Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
April 1 — Johnson Controls Inc. retirees aren't entitled to unlimited lifetime health-care benefits because those benefits weren't vested, the U.S. District Court for the Middle District of Pennsylvania ruled.
In the March 31 opinion, Judge Sylvia H. Rambo granted summary judgment to Johnson Controls, holding that the collective bargaining agreements at issue didn't include “clear and express language” providing for vested unlimited lifetime health-care benefits to retirees.
In ruling this way, Rambo held that the “clear and express language” required to conferred vested lifetime benefits that was adopted by the U.S. Court of Appeals for the Third Circuit in United Auto Workers Local No. 1687 v. Skinner Engine Co., 188 F.3d 130 (3rd Cir. 1999), was still binding law within the circuit despite the U.S. Supreme Court's decision in M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015).
The court erroneously applied a “presumption” that benefits aren't vested under Skinner, contrary to the Supreme Court's mandate in Tackett that courts had to decide whether benefits are vested based on ordinary principles of contract law instead of on judge-made presumptions, McKean J. Evans of Feinstein Doyle Payne & Kravec LLC, attorney for the retirees, told Bloomberg BNA on April 1.
In Skinner, the Third Circuit reasoned that since vesting of welfare plan benefits constituted an “extra-ERISA commitment,” the employer's commitment to vest such benefits couldn't be inferred lightly and had to be stated in clear and express language .
In Tackett, the Supreme Court held recently that courts must interpret CBAs according to ordinary principles of contract law .
In 2009, Johnson Controls unilaterally reduced retiree health benefits by instituting a $50,000 lifetime cap on benefits payable for each participant 65 years of age and older. As a result of this cap, some class members were no longer eligible for retiree health-care benefits because they had reached the $50,000 lifetime coverage limit.
A group of workers who retired between 1973 and 2009 sued the company, challenging the lifetime cap. In their amended complaint, the class brought claims alleging unpaid benefits, fiduciary breach and equitable estoppel under the Employee Retirement Income Security Act and the Labor Management Relations Act.
In a previous order, the court denied Johnson Controls' motion to dismiss the retirees' claims for ERISA benefits and fiduciary breach. However, the court dismissed the retirees' equitable estoppel claim because they didn't allege “extraordinary circumstances” to support the claim .
Later on, the retirees withdrew their fiduciary breach claim. Both parties moved for summary judgment.
The court found issue with the retirees' argument that Tackett rejected all presumptions for or against vesting, including the Third Circuit's “clear and express” standard, and that therefore, Skinner was no longer good law. The retirees relied on Justice Ruth B. Ginsburg's concurrence in Tackett in which she said that no rule required clear and express language to show that the parties intended health-care benefits to vest.
In rejecting this contention, the court said that the Supreme Court, through a unanimous opinion in Tackett, had declined to address whether clear and express language is required by not issuing any specific holding on this point. “As the unanimous Tackett Court refused to address the Third Circuit's clear and express language standard, the court declines to follow Justice Ginsburg's additional guidance as it applies to said standard,” the district court said.
The court noted that although the Third Circuit has “acknowledged that Skinner's ‘clear and express' standard amounts to a presumption against vesting,” it hasn't applied that standard as a “bright-line rule” that would reject applying principles of contract interpretation when such language is absent.
A plain reading of the phrase “shall have the following benefits … continued” didn't unambiguously indicate that the benefits will be set for life notwithstanding the expiration of the CBA, the court said. A more reasonable interpretation is that the benefits would continue until the applicable CBA expires, the court concluded.
The court said that the phrase “shall have the following benefits … continued” related to the continuation of certain benefits that retirees had enjoyed during their employment, and “certainly does not guarantee unalterable benefits ‘prospectively for the life of the retiree.' ”
The CBAs between 1996 and 2006 stated that the coverage would continue “until your death.” In interpreting this language, the court said that the phrase “until your death” couldn't be read in a vacuum and had to be read along with the language included in the durational clauses, which set an exact expiration date to the CBAs.
The court said that the phrase meant that a retiree was entitled to the benefits provided by the CBA for the entire time of the agreement, but such benefits ended in the event of the retiree's death if it should occur during the term of the agreement.
The CBAs and a separate booklet that was incorporated into each agreement had explicit durational clauses that provided the exact date and time when those documents would cease to be in effect, as well as additional language contemplating the termination of the retiree health benefits, the court said. As such, the “until death” language doesn't constitute the clear and express vesting language sufficient to overcome the durational clauses, the court concluded.
Evans said that they believed the “ruling was wrongly decided and are considering appealing this case to the Third Circuit.”
Counsel for Johnson Controls declined to comment.
Ogletree, Deakins, Nash, Smoak & Stewart PC and McNees, Wallave & Nurick represented Johnson Controls.
To contact the reporter on this story: Carmen Castro-Pagan in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Notify me when updates are available (No standing order will be created).
Put me on standing order
Notify me when new releases are available (no standing order will be created)