FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GAYLAN HARRIS, on behalf of No. 13-56061
himself and others similarly situated,
Plaintiff-Appellant, D.C. No.
8:09-cv-00098-
v. AG-MLG
COUNTY OF ORANGE,
Defendant-Appellee. OPINION
Appeal from the United States District Court
for the Central District of California
Andrew J. Guilford, District Judge, Presiding
Argued February 6, 2014
Submitted August 28, 2018
Pasadena, California
Filed September 5, 2018
2 HARRIS V. COUNTY OF ORANGE
Before: Marsha S. Berzon, Johnnie B. Rawlinson, *
and Michael R. Murphy**, Circuit Judges.
Opinion by Judge Berzon
SUMMARY ***
Employment Benefits
The panel affirmed in part, and reversed in part, the
district court’s dismissal of an action brought by a class of
retired employees alleging that the County of Orange
violated their vested rights when it restructured its health
benefits program; and remanded for further proceedings.
The County restructured two retiree benefits: the Retiree
Premium Subsidy (which combined active and retired
employees into a single unified pool for purposes of
calculating medical insurance premiums); and the Grant
Benefit (providing retired employees with a monthly grant
to defray the cost of health care premiums). The retirees
contended that the County’s decision in 2006 to eliminate
*
This case was originally submitted to a panel that included Judge
Pregerson. Following Judge Pregerson’s death, Judge Rawlinson was
drawn by lot to replace him. Ninth Circuit General Order 3.2(h). Judge
Rawlinson has read the briefs and reviewed the record.
**
The Honorable Michael R. Murphy, Senior Circuit Judge for the
U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
***
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
HARRIS V. COUNTY OF ORANGE 3
the Retiree Premium Subsidy and to reduce the Grant
Benefit increased their health care costs significantly.
The retirees alleged that they had an implied contractual
right to receive the Grant Benefit throughout their
retirement. The panel held that the retirees’ second amended
complaint set forth sufficient allegations regarding the
continuation of the Grant Benefit during the employees’
lifetime to survive a motion to dismiss. The panel noted that
the retirees alleged the existence of annual memorandum of
understanding between the union and the County,
establishing a right to the Grant Benefit; and the retirees’
specific allegations plausibly supported the conclusion that
the County impliedly promised a lifetime benefit, which
could not be eliminated or reduced. The panel reversed the
district court’s order insofar as it dismissed the retirees’
contract claims regarding the Grant Benefit.
The retirees’ California Fair Employment and Housing
Act (“FEHA”) age discrimination claim challenged the
elimination of the Retiree Premium Subsidy. The panel
noted that retirees had no contractual right to continue
receiving the Retiree Premium Subsidy pursuant to the
holding in Retired Emps. Ass’n of Orange Cty., Inc. v. Cty.
of Orange (REAOC V), 742 F.3d 1137 (9th Cir. 2014). The
panel held that California law did not fault the County for
offering different benefits to retirees and to active employees
at the outset, absent a FEHA violation. The panel further
held that the retirees’ FEHA claim was a novel one, and
therefore the panel looked to federal cases interpreting
employment discrimination and civil rights for guidance.
The panel held that the federal Age Discrimination in
Employment Act applied to retirees. The panel further held
that changes in retirees’ health benefits were covered by
FEHA, despite the fact that they were not active employees.
4 HARRIS V. COUNTY OF ORANGE
The panel concluded that the County, under the Age
Discrimination in Employment Act, and so, under
California’s FEHA age discrimination provisions, may treat
retirees as a group differently, with regard to medical
benefits, than employees as a group, taking into account that
the cost of providing medical benefits to the retiree group
was higher because the retirees were on average older.
Accordingly, retirees’ claim of unlawful age discrimination
under FEHA failed as a matter of law, and the panel affirmed
the district court’s dismissal of the claim.
COUNSEL
Michael P. Brown (argued), Law Office of Michael P.
Brown, Seattle, Washington, for Plaintiff-Appellant.
Arthur A. Hartinger (argued) and Jennifer L. Nock, Renne
Sloan Holtzman Sakai LLP, Oakland, California, for
Defendant-Appellee.
OPINION
BERZON, Circuit Judge:
This is the fourth time we have been asked to consider
whether the County of Orange (“the County”) violated the
vested rights of its retired employees when it restructured its
health benefits program. This time, we are asked to consider
whether two reforms adopted by the County in 2006
deprived the plaintiffs of vested employment benefits, in
violation of the County’s contractual obligations, and
constituted age discrimination, in violation of California’s
Fair Employment and Housing Act (“FEHA”).
HARRIS V. COUNTY OF ORANGE 5
We affirm the district court’s dismissal of the FEHA
claim, but conclude that the district court erred in dismissing
certain of Retirees’ contract claims. We accordingly reverse
in part and remand.
I.
This case arises out of the restructuring of two benefits
the County provided to its retirees: the Retiree Premium
Subsidy and the Grant Benefit.
Retiree Premium Subsidy. The County began offering
group medical insurance to its retired employees in 1966.
Initially, premiums were calculated separately for active and
retired employees. The County paid a large portion of the
premiums for active employees, but retirees paid most of
their own premiums.
In 1985, the County combined active and retired
employees into a single unified pool for purposes of
calculating premiums. Because retired employees are, on
average, older and more expensive to insure for medical
coverage than active employees, retirees, if pooled
separately, pay higher premiums. By allowing retirees to
participate in a single unified pool, the County effectively
established a health insurance subsidy for retirees, lowering
their premiums while raising active employee premiums
(largely paid by the County) above the actual cost of
covering active employees as a separate group. For purposes
of the present litigation, this benefit is called the “Retiree
Premium Subsidy.”
Grant Benefit. From 1993 through 2007, retired
employees also received a monthly grant (the “Grant
Benefit”) to defray the cost of health care premiums. The
terms of the Grant Benefit were set forth in Memoranda of
6 HARRIS V. COUNTY OF ORANGE
Understanding (“MOUs”) between the County and its union-
represented employees. The monthly grant for retirees was
calculated by multiplying an employee’s years of service at
retirement by a fixed-dollar amount (“the Grant Multiplier”).
The initial Grant Multiplier was $10, but it increased every
year by up to 5%, to reflect inflation.
