Courts weighing whether union retirees have vested lifetime health-care benefits should apply ordinary contract principles, rather than special inferences or presumptions, the U.S. Supreme Court ruled (M&G Polymers USA, LLC v. Tackett
, 2015 BL 16721, U.S., No. 13-1010, 1/26/15).
The unanimous Jan. 26 opinion by Justice Clarence Thomas is largely a win for employers, which may now have more freedom to alter, reduce or eliminate the health-care benefits they provide to retired union workers. In the opinion, the court invalidated what has become known as the Yard-Man inference, a judicial inference applied by the retiree-friendly U.S. Court of Appeals for the Sixth Circuit to find that retiree health-care benefits are vested for life in the absence of specific language to the contrary in a plan document or collective bargaining agreement (United Auto Workers v. Yard-Man Inc.
, 716 F.2d 1476, 4 EBC 2108 (6th Cir. 1983)).
Other circuits—including the Second and Seventh—have required stronger language to infer vesting, with the Third Circuit applying nearly the opposite presumption to require a clear statement of vesting in order to find retiree benefits vested for life. The Supreme Court limited its analysis to the Sixth Circuit's approach and didn't weigh in on the approaches taken by other circuits.
The invalidation of Yard-Man
won't come as a surprise to most court watchers, as neither party took great lengths to defend the inference when the court heard oral arguments in November.
Rather than determining whether the retirees in the instant dispute were entitled to lifetime health-care benefits, Thomas's majority opinion remanded the case to the Sixth Circuit for further consideration under ordinary principles of contract interpretation.
Justice Ruth Bader Ginsburg filed a short concurring opinion joined by three other justices. Ginsburg used the concurrence to point out several arguments the retirees could advance when the Sixth Circuit reconsiders the case using ordinary principles of contract interpretation.
Attorneys familiar with the case agreed that the court's short, unanimous opinion rejecting the inference in favor of union retirees didn't come as a big surprise.
“This came down exactly as expected,” Steven W. Suflas, managing partner of Ballard Spahr LLP's Cherry Hill, N.J., office, told Bloomberg BNA on Jan. 26. “When you looked at oral arguments, it was pretty clear that this was where it was going.”
According to Suflas, the opinion “makes very clear that union collective bargaining agreements are supposed to be interpreted according to ordinary contract principles. That's a broad proposition which could have wider connotations and bring some additional clarity.”
In particular, Suflas said he could envision this ruling being of particular importance to the National Labor Relations Board, which he said is “sometimes very quick to craft presumptions as to what collective bargaining agreements mean.”
Nancy G. Ross, a partner with Mayer Brown's Chicago office, also said that the court's ruling was unsurprising, noting that the short, unanimous nature of the decision indicated that the court didn't have to agonize over the issues at play.
“It seemed to me that this was almost a no-brainer for the court,” Ross told Bloomberg BNA on Jan. 26. “The opinion probably wrote itself.”
Ross added that the court's decision to make it easier for employers to modify benefits for union retirees reflected the court's understanding of this country's “privatized system of welfare benefits,” in which workers rely on their employers to provide welfare benefits.
“It's further evidence that the Supreme Court understands that you don't bite the hand that feeds you,” said Ross, who represents employers and plan sponsors. Excerpted from a story that ran in Pension & Benefits Daily (01/27/2015). Stay on top of the latest industry trends and news coverage with a free trial to the Benefits Practice Resource Center.