Thanks to the United States Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett, decided January 26, 2015, employers now have more latitude to change healthcare benefits for retirees provided pursuant to a collective bargaining agreement (“CBA”).
The U.S. Supreme Court explained that, since deciding International Union v. Yard-Man (“Yard-Man”) in 1983, the United States Court of Appeals for the Sixth Circuit (which hears disputes arising out of the United States District Courts in Ohio, Kentucky, Michigan and Tennessee) has been wrongfully “placing a thumb on the scale in favor of vested retiree benefits in all [CBAs].”
In Yard-Man, the Sixth Circuit analyzed a CBA that promised retiree healthcare benefits, but did not explicitly state if or when those benefits could be changed or eliminated. Generally, “contractual obligations will cease . . . upon termination of the bargaining agreement,” but the Sixth Circuit found that “persuasive considerations . . . demonstrate that retiree benefits were intended to outlive the [CBA’s] life. . . .” Among those considerations was the Sixth Circuit’s assertion that “retiree benefits are in a sense ‘status’ benefits which . . . carry with them an inference that they continue so long as the prerequisite status is maintained.” The court also assumed the continuation of retiree benefits would not intentionally “be left to the contingencies of future negotiations” because unions have no obligation to bargain on behalf of non-member retirees.
Clearly, the “persuasive considerations” relied upon in Yard-Man were not persuasive to the U.S. Supreme Court, which criticized the Sixth Circuit’s reasoning as “incompatible with ordinary principles of contract law.” From here on out, employers can expect that CBAs promising retiree benefits will be interpreted in accordance with traditional contract law; “a [CBA] [may] provid[e] in explicit terms that certain benefits continue after the agreement’s expiration. But when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.”
Continuing health care benefits for retirees has been a mounting cost and concern for many employers. If you have questions about your company’s obligations to retirees or other labor relations issues, please do not hesitate to contact Nick Nykulak, Alan Ross or Colleen Koehler at 216-447-1551.