The Grant Benefit was established in 1993 after years of
negotiations between the County and its labor unions. In
return for the Grant Benefit, the unions and the Orange
County Employee Retirement System (“OCERS”) agreed to
allow the County to access $150 million in surplus
investment earnings controlled by OCERS. The County
intended the Grant Benefit to induce employees to retire
early, allowing the County to reduce its workforce. The
Benefit was funded by a mandatory contribution from active
employees of 1% of their gross monthly wages, 1 as well as
investment earnings from a portion of the OCERS surplus.
Under the agreements governing the 1993 Grant Benefit, the
County was obligated to “step in” if the 1% contribution and
investment earnings were insufficient to cover program
expenses. In addition, any employee who left County
employment before becoming eligible for a Grant Benefit
would receive a lump sum cash rebate of his 1% salary
contribution.
Retirees attach to their complaint the 1993B94 MOU and
the Board of Supervisors resolution formally adopting it, as
an “exemplar” of the agreements reached between the
1
In submissions after oral argument, the parties disputed whether
employees contributed 1% of their otherwise payable wages, or whether,
instead, the County agreed to increase wages by 1% for the purpose of
funding the Grant Benefit. For reasons addressed below, this dispute is
not material for present purposes.
HARRIS V. COUNTY OF ORANGE 7
County and its main labor union each year between 1993 and
2007. The MOU provides that “[e]ffective August 1, 1993[,]
the County shall administer a Retiree Medical Insurance
Grant plan for employees who have retired from County
service and who meet the eligibility requirements set forth
in” other provisions of the MOU. It further provides that
“[u]pon . . . County retirement, an eligible retiree . . . shall
receive a” Grant Benefit. Retirees allege that “[t]he terms
contained in the remaining MOUs in effect between 1993
and 2007 . . . are materially the same.”
2008 Benefits Reductions. Beginning in 2004, the
County negotiated with its labor unions to restructure the
retiree medical program, which was underfunded. Two
years later, the Board of Supervisors approved an agreement
with the labor union that made the following relevant
reductions in benefits for retirees: (1) the County would split
retired and active employees into separate pools to set
premiums; (2) the maximum increase for the Grant
Multiplier would be reduced from 5% to 3%; and (3) once a
retiree became eligible for Medicare (at age 65), the Grant
Benefit would be reduced by 50%.
Retirees allege that the County’s decision to eliminate
the Retiree Premium Subsidy and to reduce the Grant
Benefit increased their health care costs significantly. Some
retirees cannot afford the increases and have had to abandon
their County-sponsored health insurance for plans with
lesser benefits.
REAOC Litigation. On November 5, 2007, the Retired
Employees Association of Orange County, Inc. (“REAOC”),
a non-profit representing County retirees and their spouses,
filed suit challenging the County’s decision to eliminate the
Retiree Premium Subsidy. The district court granted
summary judgment in favor of the County in the REAOC
8 HARRIS V. COUNTY OF ORANGE
case, holding that the County was not obligated to provide
the Retiree Premium Subsidy for the duration of Retirees’
lives because there was no evidence of “any explicit
legislative or statutory authority” requiring the County to do
so, and because that obligation could not arise by implication
from past practices or the parties’ course of dealing. Retired
Emps. Ass’n of Orange Cty., Inc. v. Cty. of Orange (REAOC
I), 632 F. Supp. 2d 983, 987 (C.D. Cal. 2009).
On appeal, we certified to the California Supreme Court
the question “[w]hether, as a matter of California law, a
California county and its employees can form an implied
contract that confers vested rights to health benefits on
retired county employees.” Retired Emps. Ass’n of Orange
Cty., Inc. v. Cty. of Orange (REAOC II), 610 F.3d 1099,
1101 (9th Cir. 2010). The California Supreme Court,
answering the certified question, held that “under California
law, a vested right to health benefits for retired county
employees can be implied under certain circumstances from
a county ordinance or resolution.” Retired Emps. Ass’n of
Orange Cty., Inc. v. Cty. of Orange (REAOC III), 52 Cal. 4th
1171, 1194 (2011). In light of that response, we remanded
the case to the district court for further proceedings. Retired
Emps. Ass’n of Orange Cty., Inc. v. Cty. of Orange (REAOC
IV), 663 F.3d 1292 (9th Cir. 2011). On remand, the district
court again entered summary judgment in favor of the
County, finding that REAOC had failed to show the
existence of an implied contract right to the pooled premium.
REAOC appealed, and this Court affirmed. See Retired
Emps. Ass’n of Orange Cty., Inc. v. Cty. of Orange (REAOC
V), 742 F.3d 1137 (9th Cir. 2014).
Harris Litigation. While the REAOC case was pending,
Plaintiffs, on behalf of thousands of retired Orange County
employees (collectively, “Retirees”), filed this class action,
HARRIS V. COUNTY OF ORANGE 9
which was assigned to the same district judge presiding over
the REAOC litigation. The complaint alleged that the
County breached its contractual obligations to Retirees by
eliminating the Retiree Premium Subsidy and reducing the
Grant Benefit, and that the elimination of the Retiree
Premium Subsidy also constituted age discrimination in
violation of California’s Fair Employment and Housing Act.
The Harris and REAOC litigations overlap to the extent both
seek declaratory and injunctive relief related to the County’s
elimination of the Retiree Premium Subsidy. But this class
action, Harris, also seeks damages, pleads claims relating to
the reduction of the Grant Benefit, and asserts a FEHA claim
not alleged in REAOC.
Like REAOC, this case has a lengthy procedural history,
including a prior trip to this Court. In 2011, the district court
granted the County’s motion for judgment on the pleadings,
holding, inter alia, that Retirees’ contract claims relating to
the Grant Benefit should be dismissed because Retirees had
not identified any “explicit legislative or statutory authority”
that required the County to provide the Grant Benefit in
perpetuity. 2 While an appeal was pending, the California
Supreme Court issued its answer to the certified question in
the REAOC litigation. In light of REAOC III, we reversed
the district court’s Rule 12(c) dismissal, concluding that
although “there was no explicit legislative or statutory
authority requiring the County to provide the Grant [Benefit]
in perpetuity,” the “district court should have granted the
Retirees leave to amend.” Harris v. Cty. of Orange (Harris
I), 682 F.3d 1126, 1134 (9th Cir. 2012).
