How Collective Bargaining Contracts May Change And What To Do About It
The Supreme Court’s decision to push M&G Polymers USA, LLC v. Tackett back to the Sixth Circuit Court of Appeals has implications for how employers should approach collective bargaining in the future. For a quick update on the case, and considerations on how it could impact your business, disctrict, or municipality, we’ve compiled the following post.
Summary
When welfare benefits are “vested,” plan sponsors/employers are obligated to provide them to the vested individuals – irrespective of any contract changes that might result from future collective bargaining negotiations.
On January 26th, the US Supreme Court (SCOTUS) unanimously ruled that ordinary principals of contract law are to be used when determining retirees’ rights to welfare benefits (e.g., life, medical, prescription drug) under a collective bargaining agreement “…at least when those principals are not inconsistent with federal labor policy.”
The Court’s decision rejected a long-standing presumption in the Sixth Circuit Court of Appeals (KY, MI, OH, and TN) holding that retiree medical benefits negotiated into a Collective Bargaining Agreement (CBA) are vested for lifetime.
The History
- In 1983, the 6th Circuit ruled[i] that – in the absence of clear, unambiguous wording addressing retiree vesting of welfare benefits — it was presumed the negotiating parties intended the benefits to be vested for life.
That ruling became known as the “Yard-Man presumption,” and it has been a factor in Circuit Court rulings in favor of retirees over the past 30+ years. But other Circuit Courts have rejected the presumption when hearing similar cases during that same timeframe.
- In 2006, M&G Polymers USA announced that retirees would have to contribute to the cost of their retiree welfare benefits; under earlier CBAs, the benefits had been fully paid by M&G Polymers.
The retirees sued, citing violations of both the Labor-Management Relations Act (LMRA) and the Employee Retirement Income Security Act (ERISA). The District Court dismissed the retirees’ claims, concluding that the CBA wording had not created a vested right.
However, the 6th Circuit reversed the District Court’s decision, basing their finding on the Yard-Man presumption. In reconsidering the case in a bench trial, the District Court then ruled in the retirees’ favor, and then the 6th Circuit Court of Appeals upheld that decision.
M&G Polymers then filed an appeal with SCOTUS.
The SCOTUS Decision
The entire SCOTUS document was a short twelve pages, with the bulk of it devoted to a point-by-point analysis of where SCOTUS found flaws with the 6th Circuits application of the Yard-Man presumption. It might be best summarized by the following excerpt from the Justice’s analysis
“Yard-Man violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements. That rule has no basis in ordinary principles of contract law. And it distorts the attempt to ascertain the intention of the parties.”
What’s Next?
SCOTUS did not actually decide if the retirees’ claim (i.e., that they had been granted vested welfare benefits in the earlier CBA) was valid. Rather, they ruled that the basis for the Circuit Court’s decision was flawed. So the case is now back with the 6th Circuit.
The Justices’ inclusion of the wording “…at least when those principals are not inconsistent with federal labor policy” was an interesting twist. Under ERISA, employers/plan sponsors can add, modify or terminate welfare plans at any time for any reason — unless those rights are restricted by specific wording to the contrary. For example, explicit CBA wording that vests welfare benefits rights to a clearly identified retiree population.
The pre-2006 CBAs negotiated by M&G were ambiguous at best. So now the 6th Circuit will have to rely on ordinary principles of contract law, and other evidence of both parties’ intent (e.g., plan documents, member communications, specific details of the CBA negotiations; etc.), to determine if the retirees’ claim has merit. It will be interesting to watch!
Implications for Employers/Plan Sponsors
The SCOTUS decision is a timely reminder that, ultimately, ‘ordinary contract principals’ will be a cornerstone for deciding similar future disputes.
Remember, the issue is not whether the employer agreed to vest, or did not agree to vest. No, the real issue is — does the language in the current CBA and supporting documents clearly and unambiguously represent the employer’s intent regarding vesting?
Those employers who offer retiree welfare benefits through collective bargaining should:
- conduct a thorough review of those documents to ensure they accurately represent the organization’s intent; and — if needed
- make the appropriate changes to ensure clarity
[i] UAW v. Yard-Man, Inc., 716 F.2d 1476, 4 EBC 2108 (6th Cir. 1983)
