Employers in Michigan, Kentucky, Ohio and Tennessee may now have more freedom to alter, reduce or eliminate healthcare benefits provided to retired union workers.  On January 26, 2015, the Supreme Court inM&G Polymers USA, LLC v. Tackett unanimously decided that the Sixth Circuit’s long-standing “Yard-Man” presumption violates traditional principles of contract law. 2015 U.S. LEXIS 759 (2015).  Under Yard-Man, courts should presume that healthcare benefits provided to union employees are vested for the life of the retired employee unless the collective-bargaining agreement clearly states to the contrary. See United Auto Workers v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983).  As Justice Clarence Thomas noted, however, such a presumption distorts any attempt to ascertain the actual intent of the parties.  As a result, it effectively disregards ordinary contract principles and “plac[es] a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” M&G Polymers, 2015 U.S. LEXIS, at *18.

This is a major win for employers.  While the Court’s holding does not imply a presumption in favor of employers or offer guidance to lower courts when determining whether retirees are entitled to vested lifetime benefits, the decision removes a significant hurdle for employers seeking to reduce financial liabilities to retirees.  In addition, the Court specifically identified and rejected a number of arguments that union retirees could make in favor of vested health benefits.  For example, the Court rejected the idea that a clause specifically limiting the duration of retiree health benefits is necessary for a court to find that the benefits are not vested.  And the Court dismissed the idea that contract language tying retiree health benefits to pension benefits indicates the intent for the benefits to be vested.