2
The district court also dismissed the FEHA and Retiree Premium
Subsidy claims for procedural reasons not relevant to the current appeal.
10 HARRIS V. COUNTY OF ORANGE
On remand, Retirees filed a Second Amended Complaint
(“SAC”). The allegations in the SAC mirrored those in the
prior complaint with regard to the Retiree Premium Subsidy
claims. With regard to the Grant Benefit claims, Retirees
alleged that the County impliedly promised to provide the
Grant Benefit for life, as shown in the express terms of the
relevant MOUs and by extrinsic evidence of the parties’
intent.
On January 30, 2013, the district court granted the
County’s motion to dismiss the SAC. The court dismissed
the contract claims relating to the Grant Benefit with
prejudice “because there is no explicit legislative or statutory
authority requiring the County to provide the retirement
benefits associated with the Grant,” and because “the
minimal changes made in the[] SAC still fail to address the
problems previously identified by this Court and the Ninth
Circuit.” The FEHA claim was dismissed as well, on the
ground that “Plaintiffs have provided no legal authority that
FEHA prohibits this action” — splitting the premium pool
into separate retiree and active pools — “which is based on
retirement status and is facially neutral to age.” But because
the application of FEHA in this context was a “somewhat
murky area of law[,]” the district court granted leave to
amend that claim.
Less than a month later, another panel of this Court
issued its opinion in Sonoma Cty. Ass’n of Retired Emps. v.
Sonoma Cty., 708 F.3d 1109 (9th Cir. 2013), in which
retirees alleged that Sonoma County had breached its
obligation to provide certain health care benefits in
perpetuity. Noting that the district court in that case “did not
have the benefit of” the California Supreme Court’s answer
to the certified question in the REAOC litigation — “that a
public entity in California can be bound by an implied term
HARRIS V. COUNTY OF ORANGE 11
in a written contract under specified circumstances” — this
Court reversed the dismissal of the Sonoma complaint so that
the retirees could attempt “to plausibly allege that the
County used resolutions or ordinances to ratify or approve
MOUs that created contracts for healthcare benefits and
included implied terms vesting those benefits for
perpetuity.” Id. at 1119–20. Sonoma briefly discussed the
Harris I appeal. See id. at 1119.
In light of Sonoma, Retirees moved for reconsideration
of the district court’s January 30, 2013 order dismissing the
SAC, asserting that Sonoma made clear that “retired county
employees could premise claims to vested retirement health
benefits on an implied contract theory, supporting their
claim to vesting solely . . . by extrinsic evidence of the
parties’ intent.” The district court denied the motion for
reconsideration.
Retirees then filed a Third Amended Complaint
(“TAC”), reasserting all claims, and the County again moved
to dismiss the complaint. At the hearing on the County’s
motion, Retirees described and offered to submit additional
evidence purporting to show that the County’s reason for
eliminating the Retiree Premium Subsidy was based on
Retirees’ age. The district court, taking the proffered
evidence into account, once more dismissed the contract-
based claims for the reasons given in the January 30, 2013
order. The court also dismissed the FEHA claim, this time
with prejudice, concluding “that ‘splitting the pool’ between
retired employees and active employees is not actionable age
discrimination under FEHA.”
Retirees moved for reconsideration, seeking leave to file
a Fourth Amended Complaint that included the evidence
they had described at the hearing regarding the motion to
dismiss the TAC. The district court denied the motion,
12 HARRIS V. COUNTY OF ORANGE
stating that it had already considered the new allegations and
evidence presented at the hearing.
After judgment was entered in favor of the County on all
claims, Retirees timely appealed. The appeal challenges the
dismissal of three categories of claims: (1) contract claims
related to the reduction of the Grant Benefit; (2) contract
claims related to the elimination of the Retiree Premium
Subsidy; and (3) the FEHA claim related to the elimination
of the Retiree Premium Subsidy.
REAOC V directly addressed the second set of claims.
See 742 F.3d at 1142–44. As this case is indistinguishable
from REAOC V as to those claims, we affirm the district
court’s dismissal of Retirees’ claims that the County
breached its contractual obligations by eliminating the
Retiree Premium Subsidy. We address the other two claims,
not covered by REAOC V, in turn.
II. Implied Contract
A.
Retirees allege that they had an implied contractual right
to receive the Grant Benefit throughout their retirement. As
in REAOC V, it is undisputed that the County and its retirees
had annual contracts providing for health benefits. Id. at
1140. “Th[ose] contract[s] [were] the product of
negotiations resulting in binding MOUs . . . adopted by
County resolution . . . between the County and” its
employees. Id. The entitlement to the Grant Benefit was set
forth expressly in the MOUs, which stated that “[u]pon . . .
County retirement, an eligible retiree . . . shall receive” a
Grant Benefit, which is then described. Retirees therefore
allege an express contractual right to the Grant Benefit for
some period. The question on appeal is whether those
HARRIS V. COUNTY OF ORANGE 13
annual contracts also contained, as an implied term, a
promise that the Grant Benefit would continue during their
retirement.
The district court dismissed the Grant Benefit contract
claims with prejudice, relying on Harris I as holding that
“‘to state a claim for a contractual right to the Grant, the
Retirees must plead specific resolutions or ordinances
establishing that right.’” “Plaintiffs here have failed to do
so,” the district court stated. “Instead, they pointed to
documents already found insufficient by this Court and the
Ninth Circuit to allege a term guaranteeing continuance of
the grant — the 1993–1994 MOU and the Board resolution
enacting it.” Furthermore, the district court concluded,
“Plaintiffs’ ‘circumstantial evidence’ of legislative intent
does not salvage these claims.”
