Termination for cause may result in the loss of fringe benefits in retirement

Termination for cause may result in the loss of fringe benefits in retirement
Farrell v City of Rensselaer, NYS Supreme Court, Justice James B. Canfield, [Not selected for publication in the Official Reports]

Frequently the employer will provide health insurance and similar fringe benefits to its retirees. In some cases an employee who, upon leaving his or her employment, has "vested" his or her retirement benefits may be entitled to such fringe benefits at a later date.

Farrell decision considers an important related issue: What are the rights of a former employee to fringe benefits such as health insurance that the employer provides to individuals receiving a retirement allowance if the retired employee was terminated from employment as a result of having been found guilty of disciplinary charges?

This was the situation that faced City of Rensselaer police officer Edward W. Farrell after he was terminated from his position for misconduct: the City refused to continue his health insurance benefits following his separation.*

Farrell sued, claiming that he was entitled to such health insurance benefits because he had "retired before being terminated." He argued that the City's refusal to pay for his health insurance benefits upon his retirement was "arbitrary, capricious, unreasonable and unlawful."

The City contended that Farrell had not retired from its police department but had been terminated following disciplinary action. The City pointed out that it had rejected Farrell's "retirement note" that he had submitted an hour before disciplinary charges were served on him and that it had gone forward with the disciplinary action.

This is not an unusual situation.

An individual may decided to submit his or her resignation in anticipation of, or after being served with, disciplinary charges. For example, the New York State Civil Service Commission, which applies to employees in the classified service of the State and public authorities, public benefit corporations and other agencies for which the Civil Service Law is administered by the State Department of Civil Service, adopted a rule applicable to employees addressing this type of situation -- 4 NYCRR 5.3(b).

This rule provides that in the event disciplinary charges have been, or are about to be, filed against an employee, the appointing authority may elect to disregard a resignation filed by the employee and may proceed with the disciplinary action. Should the employee be found guilty, his or her separation is recorded as a dismissal rather than a resignation. Many municipal civil service commissions have adopted a similar rule.

In Farrell's case the court appears to have applied a similar rationale in dealing with a "retirement-disciplinary situation," holding that retirement, or the announcement of an intention to retire, does not bar the employer from proceeding with a disciplinary action.

Although Farrell claimed that he had retired from the police department prior to being served with disciplinary charges, Justice Canfield commented that:

Notwithstanding the New York State and Local Retirement System's use of the word "retirement" to describe the cessation of employment, there simply is no basis for concluding that Farrell "retired" from the Rensselaer Police Department.

An employee may advise his or her employer that he or she intends to retire as a matter of courtesy. To effect a retirement, however, the individual must file an application for retirement benefits with his or her retirement system. The employer does not have any authority to approve or disapprove such a retirement application submitted by the individual.**

In fact, there is no requirement that an individual who is eligible to receive a retirement benefit actually apply for such a benefit should he or she resign. He or she, if eligible, may elect to "vest" and defer his or her retirement until a later date.

Here, said the court, Rensselaer had a resolution in place providing for its continuing to pay for health insurance benefits "for those who retire from service...." The resolution, however, "does not expressly extend that benefit to those who are dismissed from service."

Justice Canfield's conclusion: Rensselaer's refusal to pay for Farrell's health insurance benefits "is consistent with the terms of the resolution."

* The decision implies that Farrell applied for, and was granted, a retirement allowance following his dismissal.

** Typically, a member of a public retirement system of this State must file his or her application for retirement at least 30 days but not more than 90 days prior to his or her effective date of retirement.