On Monday, in M&G Polymers USA, LLC v. Tackett, No. 13-1010, the U.S. Supreme Court ruled that ambiguous provisions in union contracts should not be automatically interpreted in favor of a company’s retired workers. The case concerned a union contract from the 1990s that provided free health care benefits to the retirees of a chemical plant in Apple Grove, West Virginia who received pensions. In 2000, M&G bought the plant, and in 2006, it sought to make its retirees contribute to the health care costs. The retirees sued, alleging that they had been promised free benefits for life. The contract, of course, did not directly state whether the parties intended lifetime investiture.
The district court found for M&G—but according to the Sixth Circuit, the retirees’ benefits had, in fact, vested for life. The Sixth Circuit relied on a long line of precedent, dating back to 1983, in support of this holding. Essentially, this precedent presumed the existence of lifetime benefits, even when the contracts at issue did not specify them. In Tackett, the Sixth Circuit expanded upon this presumption, holding that in the absence of extrinsic evidence to the contrary, a contract tying retirement benefits to pension eligibility indicated an intent to vest retirees with lifetime benefits.
The Supreme Court, however, soundly rejected the Sixth Circuit’s approach, stating that it erroneously “plac[ed] a thumb on the scale in favor of vesting retiree benefits in all collective bargaining agreements.” According to the Court, the inferences drawn by the Sixth Circuit were unwarranted—and simply did not “represent ordinary principles of contract law.” The Court explained that federal courts “should not construe ambiguous writings to create lifetime promises,” especially since “retiree health care benefits are not a form of deferred compensation.”
While the Supreme Court’s opinion seems to lean toward M&G’s position that a company can cut the health benefits of its retired workers, the Court ultimately did not decide the issue. Instead, the Court returned the case to the Sixth Circuit and instructed it to use ordinary principles of contract interpretation to determine whether the agreement at issue had granted free lifetime health care benefits. The Court reiterated that on remand, the Sixth Circuit could not “infer that the parties intended those benefits to vest for life,” as the contract was silent on the duration of benefits.
Whether the Sixth Circuit will find that the parties intended lifetime investiture remains to be seen. Justice Ginsburg’s concurrence, which was joined by Justices Kagan, Breyer, and Sotomayor, indicates that the retirees could prevail on remand under the new, stricter standard. The majority, however, indicates that this is not the case. If the Sixth Circuit agrees with M&G, this ruling will profoundly impact industrial employers in the Midwest—in the chemical industry, as well as in the automobile, steel, and electronics industries, where similar cases have been lost in the past.
Until the Sixth Circuit rules, and even beyond its ruling, employers and employees should be mindful that this type of litigation could easily be avoided. In negotiating a collective bargaining agreement, the parties could merely nail down all the important points in the contract’s language—and specify whether any retirement benefits will vest for life. Indeed, when the case was argued before the Supreme Court in November, several Justices complained that only the contract’s ambiguity was forcing federal courts to intervene. Intervention by the courts and time-consuming litigation could have been avoided with more precise contract drafting.