In January of this year, the U.S. Supreme Court, in M&G Polymers USA LLC v. Tackett, ruled against a group of retirees by vacating a Sixth Circuit decision holding that a collective bargaining agreement created a vested right to lifetime, contribution-free medical benefits for the retirees. This decision is beneficial for employers by making it more difficult for retirees to succeed in claims asserting a vested right to retiree medical benefits.
The agreement at issue provided that certain retirees would “receive a full Company contribution towards the cost of [medical] benefits”; that such benefits would be provided “for the duration of [the] Agreement”; and that the agreement would be subject to renegotiation in three years. Following the expiration of the agreement, the employer announced that it would require retirees to contribute to the cost of their medical benefits. A group of retirees sued the employer, alleging that the agreement created a vested right to lifetime, contribution-free medical benefits.
The District Court dismissed the complaint for failure to state a claim, but the Sixth Circuit reversed based on its earlier decision in the Yard-Man case.1 The Supreme Court, however, held in Tackett that the Sixth Circuit’s decision rested on principles that are incompatible with ordinary principles of contract law.
In Yard-Man, the Sixth Circuit found a provision governing retiree medical benefits ambiguous as to the duration of the benefits and, looking to other provisions of the agreement, purported to apply ordinary contract law to resolve the ambiguity. The Sixth Circuit has since extended its Yard-Man analysis in a series of other cases, concluding that, without specific durational language referring to retiree benefits, a general durational clause in an agreement says nothing about the duration of retiree benefits, and that a provision that ties eligibility for retiree medical benefits to eligibility for a pension leaves little room for debate that the medical benefits vest upon retirement.
The Supreme Court in Tackett disagreed with these conclusions based on Yard-Man, stating that Yard-Man and its progeny do not represent ordinary principles of contract law. The Court stated that Yard-Man distorts the attempt to ascertain the intention of the parties by placing “a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.“
The Supreme Court explained that an agreement may provide in explicit terms that certain benefits continue after the agreement’s expiration, but that 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. The Supreme Court thus vacated the Sixth Circuit’s opinion and remanded it back to the Sixth Circuit for it to apply ordinary principals of contract law.