Earlier this month, the Supreme Court agreed to review the Sixth Circuit’s decision in Tackett v. M&G Polymers USA, LLC, 733 F.3d 589 (6th Cir. 2013). The Court will resolve an existing circuit split as to how courts interpret collective bargaining agreements (CBAs) that provide for retiree health insurance benefits. The Court’s answer could have profound financial and accounting consequences for employers who may seek to change retiree health care benefits provided under bargaining agreements.

M&G operates a unionized plant in West Virginia. In a series of CBAs negotiated over many years, the employer (M&G and several predecessors) had agreed to provide eligible retirees a “full Company contribution” towards his or her health care costs, and paid 100% of those costs. Following the negotiation of the 2005-2008 CBA, M&G and the Union agreed to impose certain health insurance costs on retirees. M&G sought to impose these costs retroactively to existing retirees, who (along with the Steelworkers union) then filed a class action under Section 301 of the Labor Management Relations Act (LMRA) challenging M&G’s action. The plaintiffs contended that eligible pre-2005 retirees had a vested right to free health benefits for life.

In the first instance, the district court sided with M&G and dismissed the LMRA claim, finding that the language of the pre-2005 agreements did not create a vested benefit for retirees. The Sixth Circuit reversed and remanded. The court interpreted “full Company contribution” as the parties’ intent that the employer cover the full cost of health care benefits. Applying its “Yard-Man presumption,” the court determined that the absence of a duration clause was evidence that the parties intended to provide free health insurance for life for eligible retirees. On remand, the district court concluded that the health benefits had vested and ordered reinstatement of lifetime contribution-free health benefits to pre-2005 retirees. On a second appeal, the Sixth Circuit affirmed the lower court’s injunction.

Pursuant to Yard-Man, the Sixth Circuit presumes that retiree health benefits vest for life absent language to the contrary. The Third Circuit presumes the opposite: that retiree health benefits do not vest unless the agreement expressly provides for vesting. Meanwhile, the Second and Seventh Circuits straddle the fence and require some contractual language indicating a desire between the parties to vest retiree health benefits. With many CBAs silent on the duration of retiree health benefits, the Sixth Circuit has become the forum of choice for retirees and unions who seek to stop an employer from changing retiree health benefits. Practically speaking, a uniform rule from the Supreme Court will help standardize interpretation of retiree health language in CBAs among different jurisdictions. This case potentially has enormous financial implications for employers who provide collectively bargained retiree health insurance and for the retirees who receive it. The outcome may go a long way towards determining who pays for the insurance at a time when heath care costs continue their relentless march upward.