To begin, the district court misread this Court’s decision
in Harris I. Harris I did not directly address Retirees’
implied contract claim, as clarified in the SAC, with respect
to the Grant Benefit. Sonoma explained the limits of Harris
I: “The retirees in Harris [I] asserted two claims, one based
on an implied promise to subsidize health insurance
premiums . . . via a pooling arrangement,” the Retiree
Premium Subsidy claim, “and the other based on the
county’s express promise . . . to provide a monthly grant
toward the cost of health insurance,” the Grant Benefit
claim. Sonoma, 708 F.3d at 1119 (emphasis added). It was
only on remand that Retirees clarified their allegations as
encompassing both express terms as to the substance of the
Grant Benefit and an implied term that required the County
to continue providing that benefit during their retirement. 3
3
Specifically, the FAC alleged only that “Plaintiffs had a contractual
right to the Grant and other benefits of the Grant Program as that
14 HARRIS V. COUNTY OF ORANGE
In short, “in dismissing the claims based on the express
written contract,” Harris I “did not purport to rule on a
theory premised on implied terms or to interpret or apply”
the California Supreme Court decision in REAOC III, as that
theory was not spelled out in the complaint reviewed in
Harris I. Sonoma, 708 F.3d at 1119.
The County characterizes Harris I’s remand as having
been very limited in scope, suggesting, perhaps, that Retirees
should not have been permitted to amend the complaint to
allege an implied contract term. The County contends that
Harris I “remanded with only one instruction on this issue:
‘to amend their Complaint to set out specifically the terms of
those MOUs on which their claim is predicated.’” We do
not read Harris I so narrowly.
Harris I held that Retirees “should be granted leave to
amend their Complaint to set forth facts establishing their
claimed right to receive the Grant in perpetuity.” 682 F.3d
at 1135. Although we suggested that one way to establish
such a right would be by “set[ting] out specifically the terms
of those MOUs on which the[] claim is predicated,” Harris
I did not prohibit Retirees from amending the complaint to
establish that same right by other means. Id. Indeed, in
identifying the FAC’s flaws, Harris I noted that “Retirees
have failed to plead facts that suggest that the County
promised, in the MOUs or otherwise, to maintain the Grant
as it existed on the Retirees’ respective dates of retirement.”
Id. (emphasis added). Retirees’ allegations in the SAC
regarding an implied right to the Grant Benefit supported by
program was reflected in the MOUs in place on the date of their
respective retirements,” while the SAC alleged that “Plaintiffs had an
implied contractual right to receive the Grant Benefit, as it was defined
in the 1993–2007 MOUs, throughout their retirement.”
HARRIS V. COUNTY OF ORANGE 15
extrinsic evidence are thus well within the scope of Harris
I’s remand.
Moreover, the district court allowed the filing of the
SAC, rather than rejecting it as inconsistent with our
directive in Harris I. “The decision of whether to grant leave
to amend . . . remains within the discretion of the district
court.” Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d
522, 532 (9th Cir. 2008). Having done so, the district court
was obliged to determine whether that complaint stated a
claim — which, we now conclude, it did.
B.
Our question is whether in light of the REAOC opinions
and Sonoma, the SAC sets forth sufficient allegations
regarding the continuation of the Grant Benefit during
Retirees’ lifetimes to survive a motion to dismiss. It does.
Sonoma set forth the framework for deciding a case like
this one, in which the MOU is explicit as to the substance of
the benefit but not as to its term: “[T]o survive a motion to
dismiss, the . . . complaint must plausibly allege that the
County: (1) entered into a contract that included implied
terms providing healthcare benefits to retirees that vested for
perpetuity; and (2) created that contract by ordinance or
resolution.” 708 F.3d at 1115. 4
Sonoma held that the plaintiff association in that case
“met the first requirement by plausibly alleging that: (1) the
County entered into a contract; (2) the contract provided
healthcare benefits to retirees; and (3) the contract included
4
As explained below, the second of these requirements is not
seriously disputed.
16 HARRIS V. COUNTY OF ORANGE
an implied term that the benefits were vested for perpetuity.”
Id. Specifically, the association met the first two elements
by alleging that the County entered into MOUs that
“promised healthcare benefits” — and “[t]here is no doubt
that the MOUs are contracts.” Id. at 1115–16. As to the last
of these elements, Sonoma concluded that the
complaint also plausibly alleges that the
County intended these healthcare benefits to
vest for perpetuity. The complaint states that
the County conveyed this intent “in writing,
orally, by implication, and through practice.”
The Association supported this allegation
with factual matter, including: (1) MOUs,
resolutions, and other documents establishing
the County’s long-standing course of
conduct; (2) allegations that former
employees who drafted these documents
would testify in support of the Association’s
position regarding the “background, purpose,
and intent” of the documents; and
(3) statements that at least one former Board
member would testify as to the County’s
intent that the benefits vest in perpetuity.
Id. at 1116. To the extent the point was unclear before,
Sonoma clarified that, once a plaintiff identifies an express
contract covering the substance of a benefit, it may rely on
extrinsic evidence to prove the existence of an implied term
requiring the continuation of that benefit in perpetuity.
REAOC V reiterated this point, emphasizing that “[w]e do
not cabin the role of extrinsic evidence as narrowly as the
district court did. Indeed, the California Supreme Court
recognized the role of ‘convincing extrinsic evidence,’ and
in Sonoma . . . , we noted that implied terms may include
HARRIS V. COUNTY OF ORANGE 17
‘testimony regarding the County’s intent.’” 742 F.3d at
1143 (citations omitted).
In this case, Retirees have alleged the existence of annual
MOUs establishing a right to the Grant Benefit. This
allegation suffices to meet the first two elements of
Sonoma’s first requirement. Retirees further allege that they
“had an implied contractual right to receive the Grant
Benefit . . . throughout their retirement.” In support, the
TAC makes specific allegations regarding the basis for this
implied right, including allegations regarding the course of
negotiations for the Grant Benefit. Retirees’ allegations
plausibly support the conclusion that the County impliedly
promised a lifetime benefit, which could not be unilaterally
eliminated or reduced.
