State workers’ prescription benefits law was not a contract, 4th Circuit rules

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Current and retired Maryland employees have no contractual right to state-provided prescription drug benefits that were available to them upon retirement based on a since-repealed statute that was in effect during their employment, a federal appeals court ruled Tuesday in a defeat for the workers.

The General Assembly’s repeal of the benefit in 2011 – with an effective date of Jan. 1, 2019 – broke no contractual obligation between the state and its workers, the 4^th U.S. Circuit Court of Appeals stated in its published decision.

Rather, the 2011 law merely marked a change in legislative policy prompted by the federal Affordable Care Act’s enactment and expanded coverage of Medicare-eligible retirees’ drug costs, the 4^th circuit added in its 3-0 decision.

The 4^th Circuit’s ruling applied directly to current state employees who have been on the job since before the 2011 law’s enactment, as these workers had appealed a U.S. district judge’s dismissal of their claim that they should remain entitled to the state benefit upon retirement.

A group of retired state workers, whose claim is pending in district court, are also affected by the 4^th Circuit’s decision insofar as the court stated that the pre-2011 law did “not create a contract between the state of Maryland and its employees or retirees” that entitled them  to the state benefits beyond the Jan. 1, 2019, cutoff.

In its 3-0 decision, the 4^th Circuit rejected the current workers’ argument that the pre-2011 law had contractual force because it expressly stated that retirees were “entitled” to the prescription subsidy, which Black’s Law Dictionary defines as having a legal right to.

The appeals court said the law’s reference to entitlement was insufficient because a statute forms a binding contract only when it contains “unmistakable contract language” – such as “contract,” “covenant” or “bind” – or sets forth specific benefits.

The pre-2011 law, State Personnel and Pensions Article § 2-508, “says nothing on its own that gives rise to an inference of contract,” Judge Stephanie D. Thacker wrote for the 4^th Circuit. “Section 2-508 does not meet that (contractual) standard because it does not define the type or amount of benefits that will be available to a retiree, nor does it prevent the legislature from making future changes.”

The American Federation of State, County and Municipal Employees’ Maryland branch brought the appeal on behalf of the current employees.

AFSCME’s attorney, David Gray Wright, declined to comment Wednesday on the 4^th Circuit’s decision. Wright is with Kahn, Smith & Collins PA in Baltimore.

The Maryland Attorney General’s Office also declined to comment.

With the 2011 law, the General Assembly sought to transition Medicare-eligible retired state employees to Medicare prescription coverage, as called for under the ACA. That transition was complete on Jan. 1, 2019, thus ending Medicare-eligible retirees’ ability to participate in a state prescription drug program.

A group of retired state employees, led by Kenneth Fitch, filed suit in 2018. Fitch claimed in the complaint that his state-subsidized prescription drug expenses would explode from $930 per year to more than $11,600 under the change to Medicare.

AFSCME Maryland Council 3, the state’s largest employees union, intervened in the lawsuit in late 2019 on behalf of active employees who began their state service before the General Assembly moved to change retirees’ prescription drug benefits under the 2011 law.

In December 2021, U.S. District Judge Peter J. Messitte said the pre-2011 law had created a de facto contract as applied to state employees who retired before the prescription drug benefit went into effect on Jan. 1, 2019. That claim remains pending in district court.

But Messitte, who sits in the Greenbelt federal courthouse, dismissed the claim filed by the current employees and those who retired on or after Jan. 1, 2019, saying they did not fall under the law’s contractual protection.

AFSCME then appealed to the 4^th Circuit.

Thacker was joined in the opinion by Judges J. Harvie Wilkinson III and Pamela A. Harris.

The 4^th Circuit rendered its decision in AFSCME Maryland Council 3 v. State of Maryland, No. 22-1362.