SCOTUS Decides Contract Law Trumps Judicial Inferences... Who Knew?

Today the U.S. Supreme Court gave employers in Kentucky, Michigan, Ohio, and Tennessee relief from the onerous Sixth Circuit presumption (from its UAW v. Yard-Man opinion in 1983) that collectively bargained retiree healthcare is a vested right.

In its unanimous M&G Polymers v. Tackett opinion, the Supreme Court rejected the Sixth Circuit’s position as “incompatible with ordinary principles of contract law,” giving employers in these states more certainty as to when they can change or terminate bargained retiree health care benefits.

Key points from the Supreme Court opinion:

• A CBA may explicitly provide that retiree healthcare benefits continue after the CBA expires.
• When a CBA is silent as to the duration of retiree health benefits, a court may not infer that the parties intended those benefits to vest for life.
• When a CBA has a general duration clause but no specific duration clause for retiree health benefits, the parties can provide affirmative evidence to support how customs or practices in a particular industry interpret the CBA’s silence.

The Sixth Circuit’s result in the M&G Polymers situation was especially egregious, because the CBA in question had a specific duration clause – “for the duration of this Agreement” – for the healthcare benefits provided under the CBA to “eligible employees.” As many CBAs do, this one also said that retiree healthcare would be provided at no cost to retirees who are eligible for and receiving benefits from the company’s pension plan. When M&G Polymers announced that it was going to begin requiring a retiree contribution for healthcare, the retirees sued. The Sixth Circuit decided that the CBA language describing the retiree healthcare benefits for retirees eligible for pension benefits made a separate promise that vested those fully-paid benefits.

The Supreme Court soundly rejected the Sixth Circuit’s decision, stating in part that the Sixth Circuit’s position “violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements. That rule has no basis in ordinary principles of contract law.” The decision now goes back to the Sixth Circuit, which has been directed to revisit its decision by applying ordinary principles of contract law, including these highlighted by the Supreme Court, all of which are inconsistent with the Sixth Circuit’s position:

• Contractual obligations generally end when the CBA terminates.
• The meaning of a contract with clear and unambiguous contract provisions should be ascertained in accordance with its plainly expressed intent.
• The CBA, as a written contract, is presumed to encompass the entire agreement of the parties.

Employers in the Sixth Circuit with collectively bargained retiree healthcare benefits who thought they were locked in to providing those benefits indefinitely now may have an opportunity to change or terminate those benefits, depending on the language in their CBAs. Note, however, that every CBA providing retiree health care benefits has to be separately reviewed; language in one CBA could vest retiree healthcare benefits even if language in an earlier or later CBA does not vest those benefits.