First, as evidence that the Grant Benefit was part of a
bargained-for exchange, Retirees point to the agreement
allowing the County to access $150 million in disputed
surplus investment earnings controlled by OCERS. Retirees
allege that the County “estimated in 1993 that the
mechanism as arranged and implemented,” including the
$150 million OCERS fund and the 1% wage contribution,
“would cover the costs of the Grant program for at least
30 years.” The establishment of a long-term funding
mechanism, including the commitment of a large sum of
money that could have been used for other purposes,
undermines the County’s contention that there was no
promise to provide the Grant Benefit beyond the duration of
any single one-year MOU. The logical extension of the
County’s argument is that it could have terminated the Grant
Benefit in 1994, notwithstanding the receipt of the $150
million OCERS funds, an inference considerably less
plausible than the converse inference — that the
commitment of the OCERS funds indicates a continuing
18 HARRIS V. COUNTY OF ORANGE
obligation, and so refutes the County’s year-by-year
description of its obligation. The complaint thus contains, at
a minimum, sufficient “factual content [to] allow[] the court
to draw the reasonable inference” that the County promised
to provide the benefit for a longer term than the period
covered by each MOU. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009).
Second, that active employees were required to
contribute 1% of their wages to fund the Grant Benefit
supports the notion that the parties intended the benefit to be
available for employees throughout their retirements, rather
than eliminated or reduced before employees could fully
benefit from their earlier contributions. This understanding
is strongly reinforced by the MOU’s rebate provision, which
allowed active employees to recoup any wages they
contributed if they separated from County service before
becoming eligible to receive the Grant Benefit. The rebate
provision suggests that the contributions made by active
employees were tied to future eligibility for the Grant
Benefit, constituting a form of deferred compensation
assured to those employees who continued working until
they became eligible for retirement. To reduce the benefit
during the retirements of the same employees who had
funded it breaches that implicit commitment. The SAC thus
sufficiently alleges that the County “entered into a contract
that included implied terms providing healthcare benefits to
retirees that vested for perpetuity.” Sonoma, 708 F.3d at
1115. 5
5
We note, however, that Retirees may not at this juncture have as
much contemporaneous evidence of legislative intent to create a
contractual right to lifetime benefits as the plaintiff association did in
Sonoma. Further, Retirees will have to bear their Aheavy burden,”
HARRIS V. COUNTY OF ORANGE 19
To survive a motion to dismiss, Sonoma requires, finally,
that Retirees allege that the County “created that contract by
ordinance or resolution.” Id. In Sonoma, the plaintiff
association did not do that. Although “the complaint alleged
that the MOUs were ‘Board-ratified,’ it did not allege that
the Board ratified the MOUs by resolution or ordinance; nor
did the [plaintiff association] submit copies of any such
resolutions or ordinances with the amended complaint.” Id.
at 1117. Sonoma therefore remanded to the district court to
allow the plaintiff association to amend the complaint to cure
this pleading defect. 6
REAOC III, 52 Cal. 4th at 1190, of establishing an implied right to vested
benefits notwithstanding the explicit anti-vesting clause in the 1993
Retiree Medical Plan document.
As to the second concern, we note that Retirees’ contract claims are
premised on the express and implied terms of the MOUs, not the Retiree
Medical Plan, a separate document. Unlike the MOUs, which were the
product of collective bargaining, the Retiree Medical Plan was
unilaterally created by the County. Retirees maintain that “[t]he 1993
Plan Document,” including its anti-vesting provision, “was not
incorporated into or referenced in the binding contracts between the
County and the unions, and there is no indication that its contents were
ever discussed with or disclosed to the unions during the negotiations
that led to the adoption of those agreements.” The simple existence of
the anti-vesting clause, therefore, provides no basis for holding Retirees’
implied contract claims implausible as a matter of law.
6
On remand, the Sonoma district court held that the plaintiff
association was able to “solve this problem” by filing “twenty-six
resolutions . . . contain[ing] language expressly adopting the MOUs
highlighted in the Ninth Circuit’s opinion.” Sonoma Cty. Ass’n of
Retired Emps. v. Sonoma Cty., C 09-4432 CW, 2015 WL 1870841, at *7
(N.D. Cal. Apr. 23, 2015).
20 HARRIS V. COUNTY OF ORANGE
Here, by contrast, Retirees attached to the SAC the
Board resolution expressly adopting the terms of the
“exemplar” 1993 MOU. The County has not disputed that
each annual MOU was similarly adopted by resolution of the
Board. 7 We require nothing more at this pleading stage of
the litigation.
We therefore reverse the district court’s order insofar as
it dismissed Retirees’ contract claims regarding the Grant
Benefit.
III. Age Discrimination
Retirees’ FEHA age discrimination claim challenges the
elimination of the Retiree Premium Subsidy.
We begin by reiterating that Retirees had no contractual
right to continue receiving the Retiree Premium Subsidy.
REAOC V so held, and that conclusion is binding here.
742 F.3d at 1142. Our inquiry must therefore proceed ab
initio — that is, as if the County decided for the first time to
provide retiree health benefits and chose at that point to
create separate active and retiree pools for calculating
insurance premiums, taking into account in doing so that the
retiree pool is older, on average, than the active employee
pool.
7
The County contends that Retirees “fail to satisfy the second factor
of requirement alleging a contract ‘created . . . by ordinance or
resolution’” because the MOUs and Board resolutions adopting them do
not contain an implied vesting term. This argument is just a restatement
of the County’s position, which we have rejected, regarding Sonoma’s
first requirement.
HARRIS V. COUNTY OF ORANGE 21
As a general matter, California law “‘does not require
equal health care benefits for active employees and
retirees.’” Orange Cty. Emps. Ass’n v. Cty. of Orange,
285 Cal. Rptr. 799, 805 (Cal. Ct. App. 1991) (quoting
Ventura Cty. Retired Emps.’ Ass’n v. Cty. of Ventura,
279 Cal. Rptr. 676, 678 (Cal. Ct. App. 1991)). 8 After a
thorough “review of [California’s] entire statutory scheme,”
Orange County Employees Association rejected the
contention that a local government was required to provide
the same health coverage to retirees as to active employees,
at no increased cost to retirees. 285 Cal. Rptr. at 805. It
specifically held that “local agencies [are permitted] to
consider the differences between retired and active
employees in providing health benefits,” and that such
agencies are not required to “provide the same medical
benefit package to retirees and active employees.” Id. We
could not, therefore, fault the County for offering different
benefits to retirees and to active employees at the outset,
absent a FEHA violation.
