Three years ago, in M&G Polymers USA, LLC v. Tackett, the Supreme Court unanimously vacated a ruling by the Sixth Circuit Court of Appeals that a collective bargaining agreement (CBA) vested retirees with lifetime medical benefits. On Feb. 20, 2018, the Supreme Court unanimously reversed a decision by the same court in another retiree medical case, CNH Industrial N.V. v. Reese. The Supreme Court held as a matter of law that “the only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004.”
In CNH Industrial, the Supreme Court emphasized that Tackett rejected the “Yard-Man” rule that courts could infer that retiree medical benefits vested for life because they were tied to eligibility for pension benefits and were understood as a form of delayed compensation or reward for past services.
Quoting from Judge Sutton’s dissenting opinion, the Supreme Court called the Sixth Circuit majority’s analysis “Yard-Man re-born, re-built, and re-purposed for new adventures.” The Supreme Court reasoned that the general durational clause in CNH’s CBA applied to all CBA benefits unless otherwise specified.
The Facts in CNH Industrial N.V. v. Reese
CNH’s 1998 CBA provided healthcare benefits to certain “[e]mployees who retire under the … Pension Plan.” The 1998 CBA contained a general durational clause stating that it would terminate in May 2004. When the agreement expired in 2004, CNH retirees sued, seeking a declaration that their healthcare benefits vested for life and an injunction preventing CNH from changing those benefits. While the CNH lawsuit was pending, the Supreme Court decided Tackett, but the district court nonetheless awarded summary judgment to the retirees.
The Court of Appeals affirmed, noting that the 1998 CBA was “silent” on whether healthcare benefits vested for life. Although the agreement contained a general durational clause, the appellate court found that clause “ambiguous.” The court consulted “extrinsic evidence” and concluded that lifetime medical benefits had vested.
Judge Sutton dissented, concluding that the 1998 CBA was unambiguous because “the company never promised to provide healthcare benefits for life, and the agreement contained a durational clause that limited all of the benefits and burdens of the contract (not otherwise extended or shortened) to the six-year term of the agreement.”
Supreme Court Says Benefits Were Not Vested
The Supreme Court granted CNH’s petition for certiorari and reversed the Sixth Circuit in a unanimous per curiam opinion, emphasizing that the lower’s court’s decision did not comply with Tackett’s direction to apply ordinary contract principles.
The Supreme Court reasoned that the 1998 CBA was not ambiguous unless it could reasonably be read as vesting healthcare benefits for life, and inferences that were rejected in Tackett could not be used to create “ambiguity.” The 1998 CBA contained a general durational clause that applied to all benefits, and no CBA language specified that retiree healthcare benefits were subject to a different durational clause. The only reasonable interpretation of the 1998 CBA was that the healthcare benefits expired when the agreement expired.
Takeaways from the Supreme Court’s CNH Decision
The promptness and unanimity of the Supreme Court’s reversal was striking, as was the Supreme Court’s endorsement of Judge Sutton’s dissent. The Supreme Court granted certiorari and reversed the Sixth Circuit in a single order and unanimous per curiam opinion, without the normal requirement of briefs by the parties on the question presented. In doing so, the Supreme Court sent a clear message that the Sixth Circuit’s interpretation of Tackett was wrong, and that Judge Sutton’s dissent correctly states the law.
In just a few weeks after the Supreme Court’s decision, the Sixth Circuit revisited the issue in Cooper v. Honeywell Int’l, Inc., in which the Sixth Circuit invalidated a preliminary injunction preventing Honeywell from terminating retiree medical benefits for a group of retirees at its Michigan-based auto-parts plant while legal proceedings as to the proposed benefit cuts were pending. Applying the “clarity” that emerged from Tackett and CNH Industrial, the Sixth Circuit ruled that, absent a specific indication otherwise, the general durational clause of the CBA at issue foreclosed the retirees’ vesting arguments.
After Tackett and CNH, it is clear that explicit CBA language is needed to vest retiree medical benefits beyond the term of the CBA. Without such express language, there is no legal basis for “lifetime” retiree medical benefits.
It is worth repeating Tackett’s “traditional principles of contract interpretation” that militate against vested lifetime retiree medical benefits:
- Courts should not construe ambiguous writings to create lifetime promises.
- The rules of contractual interpretation require a clear manifestation of intent before conferring a benefit or obligation.
- Contractual obligations will cease, in the ordinary course, upon termination of the CBA.
- When a CBA is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.
For further information, please contact any of the authors of this article — James P. McElligott, Jr., Robert M. Cipolla and Robert B. Wynne — or any other member of the McGuireWoods employee benefits team.