unilaterally changing coverage from the self-insured plan to the SHBP.  As part of this last argument, the Union’s pointed to a series of previous arbitration awards regarding changes to health care benefits, which the union claimed would be undone were the City permitted to change coverage at this point. The Unions further argued that the City was not compelled by the State to change coverage, and that even the State did not seek to include retirees in the MOA pertaining to transitional aid. The Union’s pointed to the Cortese executive summary as evidence that the City was aware of the substantial differences in costs and coverage between the two plans, and decided to make the change anyway in violation of the union contracts. The summary also demonstrates that the City would not save as much money as McKoy claimed it would, but even significant savings does not justify violating the union contracts.  Finally the unions argued that the City was not allowed to reimburse employees or retirees for the cost differences between the plans, and that as such the only proper remedy was to reenroll all actives and retirees into the old self insured plan, at the terms that existed prior to the changeover to the SHBP, and to direct the City to make whole any employee or retiree who incurred out of pocket costs as a result of the change.


The City – The City argued that it was compelled to move into the SHBP by the State as a condition of getting State transitional aid.  For that reason, it moved all employees and retirees (not just police and fire) into the SHBP.  The City further argued that only the police contract contained a provision requiring a review by the union’s health care expert, so that provision should not be applied to the other unions. The City argued that the plans were “substantially similar”, but that even if the arbitrator concluded that they were not, the differences represented a mere “technical breach” of the contracts. This is especially true given the “calamitous crisis” the City was in financially.  The Unions did not call any witness to testify from personal experience about the differences between the plans, and the testimony of its expert cannot be relied on this purpose. Even if the Arbitrator finds for the unions, he does not have the power to direct everyone back into the old plan; that’s because the SHBP rules require “uniform” coverage for all employees, which means that if police and fire employees are sent back to the old plan, all employees (including civilian employees) would have to be re-enrolled there as well, and the arbitrator does not have the power to do that.  Instead, if the arbitrator finds that the contracts were violated, the proper remedy is to keep everyone in the SHBP and direct the City to reimburse employees and retirees any out of pocket differences between the plans, both retroactively and prospectively.


Decision of the Arbitrator – The Arbitrator’s ruling can be located on pages 112-125 of the decision.


The Arbitrator began his analysis by stating his conclusion that the City had violated all of the contracts in question, and that all three of the grievances before him were sustained. The Arbitrator agreed with the union that the City failed to follow the procedures for changing health care plans by failing to have a “10/15” prescription benefit, by failing to obtain a report from the police union’s health care expert before making the change, and by failing to give 120 days notice of the change as required by the firefighters contract.  More importantly, the Arbitrator concluded that the City violated the contracts because the coverage provided by the SHBP was not “substantially equivalent” to the coverage provided by the self insured plan.  The Arbitrator listed a series of areas where SHBP coverage was deficient, including “the network of participating health care providers, emergency room co-pays, out of network well care, vision hardware, cost containment, pre-approval/pre-certification requirements, limits on in network labs and coordination of benefits”.   As for retirees, the Arbitrator stated “Retirees, especially those grandfathered into the Traditional Health  Plan, experience significant reduction in benefits.  Those retirees with 20 years of continuous service but not 25 years of service are not eligible to receive employer paid for medical and Rx coverage.  They must pay for the entire insurance premiums themselves or forego coverage.  There is no network component under the Traditional Plan so a retiree or his/her dependent using out of network services under the SHBP will experience a reduction in medical benefits and higher out of pocket costs. (p. 115).  The Arbitrator also found the prescription benefits to be inferior in the SHBP compared to the self-insured plan.  Citing to Cortese’s summary and the testimony of both the City’s expert and the union’s expert, the Arbitrator concluded that the plans were not “substantially equivalent” and that the City’s decision to unilaterally change coverage to the SHBP violated each of the three union contracts before him. As to the retirees, the Arbitrator wrote that “the clear and unequivocal language in all of the Agreements guarantee police and fire retirees medical and prescription benefits at the levels which existed under the Agreements when they retired.  This contractual clause further provides that the benefits will not be subject to change by the City.”  (p. 119). The Arbitrator found that the City had admitted as much by seeking to carve retirees out of SHBP coverage in December 2018.  The Arbitrator found that he considered the City’s financial condition in coming to his decision, but that the City’s status as a distressed municipality did not justify violating the clear terms of the union contracts.


As for a remedy, the Arbitrator rejected the City’s proposal to keep employees and retirees in the SHBP and reimburse the differences, finding that such a remedy had been proposed to and specifically rejected by the Division of Pensions. The Arbitrator cited to previous ruling from the Division of Pensions that such reimbursement arrangements were not permitted by Division regulations.  Notably, the arbitrator found that even if such an arrangement was permitted, it would render a substantial hardship on employees and retirees, who would have to incur the initial expense (which could be in the thousands of dollars) and then await repayment from the City.   The Arbitrator also refused to be swayed by the City’s claim that a requiring police and fire employees to be re-enrolled in the self insured plan would require all City employees to be so re-enrolled.  He limited his decision to the police and fire contracts only (including retirees and dependents), and invited the City to seek an exemption from the uniformity requirement from the Division of Pensions.  The Arbitrator concluded by directing the City to take the following action:


Having found that the City breached several contract provisions….I am left with no alternative but to direct the City to withdraw all police and fire employees, retirees and dependents from the SHBP and re-enroll them in a City self insured plan with the same benefits they had before the change to the SHBP.  I further direct the City to make all police and fire employees, retirees and their dependents whole for any economic loss due to the change in health plans. (p. 126).



The Arbitrator concluded by saying that “it is perplexing that the City unilaterally switched to the SHBP in January 2019 knowing the potential pitfalls and that the parties would be negotiating new agreements shortly…”


This was a complete and total victory for the unions, its members, and retirees.  I hope this summary has provided some insight into the decision, and I look forward to meeting with your members and answering any questions they may have at our upcoming meeting. Until then, if you have any questions, please feel free to call me.




Kevin P. McGovern, Esq.