FEHA was enacted “to protect and safeguard the right
and opportunity of all persons to seek, obtain, and hold
employment.” Cal. Gov’t Code § 12920. To that end,
FEHA makes it “an unlawful employment practice . . . [f]or
an employer, because of the . . . age . . . of any person, to . . .
discriminate against the person in compensation or in terms,
conditions, or privileges of employment.” Cal. Gov’t Code
§ 12940(a). Retirees assert that the County’s decision to
8
Federal law also permits certain exemptions for special types of
health insurance, including “retiree-only” plans. See Carson v. Lake
Cty., Ind., 865 F.3d 526, 530 (7th Cir. 2017). For example, as we have
recently held, retiree-only health plans are not covered by parts of the
Employee Retirement Income Security Act (“ERISA”). See King v. Blue
Cross & Blue Shield of Ill., 871 F.3d 730, 739–40 (9th Cir. 2017).
22 HARRIS V. COUNTY OF ORANGE
“split the pool” and thereby eliminate the Retiree Premium
Subsidy violated FEHA by “target[ing] ‘retirees’ based on
. . . express stereotyped assumptions that (1) a ‘retiree’ is
likely to be older than an active employee; and (2) an older
person is likely to have higher health costs than a younger
one.”
“[B]ecause California courts have interpreted [FEHA] in
accordance with cases interpreting the Age Discrimination
in Employment Act (‘ADEA’), and the federal Civil Rights
Act, we look to federal cases in those areas” in evaluating
novel FEHA claims. Strother v. S. Cal. Permanente Med.
Grp., 79 F.3d 859, 866 (9th Cir. 1996) (citations omitted).
Here, there are no reported California cases discussing the
interplay of retirement status and age discrimination under
FEHA, so we turn to federal case law for guidance.
First, this circuit has not decided whether the ADEA
applies to retirees. We hold that it does. 9
Interpreting the term “employees” in the context of Title
VII’s anti-retaliation provision, the Supreme Court observed
that “the word ‘employed’ [in the definition of
“employee”] 10. . . could just as easily be read to mean ‘was
9
Kentucky Retirement Systems v. EEOC, 554 U.S. 135, 138 (2008),
assumed, but did not address directly, whether the ADEA applies to
retirees; the question therefore remains open. See, e.g., Sorenson v.
Mink, 239 F.3d 1140, 1149 (9th Cir. 2001) (“[U]nstated assumptions on
non-litigated issues are not precedential holdings binding future
decisions.” (citation omitted)).
10
Title VII defines “employee” as “an individual employed by an
employer,” except “any person elected to public office in any State or
political subdivision of any State by the qualified voters thereof, or any
person chosen by such officer to be on such officer’s personal staff, or
an appointee on the policy making level or an immediate adviser with
HARRIS V. COUNTY OF ORANGE 23
employed.’” Robinson v. Shell Oil Co., 519 U.S. 337, 342
(1997). It therefore concluded that an employer’s adverse
treatment of individuals who were no longer employed could
nonetheless constitute discrimination against “employees.”
Id.
Like Title VII, the ADEA defines the term “employee”
as “an individual employed by any employer.” 29 U.S.C.
§ 630(f). The Third Circuit, in a persuasive opinion, applied
Robinson to the ADEA, ruling that “the ADEA applies even
when retiree benefits are structured discriminatorily after
retirement,” rather than before retirement. Erie Cty. Retirees
Ass’n v. Cty. of Erie, 220 F.3d 193, 210 (3d Cir. 2000). Like
the Third Circuit, we construe the definition of “employee”
and of “employee benefits” in the ADEA in favor of the
ADEA’s broad anti-discrimination purpose, and are
persuaded that Congress intended the statutory protections
to cover post-employment benefits for already retired
employees.
As to the application of the usual ADEA/FEHA analogue
here, we note that “the statutory definition of ‘employee’ [in
the FEHA statute] does not actually define who is an
employee under the FEHA; it merely excludes persons
employed by close relatives and those ‘employed’ by
nonprofit sheltered workshops and rehabilitation facilities.
Therefore . . . the FEHA definitional provision is not
particularly helpful in determining under what
circumstances one may be considered to be an employee for
purposes of the FEHA.” Mendoza v. Town of Ross, 128 Cal.
App. 4th 625, 632 (2005). “More helpful is the definition of
‘employee’ contained in regulations enacted by the
respect to the exercise of the constitutional or legal powers of the office.”
42 U.S.C. § 2000e(f).
24 HARRIS V. COUNTY OF ORANGE
Department of Fair Employment and Housing” [ADFEH”]
— “[a]ny individual under the direction and control of an
employer under any appointment or contract of hire or
apprenticeship, express or implied, oral or written.” Estrada
v. City of Los Angeles, 218 Cal. App. 4th 143, 148 (2013);
Cal. Code Regs., tit. 2, § 11008(c).
Neither the FEHA’s statutory (non)definition nor the
DFEH’s regulatory definition provides any basis for
departing from the norm of construing the FEHA as parallel
to the ADEA. Like the ADEA, the statute uses the term
“employed” in the employee exclusions, which could mean
“was employed.” The regulation uses the term “under the
direction and control of an employer,” which also could
include individuals under such control in the past. And the
policy considerations under the two statutes favoring
inclusion of retirees are also the same, see Erie, 220 F.3d at
210. We therefore hold that changes in retirees’ health
benefits are covered by the FEHA, despite the fact that they
are not active employees.
Crucially, however, the County’s elimination of the
subsidy does not discriminate among retirees based on age.
Cf. Am. Ass’n of Retired Pers. v. EEOC, 489 F.3d 558 (3d
Cir. 2007). Nor does the subsidy elimination distinguish
among active employees based on age, or against active
employees who are old enough to retire but have not. The
sole question before us is whether the County, under the
ADEA and so under California’s FEHA age discrimination
provisions, may treat retirees as a group differently, with
regard to medical benefits, than employees as a group,
taking into account that the cost of providing medical
benefits to the retiree group is higher because the retirees are
on average older. We conclude that it may.
HARRIS V. COUNTY OF ORANGE 25
The starting point for this inquiry is Hazen Paper
Company v. Biggins, 507 U.S. 604 (1993). Hazen concerned
“whether an employer violates the ADEA by acting on the
basis of a factor, such as an employee’s pension status or
seniority, that is empirically correlated with age.” Id. at 608.
