By: Joshua J. Leadford

Many employers have been forced to provide retiree healthcare benefits for the life of retirees – even when lifetime benefits were not expressly promised under the terms of a collective bargaining agreement.  However, under a recent ruling from the United States Supreme Court that has changed.  Now, courts are prohibited from simply assuming an employer made a promise without end and must, instead, engage in traditional contract interpretation to determine an employer’s true intent.

In M&G Polymers USA, LLC v. Tackett, (2015 U.S. LEXIS 759) (January 26, 2015), the United States Supreme Court reversed the Sixth Circuit Court of Appeals, overruling what has been known as the Yard-Man presumption.  See Int’l Union v. Yard-Man, 716 F.2d 1476 (6th Cir. 1983).  Under the Yard-Man presumption, the Sixth Circuit interpreted collective bargaining agreements, which provide retiree healthcare benefits, to require an employer maintain such benefits for life.  Specifically, where a collective bargaining agreement was silent as to the duration of an employer’s promise to provide retiree healthcare benefits (was ambiguous), the Sixth Circuit assumed the collective bargaining agreement called for lifetime retiree healthcare benefits.

A number of other federal circuit courts treated the situation differently.  Instead of applying a contrived presumption, these circuits applied normal rules of contractual interpretation to determine the parties’ true intentions.  Thus, a party alleging a contract, which was otherwise silent on the issue, promised lifetime retiree healthcare benefits had the obligation to prove their claim with evidence in addition to the contract.  Absent evidence showing the contracting parties intended to provide lifetime healthcare benefits, an employer was able to modify/eliminate retiree benefits after the term of a collective bargaining agreement expired. 

In considering the split between the circuits, the Supreme Court reversed the Sixth Circuit.  The Supreme Count called the Yard-Man presumption a “thumb on the scale in favor of retiree benefits” that was at odds with well-established rules of contract interpretation.  In fact, the Supreme Court noted that the Yard-Man presumption was, in reality, an affront to traditional legal principals, including the canon that ambiguous contract terms should not be construed as lifetime promises and that obligations in collective bargaining agreements generally terminate once the contract expires. 

Under M&G Polymers, practitioners who represent clients in labor related matters should closely scrutinize existing collective bargaining agreements and advise their clients to take action to protect their interests.  For instance, union-side attorneys can no longer rely on a contractual ambiguity to prevent an employer from modifying retiree healthcare. Instead, express language will be necessary to ensure a promise of lifetime benefits is fully enforceable.  Conversely, employer-side representatives must be on high-alert for union bargaining proposals seeking to create vested type rights.  Employer-side representatives must also be cautious to prevent employers from making commitments or statements that could be later used to evidence intent to vest under a contract.