On January 26, 2015, the U.S. Supreme Court published M&G Polymers USA, LLC v. Tackett, 574 U.S. ___ (2015); 2015 U.S. LEXIS 759 (Jan. 26, 2015), addressing a long-standing issue concerning retiree medical benefits that has plagued employers of unionized facilities for over thirty years. The M&G Polymers Court reviewed a case from the U.S. Court of Appeals for the Sixth Circuit (which presides over Ohio, Kentucky, Tennessee and Michigan) and unanimously held that reviewing courts may not infer that parties to a collective bargaining agreement intended retiree medical benefits to vest for life where the duration of such benefits is not expressly addressed in the agreement. Instead, according to the Court, the determination as to lifetime vesting should rest on the application of ordinary principles of contract law – at least to the extent that such principles are consistent with federal labor policy.
The M&G Polymers case arose out of a disagreement between a group of retirees and their former employer – M&G Polymers USA, LLC. In 2000, upon the purchase of a manufacturing plant, the employer entered into a master collective bargaining agreement and related pension, insurance, and service award agreement (“P&I Agreement”) with a predecessor of the United Steelworkers Union. The P&I Agreement provided that certain retirees, along with their surviving spouses and dependents, would “receive a full Company contribution towards the cost of [health care] benefits;” that such benefits would be provided “for the duration of [the] Agreement;” and that the agreement would be subject to renegotiation in three years.
Following the expiration of the collective bargaining agreement, the employer announced that it would require retirees to contribute to the cost of their health care benefits. Three named retirees, in turn, filed a class action lawsuit against the employer and its company-sponsored health plans, asserting that the P&I Agreement created a vested right to lifetime, contribution-free health care benefits.
The Sixth Circuit agreed with the retirees. In so holding, the Sixth Circuit applied the so-called “Yard-Man inference,” which favors lifetime vesting of retiree medical benefits provided for in a union contract. The rule was first recognized in Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983). While the collective bargaining agreement in Yard-Man included a general “durational clause” that provided that all obligations thereunder expired at the end of the agreement’s term, the Sixth Circuit found that the agreement was ambiguous as to the duration of retiree medical benefits. To resolve the ambiguity, the court looked to the “context” of labor negotiations and inferred that parties engaged in collective bargaining would intend retiree benefits to vest for life. Since the Yard-Man decision was published in 1983, the Sixth Circuit has expanded the doctrine even further, ultimately holding that retiree medical benefits are intended to vest for life where a collective bargaining agreement is silent as to the duration of such benefits.
In a unanimous opinion authored by Justice Thomas, the M&G Polymers Court rejected the “Yard-Man presumption” as inconsistent with ordinary contract principles, stating that it “distorts the attempt to ascertain the intention of the parties by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” The Court also rejected the Sixth Circuit’s approach to durational clauses, holding that a contract that is silent as to the duration of retiree benefits precludes an inference that the parties intended those benefits to vest for life. The Court thus remanded the matter to the Sixth Circuit with directions to review the collective bargaining agreement at issue under ordinary principles of contract law.
In a concurring opinion, Justice Ginsberg rejected the employer’s assertion that “clear and express” language was necessary to vest retiree health benefits. Justice Ginsberg noted that post contract obligations may not only be derived from express contract terms, but implied terms as well. Justice Ginsberg urged the Sixth Circuit on remand to examine the entire agreement to determine whether the benefits had vested.
While at first blush the M&G Polymers case appears to be a clear win for employers doing business within the Sixth Circuit, its impact remains to be seen. At a minimum, the decision provides employers with a reasonable assurance that well-crafted contractual language and/or extrinsic evidence will weigh in their favor when faced with potentially crippling claims for lifetime benefits. Because the issue of vesting typically arises in litigation – long after the applicable contracts have been drafted and implemented – the central focus necessarily becomes the intent of the parties at the bargaining table. The M&G Polymers decision provides some measure of objectivity for employers in 2015, as they assess whether to modify retiree health benefits going forward. The new test, conducted without the “thumb on the scales,” establishes a better foundation for employers seeking to argue against lifetime vesting.