Supreme Court Reiterates Stance on Retiree Health Benefits in CBAs

In a new lawsuit in which retirees claim the collective bargaining agreement (CBA) under which they retired promised them lifetime health benefits, the U.S. Supreme Court has reversed a decision by the 6th U.S. Circuit Court of Appeals in favor of the participants, and remanded the case back to the appellate court for further review based on the high court’s findings.

In 2014, the Supreme Court took up the case of M&G Polymers USA v. Tackett and decided in January 2015 that the 6th Circuit’s opinion in that case rested on principles that are incompatible with ordinary principles of contract law. The high court said it has long held that CBAs must be interpreted “according to ordinary principles of contract law.”

In the Tackett case, the appellate court based its decision on the reasoning of its earlier decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc. Among other things, the appellate court inferred from the existence of termination provisions for other benefits provided for in the CBA that the absence of a termination provision specifically addressing retiree benefits expressed an intent to vest those benefits for life. The Supreme Court said the appellate court failed to consider the traditional principle that “contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.”

In the current case, CNH Industrial N.V. v. Reese, according to the Supreme Court’s opinion, the 6th Circuit held that the same Yard-Man inferences it once used to presume lifetime vesting can now be used to render a collective-bargaining agreement ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about lifetime vesting. The appellate court began by noting that the 1998 CBA was “silent” on whether health care benefits vested for life. Although the agreement contained a general durational clause, the appellate found that clause inconclusive for two reasons. First, the 1998 agreement “carved out certain benefits” like life insurance “and stated that those coverages ceased at a time different than other provisions.”

Second, the 1998 agreement “tied” health care benefits to pension eligibility. The 6th Circuit acknowledged that these features of the agreement are the same ones it used to “infer vesting” under Yard-Man, but it concluded that nothing in Tackett precludes this kind of analysis: “There is surely a difference between finding ambiguity from silence and finding vesting from silence.”

According to the Supreme Court, a contract is not ambiguous unless, “after applying established rules of interpretation, [it] remains reasonably susceptible to at least two reasonable but conflicting meanings,” and the appellate court read it that way only by employing the inferences that the Supreme Court rejected in Tackett.

The high court found interpretation of the 1998 CBA straightforward. It contained a general durational clause that applied to all benefits, unless the agreement specified otherwise. No provision specified that the health care benefits were subject to a different durational clause. The agreement stated that the health benefits plan “r[an] concurrently” with the collective-bargaining agreement, tying the health care benefits to the duration of the rest of the agreement. “If the parties meant to vest health care benefits for life, they easily could have said so in the text. But they did not. And they specified that their agreement ‘dispose[d] of any and all bargaining issues, between them, the high court wrote in its opinion. “Thus, the only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004.”