The Retirement of Yard-Man
In this time of economic uncertainty and escalating health care costs, many employers are reconsidering promises of retiree medical benefits that were made when costs were not as high. This issue, particularly as it arises in the context of collective bargaining, has been the subject of lively litigation across the country. States in the Sixth Circuit Court of Appeals (Kentucky, Michigan, Ohio, and Tennessee) have, for more than thirty years, been subject to the rule first articulated in United Auto Workers v. Yard-Man, Inc., which held that retiree medical benefits are “status” benefits that “carry with them an inference that they continue so long as the prerequisite status [i.e., retirement] is maintained.” International Union, United Auto, Aerospace, & Agriculture Implement Workers of Am. v. Yard-Man, Inc., 716 F.2d 1476, 1482 (6th Cir. 1983). The Supreme Court recently rejected that rule in M&G Polymers USA, LLC v. Tackett, No. 13-1010 (2015), and with it the assumption that, absent contractual language or extrinsic evidence to the contrary, parties to a collective bargaining agreement (“CBA”) intend to vest retirees with lifetime medical benefits.
In Tackett, the plaintiffs were retirees who had worked at a plant in Apple Grove, West Virginia. The plant changed owners several times, and in 2000, it was acquired by M&G Polymers USA (“M&G”). That same year, M&G and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (the “Union”) negotiated a CBA that, inter alia, provided that M&G would pay all medical benefit costs for retirees and their dependents who met certain eligibility criteria. No specific provision in the CBA limited the duration of these benefits, although the term of the CBA itself was in effect for only three years. Following expiration of the CBA, M&G announced that going forward retirees would be required to contribute to the cost of their medical benefits. The retirees filed suit, arguing that they had a “vested right” under the 2000 CBA to receive no-cost retiree medical benefits for life.
Applying the Yard-Man inference, the Sixth Circuit held that the retirees had stated a plausible claim that the CBA was intended to provide them with lifetime medical benefits at no cost. The Sixth Circuit found it “unlikely” that the Union “would agree to language that ensures its members a ‘full Company contribution,’ if M&G could unilaterally change the level of contribution” at some later date.
Justice Thomas, writing for a unanimous Supreme Court, rejected the Sixth Circuit’s reasoning and concluded that the Yard-Man inference has no basis in ordinary principles of contract law. Specifically, Justice Thomas stated that Yard-Man violated basic contract principles by placing a “thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” The Court held that courts cannot infer the parties’ intent to vest retiree welfare benefits from ambiguous or silent CBA language, but instead must apply ordinary contract principles to discern intent. The Court found that Yard-Man failed to consider well-established principles of contract law, including (i) that courts should not construe ambiguous promises as creating lifetime promises and (ii) that contractual obligations will generally cease in the ordinary course unless there is express language to the contrary. The Court remanded the case to the Sixth Circuit to review the CBA without the Yard-Man inference and to instead apply ordinary principles of contract law to the dispute. A new decision by the Sixth Circuit has not yet issued.
Although employers may still face legal challenges by unions and retirees when seeking to eliminate or reduce retiree medical benefits established by expired CBAs, the Tackett decision is nevertheless a helpful development for employers. Not only does it take the thumb off the scale in favor of finding vested retiree welfare benefits in expired CBAs, but it will also bring greater legal uniformity to this issue nationally. The rule in Yard-Man was unique to the Sixth Circuit; the other federal circuit courts have rejected its reasoning for decades. In the Second Circuit, for example, a retiree or union must point to some written language capable of reasonably being interpreted as a promise to vest retiree benefits beyond the term of the CBA to prevail on such a claim. Tackett also serves as an important reminder that the best way to protect an employer’s ability to terminate or modify retiree benefits is to negotiate and draft clear and unambiguous CBA language setting forth the terms and duration of the benefits.