A recent decision from the Massachusetts Supreme Judicial Court, O’Neill v. School Committee of North Brookfield, reaffirms that fringe benefits contained in an employment contract are enforceable even after the employee is no longer employed.
Robert O’Neill was the superintendent of the North Brookfield schools from 1998 to 2005. During that time he had a number of employment contracts, however, his final contract contained a provision that entitled him, upon retirement, to be reimbursed annually for a percentage of his individual health insurance plan. The percentage was tied to his number of year of service and was not allowed to exceed that of the reimbursement rate for retired town employees.
The town argued that this provision was a violation of state law because it was an award of a contract for greater than the six year cap under Massachusetts law. However, the court saw it differently. Holding that it was “simply a benefit provided for in O’Neill’s final employment contract, and the fact that it was to be paid annually after the contract expired does not mean that the contract itself extended beyond the stated three-year term.”
The court found that the reimbursement provision was a bargained for fringe benefit and not part of any other benefits that the law would impose limitations on. The court made it clear that this contract was different from an unenforceable ‘evergreen clause,’ which operates to extend all of the contract terms beyond the end date of the agreement. This was different, much like a severance, except that it was to be paid over the course of O’Neill’s lifetime.
The important thing for employers to remember is that retirement benefits, bargained for during employment, are enforceable once the employee is no longer employed.
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