The Court held that “liability depends on whether the
protected trait (under the ADEA, age) actually motivated the
employer’s decision” and “had a determinative influence on
the outcome.” Id. at 610 (emphasis added). Observing that
the “essence of what Congress sought to prohibit in the
ADEA” is making employment decisions based on
“inaccurate and stigmatizing stereotypes” about older
employees, the Court explained that when an employment
“decision is wholly motivated by factors other than age, the
problem of inaccurate and stigmatizing stereotypes
disappears . . . even if the motivating factor is correlated with
age, as pension status typically is.” Id. at 610–11 (emphasis
omitted). In short, “there is no disparate treatment under the
ADEA when the factor motivating the employer is some
feature other than the employee’s age.” 11 Id. at 609; see also
Kentucky Retirement System v. EEOC, 554 U.S. 135, 148
(2008) (“Where an employer adopts a pension plan that
includes age as a factor, and that employer then treats
employees differently based on pension status, a plaintiff, to
state a disparate-treatment claim under the ADEA, must
adduce sufficient evidence to show that the differential
treatment was ‘actually motivated’ by age, not pension
status.”); Smith v. City of Jackson, 544 U.S. 228, 242 (2005)
(holding that a decision to give raises based on an
11
The Supreme Court has subsequently made clear that mixed-
motive age discrimination claims are not permitted under the ADEA:
Plaintiffs bringing disparate treatment claims must prove that age was
the “but-for” cause of the employer’s adverse decision. See Gross v.
FBL Fin. Servs., Inc., 557 U.S. 167, 175–78 (2009).
26 HARRIS V. COUNTY OF ORANGE
employee’s seniority and position — factors correlated with
age — “was a decision based on a ‘reasonable facto[r] other
than age’” and therefore did not violate the ADEA).
Having so held, Hazen was careful not to rule out “the
possibility that an employer who targets employees with a
particular pension status on the assumption that these
employees are likely to be older thereby engages in age
discrimination.” 507 U.S. at 612–13.
Critically for present purposes, however, Hazen
concerned the comparative treatment of active employees
based on whether they were eligible to retire, not a
comparison of the benefits provided to active employees and
to retirees. See id. Conversely, Kentucky Retirement
concerned a comparison of the benefits provided to different
retirees — again, no comparison of the benefits provided to
active employees and to retirees was at stake. 554 U.S. at
138. The two cases, consequently, are informative here in
their holdings that a focus on retiree status alone is not itself
age discrimination, but they do not address whether, where
the issue is calculating benefits for all retirees as a group, it
is an ADEA or FEHA violation to consider that retirees as a
group are on average older than active employees as a group.
Retirees nonetheless maintain that here, pension status
was not a “factor other than age” but rather an impermissible
“proxy for age.” Id. at 610, 613; Kentucky Retirement,
554 U.S. at 142. As evidence, they point to statements by
County officials made both contemporaneously with the
decision to charge employees more for medical benefits and
during the course of litigation, as well as to reports prepared
to assist the County in deciding how to restructure retiree
HARRIS V. COUNTY OF ORANGE 27
health benefits. 12 For example, the 2004 report notes “that a
45 year-old can be expected to have less than $3,000 per year
in claims, while a 60 year-old would have well over $4,000
per year.” They argue that reliance upon such age-based
generalizations constitutes using retiree status as a proxy for
age within the meaning of Hazen, even though, among
retirees, the cost of medical benefits does not vary by age.
Such class-based treatment, they maintain, is prohibited by
analogy to Los Angeles Department of Water and Power v.
Manhart, 435 U.S. 702, 708 (1978), and Arizona Governing
Committee v. Norris, 463 U.S. 1073, 1084 (1983).
Retirees’ reliance on Manhart and Norris is
fundamentally misplaced. Manhart invalidated as
discriminatory a retirement plan’s requirement that female
employees make larger pension contributions while
working. Having determined that “female employees, on the
average, will live a few years longer than . . . male
12
Allegations regarding the 2004 report are contained only in
Retirees’ Fourth Amended Complaint, never accepted by the district
court. Retirees, however, put on evidence regarding the report at the
April 29, 2013 hearing on the County’s motion to dismiss the TAC, and,
in denying Retirees’ request for leave to file a Fourth Amended
Complaint, the district court stated that it had considered “Plaintiffs’
proffer at the hearing about the Fourth Amendment Complaint” and
concluded that “that the additional allegations would [not] cure the
defects in the pleadings.” The district court thus denied leave to amend
essentially on grounds that the proposed “amendment would be futile.”
Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1041 (9th
Cir. 2011). In evaluating the district court’s ruling in this regard, we too
must consider the allegations in the proposed Fourth Amended
Complaint. See id. at 1042 (reviewing a proposed amended complaint
in assessing whether leave to amend should have been granted). As these
allegations were essentially considered by the district court as to the
merits when denying leave to amend, we consider them in deciding this
appeal.
28 HARRIS V. COUNTY OF ORANGE
employees,” and, consequently, will, as a group, have higher
pension payouts in total than men as a group, the employer
charged each woman more in pension contributions than
each man. Manhart, 435 U.S. at 705.
Manhart rejected the sex-based difference in pension
contributions there challenged. “An employment practice
that requires 2,000 individuals to contribute more money
into a fund than 10,000 other employees simply because
each of them is a woman, rather than a man, is in direct
conflict with both the language and the policy of the Act.
Such a practice does not pass the simple test of whether the
evidence shows ‘treatment of a person in a manner which
but for that person’s sex would be different.’ It constitutes
discrimination and is unlawful unless exempted by the Equal
Pay Act of 1963 or some other affirmative justification.” Id.
at 711.
Manhart stands for the proposition that Title VII
prohibits discrimination “against any individual” on account
of “such individual’s” characteristics, id. at 708 (emphasis
in original) (quoting 42 U.S.C. § 2000e-2(a)(1)), “squarely
reject[ing] the notion that . . . an employer may adopt a
retirement plan that treats every individual woman less
favorably than every individual man,” Norris, 463 U.S. at
1083 (emphasis added) (discussing Manhart). “[T]he basic
policy of [Title VII] requires that we focus on fairness to
individuals rather than fairness to classes,” the Court
explained. Manhart, 435 U.S. at 709. Because individual
women may not fit the generalization on which the
Department’s policy was based — that is, they may not live
as long as the average man — the Court concluded that the
retirement plan was unfair to individual women. Id. at 711.
