Supreme Court Settles Circuit Split on Collectively Bargained Retiree Health Benefits in Favor of Employers

Authored by Dannae L. Delano

Jan 26, 2015

Today, the U.S. Supreme Court overturned a decision by the Sixth Circuit Court of Appeals holding the employer must pay 100% of retiree health care costs indefinitely. In M&G Polymers USA, LLC, et. al. v. Tackett, et. al., the employer/petitioner asserted the Sixth Circuit’s decision conflicts with every other circuit in the country, in holding that an absence of language in a Collective Bargaining Agreement (“CBA”) about how long retirees will be entitled to their health care benefits creates an “inference” that they are vested for life.

For more information on the alleged circuit split and the need for clear guidelines, click here to read our earlier blog. Under the Employee Retirement Income Security Act (“ERISA”), retiree health care benefits do not automatically vest unless the parties intended to do so when they executed the applicable CBA. Thus, the practical effect is that an employer must continue to pay these costs indefinitely long after a CBA expires.

The Court disagreed with the Sixth Circuit’s assessment that the inferences applied by the Sixth Circuit represent ordinary principles of contract law. In fact, the Court held that the Sixth Circuit’s decision runs contrary to ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all CBAs, when such a rule has no basis in ordinary principles of contract law. In addition, the Sixth Circuit refused to apply general durational clauses in CBAs to provisions governing retiree benefits. Further, the Sixth Circuit failed to consider the traditional contract principle that courts should not construe ambiguous writings to create lifetime promises. The Court vacated the judgment and remanded the case to the Sixth Circuit to apply ordinary principles of contract law.

Employer Takeaways

With this Supreme Court decision, it is clear that there should be a presumption against construing ambiguous writings to create lifetime promises and that a general durational provision or expiration date in a CBA could be used to infer durational intent regarding retiree health benefits. If retiree health care benefits are being negotiated in a CBA or if an employer is considering to eliminate retiree health care benefits, legal counsel should be consulted. It is clear that properly drafted CBA language can avoid lengthy and costly litigation over retiree medical benefits.

If you have any questions about this case or any other employee benefits matter, feel free to contact Dannae Delano, Tom Clark, or Dave Frenzia.

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