If unionized retirees are entitled to retiree health benefits, their contract cannot beat around the bush on the topic; it must be made clear. Or, at a minimum, courts cannot jump to conclusions without a broad-scale examination of the dispute.

That’s the essence of a unanimous U.S. Supreme Court ruling issued yesterday in M&G Polymers USA, LLC v. Tackett. The ruling flatly rejects the U.S. Court of Appeals for the 6th Circuit’s opinion that the precedent of a 1983 6th Circuit ruling (UAW v. Yard-Man) requiring that in ambiguous situations, courts should make a presumption of lifetime vesting for health benefits.

The high court’s ruling is not an unambiguous win for employers, however, attorneys at the Fisher & Phillips employment law firm warned clients in a bulletin. The Supreme Court’s ruling “is an affirmation of the neutral principles of contract interpretation, which favor neither employer nor employee.”

Also see: ‘Lack of support’ for continuation of retiree benefits beyond length of contract

Fisher & Phillips characterized the ruling as a “cautionary tale about using clear language when drafting contracts to make sure that the terms of a contract are those decided by the parties, and not by the courts.”

Background

In the M&G Polymers USA case, chemical plant workers at a facility in Apple Grove, West Virginia, have been operating under a series of collective bargaining agreements since 2000. Separate CBAs govern wages, and pension and health benefits. The pension and health CBA defined vesting provisions for the pension component, but did not explicitly apply those terms to the health benefit component.

In 2006, M&G informed its retirees that they would have to start contributing to the cost of their health benefits. (That change did not apply to active employees.) Retirees and their union complained that retirees should not be required to contribute to their health benefits, basing their argument on general language in the CBA referring to a “full company contribution to the cost of benefits” which may also have carried an implication of a lifetime duration of those benefits.

In response, M&G pointed out that the CBA did not address the question of retiree vesting with respect to health benefits, and therefore that there was never any promise to provide health benefits in retirement. Rather, the CBA stated that health benefits for active employees and retirees would only be provided “for the duration of this agreement.” M&G also cited a separate agreement stipulating that the retirees would be required to contribute to the cost of any health benefits that exceeded a negotiated ceiling.

The 6rd Circuit, citing its earlier ruling in UAW v. Yard-Man, sided with the union and retirees.  In the Yard-Man case, that court had, according to Justice Clarence Thomas, author of the Supreme Court ruling, “placed a thumb on the scale in favor of vested retiree benefits in all collective bargaining agreements.”

Rejecting that position, Justice Thomas declared that “courts should not construe ambiguous writings to create lifetime promises,” and that “retiree health care benefits are not a form of deferred compensation” as pension benefits are generally viewed.

Prior to yesterday’s ruling, a split had evolved among different appeals courts. For example, in an earlier decision, the 3rd Circuit had taken a position opposite that of the 6th Circuit. The M&G Polymers USA case should resolve that conflict.

Case to be retried

Rather than simply declare M&G Polyers USA as the victor in this dispute, the Supreme Court ordered the 6th Circuit to re-try the case, using ordinary principles of contract interpretation to sort it all out.

Although the Supreme Court was unanimous on the basic question, a concurring opinion by Justice Ginsburg, also agreed upon by the more liberal Justices Breyer, Sotomayor, and Kagan, set a different tone from Justice Thomas. “No rule requires ‘clear and express’ language in order to show that parties intended health care benefits to vest.” That was a direct rejection of a 3rd Circuit ruling in a similar case.

According to Fisher & Phillips, the essence of Sotomayor’s concurrence is that the lower court, in addition to a not presuming retiree benefits were promised based on the Yard-Man standard, “should examine the entire agreement to determine whether the parties intended retiree healthcare benefits to vest, surviving the expiration of the collective bargaining agreement.”

Richard Stolz is a freelance writer based in Rockville, Md.

Register or login for access to this item and much more

All Employee Benefit News content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access