On January 26, 2015, the United States Supreme Court issued an opinion that makes it easier for companies to reduce retiree medical benefits. In M & G Polymers USA, LLC v. Tackett, No. 13-1010, __S.Ct.___, 2015 WL 303218 (U.S. Jan. 26, 2015), retirees who had worked at a plant that was acquired by M&G Polymers USA (M&G) brought suit claiming that they were entitled to receive retiree medical benefits at no cost. The collective bargaining agreement at issue provided that M&G would pay all of the medical benefit costs for retirees who met certain criteria. The relevant language in the collective bargaining agreement read: “Effective January 1, 1998, and for the duration of this Agreement thereafter, the Employer will provide the following….” The agreement did not contain any other provisions outlining the duration of the retiree benefits. In 2006, M&G announced that retirees would be required to contribute to the cost of their medical benefits. The retirees sued claiming that they had a vested right to receive retirement health insurance benefits paid for by M&G.
In the past, the 6th Circuit Court of Appeals had concluded that there was a presumption that retiree health benefits would be considered to be “vested” in the absence of an explicit provision in a collective bargaining agreement setting forth the duration of the retiree medical benefits. Applying that presumption to this case, the Sixth Circuit concluded that in the absence of extrinsic evidence to the contrary, the collective bargaining agreement indicated an intent to provide lifetime cost-free retiree health benefits. The Supreme Court disagreed, however, holding that no such inferences should be applied in determining whether a collective bargaining agreement created a vested right to lifetime contribution-free health care benefits. Specifically, the Court found that the presumption has no basis in ordinary principles of contract law and distorts an attempt to determine the actual intent of the parties. The Court remanded the case to the Sixth Circuit to apply ordinary principles of contract law.
As a result of this case, transportation employers may have an easier time cutting-back retiree health insurance benefits. This case eliminated a presumption in favor of lifetime benefits for collectively bargaining retiree health coverage, but requires courts to apply standard contract construction rules in interpreting these provisions. Employers should consider including unambiguous contract language in any collective bargaining agreement granting retiree medical benefits stating that the retiree benefits are for the duration of the agreement only, or for specified time periods. Open-ended benefit grants will still be subject to the interpretation that the benefit may never be reduced or modified.