Likewise, in Norris, the Court held that employers may
not offer employees the option of receiving retirement
HARRIS V. COUNTY OF ORANGE 29
benefits from companies that pay a woman lower monthly
retirement benefits than a “similarly situated” man who has
contributed the same amount from his salary to the plan.
463 U.S. at 1074, 1083. “[I]t is just as much discrimination
‘because of . . . sex,’” the Court explained, “to pay a woman
lower benefits when she has made the same contributions as
a man as it is to make her pay larger contributions to obtain
the same benefits.” Id. at 1086.
Unlike the retirement plans in Manhart and Norris, the
County’s plan does not discriminate against “similarly
situated” persons on the basis of a prohibited characteristic,
here, age. Rather, the retirees’ contention is that in
calculating the rate to be charged to retirees as a group — a
classification that, under Hazen, is not itself an age-based
classification — age was taken into account. But Manhart
specifically noted that its holding did not “call into question
the . . . practice of considering the composition of an
employer’s work force in determining the probable cost of a
retirement . . . plan” and that it was not “unlawful to
determine the funding requirements for an establishment’s
benefit plan by considering the composition of the entire
force.” Manhart, 435 U.S. at 718 & n.34.
It is this aspect of Manhart — the recognition that the
setting of benefits or rates for the pertinent covered group of
employees as a whole, termed the “entire force” in Manhart,
by taking sex actuarially into account, would not be
discrimination based on sex — that controls here. The
County does not, among retirees, charge more to older than
younger retirees. From the outset, the County treated
employees differently from retirees for purposes of medical
benefits, most notably by paying for most of the medical
benefits of active employees but requiring retired employees
to pay for most of their own, with some help from the Grant
30 HARRIS V. COUNTY OF ORANGE
Benefit. That fundamental differentiation has not been
challenged here — not surprisingl`y, as, under California
law, retirees need not be provided medical benefits at all. By
adopting the split-roll for the purpose of calculating
premiums for medical insurance, the County was simply
following through on its determination that already retired
persons, who have ceased providing any services to the
County, are a separate “force” — in Manhart terms — from
the “force” of active employees. Nothing in Manhart
prohibits considering retirees as a separate group for
purposes of calculating the cost of benefits, and making cost
determinations related to that separate group on the basis of
the age of the cohort as a whole — just as employee medical
plans can calculate the equal premiums charged to every
active individual employee by actuarially taking into
account the age and gender distribution of all active
employees.
Retirees have not cited any case to the contrary. Instead,
Retirees rely principally on cases in which some active
employees were treated differently from other active
employees, allegedly because of age. As we have explained,
neither Hazen nor Kentucky Retirement concerned a
circumstance in which the contention was that retirees as a
group were treated differently than active employees as a
group based on the average older age of retirees. And in
other cases Retirees cite, the plaintiffs sought or held active
employment, but were treated differently from similarly
situated job seekers or employees on account of their
retirement eligibility or status. See, e.g., EEOC v. Local 350,
Plumbers & Pipefitters, 998 F.2d 641, 646 (9th Cir. 1992);
Hilde v. City of Eveleth, 777 F.3d 998, 1002–03 (8th Cir.
HARRIS V. COUNTY OF ORANGE 31
2015). 13 We have found no case after Hazen and Kentucky
Retirement suggesting that an employer’s unequal treatment
of retirees vis-à-vis active employees can amount to
unlawful discrimination on the basis of age, whether or not
the average older age of retirees is taken into account in
deciding on policy affecting retirees. Actually retired
workers who are not working and not seeking to work are
simply not similarly situated to the County’s active
employees as to whom they seek equal treatment.
Under California law, public employees need not
provide retired employees medical benefits. Here, the
County has chosen to provide some access to retiree medical
care, albeit on different terms, and at different premium rates
from those applicable to active employees. Active
employees eligible for retirement — a substantial number of
whom are older than many retirees — receive the medical
benefits paid by other active employees, without regard to
age. Under these circumstances, calculating the rates
charged to retirees separately from those applicable to active
employees, taking into account the higher medical costs of
the older cohort of retirees, does not constitute
impermissible discrimination against the retirees based on
age. The overall distinction between the medical plans
covering active employees and retirees is, under Hazen, not
itself discrimination based on age, and calculating the rate
charged every retiree, regardless of age, by taking average
age into account is not, under Manhart, discrimination
against any individual retiree based on a protected category.
13
Additionally, Local 350 was decided before Hazen, and,
inconsistently with Hazen, treated retirement status as necessarily a
proxy for age.
32 HARRIS V. COUNTY OF ORANGE
In short, where employers are not required to provide
post-retirement benefits at all, and particularly where
retirees as a force are covered by separate benefit terms, the
County does not violate the FEHA by treating retirees as a
separate force and making cost calculations accordingly,
taking into account the age distribution of the retiree group
as a whole. Retirees’ claim of unlawful age discrimination
under FEHA fails as a matter of law.
IV.
For the foregoing reasons, we affirm in part, reverse in
part, and remand to the district court for further proceedings
consistent with this opinion. 14
AFFIRMED in part, REVERSED in part,
REMANDED for further proceedings.
14
We deny Retirees’ motion to reassign the case on remand.
“Absent proof of personal bias on the part of the district judge, remand
to a different judge is proper only under unusual circumstances.” United
States v. Reyes, 313 F.3d 1152, 1159 (9th Cir. 2002). There is no claim
of personal bias here, and the record reveals none. Nor do we find any
“unusual circumstances” warranting reassignment. This case presents
complicated questions with which the district court, this Court, and the
California Supreme Court have wrestled over the past several years.
There is no indication that Judge Andrew J. Guilford has been inflexible
in applying this Court’s precedent as it has developed. Moreover, given
the overlap between this case and the REAOC litigation, which
proceeded to discovery and summary judgment, there would be
significant duplication if another judge were required to familiarize
himself or herself with the case.