As a child, you may have sung “do you know the Muffin Man?,” but as an employer you should make sure you know the Yard-Man inference.

The “Yard-Man inference” comes from the Sixth Circuit’s decision in Auto Workers v. Yard-Man, Inc.  In that opinion, the Sixth Circuit created a presumption that retiree welfare benefits vest on retirement, unless a collective bargaining agreement clearly states otherwise.

However, the inference that these types of benefits vest has not been well received in all courts. For example, theThird Circuit has held the exact opposite: that retiree welfare benefits granted under a CBA expire with the CBA unless the agreement explicitly states otherwise.  Auto Workers v. Skinner Engine Co..

The split between the Circuits has likely contributed to the Supreme Court’s recent decision to review the case of M&G Polymers USA, LLC v. Tackett, which directly addresses the “Yard-Man inference.”

Enter Sen. Rockefeller (D-WV), with the “Bankruptcy Fairness and Employee Benefits Protection Act of 2014” which aims to turn the “Yard-Man inference” into a rebuttable presumption and to require employers to include information about modification of benefits in their summary plan descriptions, among other items.  The Act has been seen by some as an effort to get out in front of the Supreme Court’s review of the “Yard-Man inference.”  The Act would:

  • Require employers to include in their SPDs whether the employer may unilaterally modify or terminate benefits.
  • If the employer’s rights are not clearly communicated to employees, there will be a presumption that benefits have “fully vested and cannot be modified or terminated for the life of the employee or, if longer, the life of the employee’s spouse.”  This presumption will apply to both retired employees and employees who have served twenty (20) or more years.  And, this presumption may not be easily overturned.  “Clear and convincing evidence” must show that the plan allows modification or termination of benefits and that employees were “made aware, in clear and unambiguous terms” of the employer’s ability to modify or terminate benefits.
  • Make it an “unfair labor practice” to change the terms of a CBA that governs retired employees’ benefits.Only allow reductions in benefits that are “necessary to prevent the liquidation of the debtor.”
  • Require reductions in officers’ and directors’ benefits that are comparable to reductions in employees’ benefits.
  • Provide a right to sue to retirees whose benefits are reduced; this right is in addition to a requirement that the employer provide the equivalent of two (2) years of benefits even if the employer has filed for bankruptcy.
  • Increase employees’ priority claims for unpaid wages or benefits from $10,000 in the last 180 days to $25,000 in the last year.
  • Prohibit a change in venue for bankruptcy proceedings from the district with “the largest share of employees, retired employees, physical assets, and operations” unless the change is to the district where the employer’s principal place of business is located.
  • Extend rights to municipal employees and retirees that mirror rights given in corporate bankruptcies.
  • Disallow any interruption in “required pension contributions” even after the employer has filed for bankruptcy.
  • Commission from the Comptroller General of the United States a report about strategies that employers use “to avoid obligations to pay promised employee and retiree benefits.”  The report should include suggestions to prevent this evasion from continuing.

Even if the Act does not pass, the Supreme Court may still make the “Yard-Man inference” law. Either way, this underscores the importance of clearly stating the ability to modify welfare benefits in all relevant plan documents, SPDs, and CBAs because clarity is the enemy of litigation.

Meredith Silliman