Sixth Circuit Rejects Inferences Favoring Lifetime Vesting Of Collectively Bargained Retiree Health Benefits

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By:  Julia Turner Baumhart

 

Since 1983, the U.S. Court of Appeals for the Sixth Circuit (the federal appellate court that includes Michigan, Ohio, Kentucky and Tennessee) has “placed a thumb on the scale in favor of vested retiree benefits in all collective bargaining agreements.”  The Supreme Court recently repudiated this so-called Yard-Man rule in M & G Polymers USA, LLC v. Tackett (2015), and directed lower courts to reject Yard-Man inferences and to interpret collective bargaining agreements “according to ordinary principles of contract law.”

This week, on February 8, the Sixth Circuit did just that, reversing a district court’s ruling awarding a class of retirees and spouses from a closed Cleveland-area plant vested lifetime healthcare benefits.  The appellate court also vacated the district court’s $800,000 fee award.

In Gallo v. Moen, Inc., the Sixth Circuit reviewed collective bargaining agreement language from a series of three-year agreements and a plant closing agreement.  Each CBA provided retirees with some form of free or low-cost health coverage and Medicare Part B premium reimbursements.  These particular CBA provisions did not set a durational limit to the coverage nor did any provision state that these benefits vested.  The plant closing agreement simply continued the coverage set forth in the final CBA.

A majority of the court concluded that – for multiple reasons – the rights did not vest, leaving the employer free to alter or eliminate the health benefits.  Most importantly, no language in any retiree health benefit provision “committed [the employer] to provide unalterable healthcare benefits to retirees and their spouses for life.”  Similarly, the court opined that there were CBA provisions that expressly provided for lifetime vesting of other benefits, such as pensions, demonstrating that the parties knew such language was necessary where it was intended.

Each CBA also had a durational limit of three years, which the court found important because “we should not expect to find lifetime commitments in time-limited agreements.”  Rather, applying general contract principles, unless a specific provision of the agreement expressly sets a different durational clause, the general clause – three years – sets the duration.  Using phrases like “will continue” or “will be provided” mean nothing more than the benefits will continue or will be provided until the agreement expires.

The court also relied on the fact that later CBA’s did not treat retiree health benefits as having vested under the earlier CBA’s, and all agreements contained reservation-of-rights clauses that gave the employer the ability to amend, cancel or reinsure policies underlying the benefits, including during the agreement’s three-year duration.  Finally, the court opined that, throughout the three decades it had applied the Yard-Man rule, no other federal appellate court had accepted or adopted it.

The opinion drew a sharp dissent, accusing the majority of “putting a thumb on the scales” favoring the employer.  The dissent opined that the majority failed to consider distinctions between collectively bargained agreements in contrast to those agreements drafted for non-union workplaces.  Unfortunately, such considerations created the Yard-Man rule 30-plus years ago, so it appears employers can expect the dialogue on this rule to continue at least for the near-term.  

This e-blast was written by Julia Turner Baumhart, who is a member of the Detroit SHRM Legal Affairs Committee.  Ms. Baumhart is a partner in the labor and employment firm of Kienbaum Opperwall Hardy & Pelton, P.L.C. in Birmingham, Michigan and can be contacted at jbaumhart@kohp.com or (248) 645-0000.  

Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article.  February 2016.