In what is viewed as a victory for employers, the Supreme Court recently held that whether a collective bargaining agreement provides for vested, lifetime retiree medical benefits, must be determined using ordinary principles of contract law. M&G Polymers USA, LLC v. Tackett, No. 13-1010, 2015 U.S. LEXIS 759 (January 26, 2015). The Supreme Court specifically rejected the inference toward vesting that the Sixth Circuit has applied based on its decisions in UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983) and its progeny (generally referred to as the Yard-Man inference).
The Yard-Man Inference
The Yard-Man inference in favor of vesting has been applied by the Sixth Circuit where a collective bargaining agreement has a general duration clause, but not a duration clause specifically related to retiree medical benefits. Where agreements provided specific durational/termination clauses for certain benefits but not for retiree medical benefits, the Sixth Circuit has inferred that the absence of the specific durational clause for the retiree medical benefits reflected an intent to vest those benefits. Additionally, the Sixth Circuit has held that, with respect to employees who could not meet the age and service requirements to qualify for retiree medical coverage during the duration of the collective bargaining agreement, the promise of retiree benefits would be completely illusory if the right to the retiree benefits terminated when the collective bargaining agreement expired. In the Sixth Circuit's view, such an illusory promise weighed in favor of finding an intent to vest retiree medical benefits. Lastly, the Sixth Circuit has made various assumptions about the nature and context of labor negotiations, again weighing in favor of vesting retiree medical benefits.
The M&G Polymers Case
At issue in the M&G Polymers case was the right to lifetime, employer-paid health care benefits. The retirees had worked at a polyester plant which was acquired by M&G Polymers USA, LLC ("M&G"). M&G entered into a collective bargaining agreement and related Pension, Insurance and Service Award Agreement (the "P&I Agreement") with the union that had represented the retirees. The P&I Agreement provided certain retirees (and their spouses and dependents) with fully-paid medical benefits described in an Exhibit. The Exhibit described the covered medical care benefits and indicated that it applied "for the duration of this Agreement." The P&I Agreement provided for renegotiation of its terms in three years. After the expiration of the P&I Agreement, M&G announced that the retirees would need to pay for a portion of their medical benefits. The retirees brought suit claiming that the language in the Agreement stating that eligible retirees "will receive a full Company contribution" created a vested right to fully-paid medical benefits for life. M&G argued that the right to fully-paid retiree medical benefits terminated when the P&I Agreement expired.
The district court initially dismissed the case for failure to state a claim, concluding that the language cited by the retirees unambiguously did not create a vested right to retiree benefits. The Sixth Circuit, applying the Yard-Man inferences, concluded that the retirees had stated a plausible claim and therefore, reversed and remanded the case to the district court. The Sixth Circuit inferred (1) that it was unlikely the union would agree to fully-paid retiree medical benefit if M&G later could unilaterally change the contribution level and (2) an intent to vest the retirees in lifetime benefits because eligibility for such benefits was tied to eligibility for pension benefits. On remand, the district court ruled in favor of the retirees and on a subsequent appeal, the Sixth Circuit upheld the ruling in favor of the retirees, concluding that there was no error in the presumption that "in the absence of extrinsic evidence to the contrary, the agreements indicated an intent to vest lifetime contribution-free benefits."
The Supreme Court vacated this decision and held that courts may not infer that silence as to duration of retiree medical benefits creates an inference of vesting. Instead, the Supreme Court noted that Yard-Man "plac[es] a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements," and that this presumption "is too speculative ... to be useful in discerning the parties' intention." Instead, courts must look to ordinary principles of contract law to determine whether retirees have a vested right to welfare benefits.
Impact on Employers who Provide Collectively-Bargained Retiree Medical Benefits
Although the Supreme Court decision eliminates the Yard-Man inference in favor of lifetime health benefits for unionized retirees, courts may still look at appropriate extrinsic evidence to determine the intent of the parties when a contract is ambiguous. The best practice to limit unintended vesting of retiree medical benefits is an express reservation of the employer's right to amend, modify or terminate the retiree medical coverage in the CBA, plan document and summary plan description. Additionally, an employer that wishes to limit the duration of its obligation to pay for retiree medical benefits must be careful not to link eligibility to other benefits (such as pension benefits) that are vested for life, without appropriately reserving the right to de-link those benefits and terminate the retiree medical benefits.
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