The long-standing Yard-Man inference, which has been lauded by retirees and loathed by their former employers, has been retired. In M&G Polymers USA, LLC v. Tackett, the United States Supreme Court rejected that inference, under which Sixth Circuit courts would infer that collectively-bargained retiree welfare benefits were intended to vest for life. 2015 U.S. LEXIS 759 (Jan. 26, 2015).
By way of background, ERISA draws numerous distinctions between pension plans and welfare plans, one of which is that while pension plans are subject to vesting and minimum funding standards, welfare plans are exempted from such rules. Accordingly, welfare plans (and the benefits offered thereunder) generally may be modified or terminated at any time and for any reason. Employers, however, may choose to vest welfare benefits. The issue of proving whether an employer has chosen to do so has been the subject of heated debate for over 30 years—since the Sixth Circuit announced its decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. (“UAW”) v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), finding that retiree healthcare benefits are “status” benefits and carried “with them an inference that they continue so long as the prerequisite status is maintained.”
In Yard-Man, the UAW alleged that the defendant-employer breached a collective-bargaining agreement by terminating retiree healthcare benefits. The agreement stated that the employer “will provide” healthcare benefits to retirees. After finding the durational nature of this “will provide” language ambiguous, the Sixth Circuit looked to the agreement as a whole and found provisions that explicitly provided for the termination of healthcare benefits for other groups (e.g., active employees and, under certain circumstances, the spouses and dependents of retirees). Because there was no provision specifically addressing the termination or intended duration of retiree healthcare benefits, the Sixth Circuit inferred that the employer intended to vest those benefits. The court also looked to the “context” of labor negotiations and noted that retiree healthcare benefits are generally understood to be a form of delayed compensation tied to the acquisition of retirement status. The Sixth Circuit continued to apply its Yard-Man inference, notwithstanding the fact that most other federal circuit courts rejected it.
In 2013, the Sixth Circuit decided Tackett, 733 F.3d 589, 592-93 (6th Cir. 2013), a case involving allegations nearly the same as those in Yard-Man. In Tackett, the court applied the Yard-Man inference and found that the collective-bargaining agreement (which stated that retirees “will receive a full [c]ompany contribution towards the cost of [health care] benefits . . .”) demonstrated an intent to vest contribution-free healthcare benefits for life.
The employer petitioned for certiorari and, in a unanimous opinion, the Supreme Court rejected the Yard-Man inference, finding that, “by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements,” the inference was inconsistent with ordinary principles of contract law. Specifically, (i) “courts should not construe ambiguous writings to create lifetime promises,” and (ii) “contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.” 2015 U.S. LEXIS 759, at *22-23. The Court held that, according to these principles, “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.” Id. at *24. The Court vacated the Sixth Circuit’s decision and remanded for reconsideration of the collective-bargaining agreement under the correct legal principles.
It will be interesting to see how case law develops in the wake of this decision. Notably, the Court said nothing about the ways in which other circuits have dealt with issues involving the modification or termination of collectively-bargained retiree welfare benefits. For example, the Seventh Circuit presumes that welfare benefits terminate when the collective-bargaining agreement under which they are provided expires. Thus, although Tackett definitely provides some relief for employers in the Sixth Circuit, much remains to be answered. At a minimum, employers providing collectively-bargained welfare benefits may want to review the applicable contract language and re-evaluate any assessments they had done regarding the vesting of those benefits.