M & G Polymers v. Tackett (Supreme Court Jan. 2015) Strikes Down
Yard-Man Inference for Collectively Bargained Retiree Health Benefits
to Continue for Life; Court Holds Ordinary Contract Provisions Apply
· Since the early 1990s there has been a push by employers to cut back or terminate retiree health plans.
· In contrast to pension (qualified plan) benefits, welfare benefits do not vest by operation of law, but an employer can contractually obligate to vest benefits.
· There may be statements or communication implying lifetime benefits, but the plan documents and communication often reserve the right to modify or discontinue the benefits (so that there be no issue of a contractual lifetime obligation).
· Where retiree health benefits were the subject of collectively bargained negotiations, the Sixth Court in International Union, United Auto, Aerospace and Agr. Implement Workers of Am. (UAW) v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), held that there is an inference that the intent was for these bargained-for benefits to continue throughout retirement even after the expiration of the term of the collective bargaining agreement.
· The First and Eleventh Circuits have followed this Sixth Circuit view of the Yard-Man inference. The Third, Fifth and Eighth Circuits have rejected it. (The Seventh Circuit first adopted the Yard-Man view, but then rejected it.)
· The Sixth Circuit itself also cut back on the Yard-Man inference, limiting it to retiree health, to actual retirees, to cases where union contract evidences an intent to vest benefit and to where retiree health was specifically bargained for.
· In a January 2015 decision, M & G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (January 26, 2015), the Supreme Court reversed a Sixth Circuit 2013 decision which had ruled in favor of retirees with respect to lifetime retiree health benefits that were bargained for based on the Yard-Man inference that bargained-for benefits are presumed to continue through retirement. The Supreme Court struck down the Yard-Man inference and held that collective bargaining agreements are subject to ordinary principles of contract law. The collective bargaining agreement in M & G Polymers did not promise the retiree benefits for life, and in fact the agreement stated that the benefits would be provided for the duration of the agreement and would be subject to renegotiation in three years. The Court stated that traditional contract rules would dictate that ambiguous writings in collective bargaining agreements do not created lifetime promises, and contractual obligations will cease in the ordinary course on termination of the bargaining agreement. Therefore the Supreme Court vacated the Sixth Circuit ruling in this case, and this case was remanded to the lower court to make a finding without the Yard-Man inference.
· Details of the Case: M & G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (Jan. 26, 2015) (predecessor employer, Point Pleasant Polyester Plant, had provided to union employees (who were eligible for a pension benefit) employer-paid retiree health benefits, and this was negotiated in the pension & insurance agreement attached to the collective-bargaining agreement; the agreement provided for the benefits to be provided for the duration of the labor agreement (three-year term until next negotiation); these provisions were also included in the collective bargaining agreement negotiated by M & G Polymer USA, LLC, which purchased the plant in 2000; in 2006 M & G Polymers announced that it would begin requiring retirees to contribute to the cost of the retiree health benefits; retirees sued arguing that they were promised lifetime employer-paid benefits; the Sixth Circuit in 2009, 561 F.3d 478, held that, based on the Yard-Man Sixth Circuit 1983 decision, there was an inference that bargained-for retiree benefits would vest for life, and the district court then found for the retirees; the Sixth Circuit affirmed this decision in 2013, 733 F.3d 586; the Supreme Court granted certiorari and reversed the decision; the Court noted that welfare benefits do not vest under ERISA but can be vested by contract, and that collective bargaining agreements are to be analyzed according to ordinary principals of contract law, in contrast to the Yard-Man decision; the Court disagreed with the Yard-Man inference, as collective bargaining agreements should be governed by ordinary contract law, and any inferences as to intent should be drawn from the specific facts; without specific evidence there should be no presumption that the parties intended to continue the benefits throughout retirement; durational clauses in collective bargaining agreements should govern and contractual obligations should generally cease on termination of the collective bargaining agreement; ambiguous writings should not be construed to create lifetime promises; the Court therefore rejected the Yard-Man inference, and this case was remanded for the lower court to apply ordinary principals of contract law to the facts; the decision, which was unanimous, was written by Justice Thomas, but there was a concurrence by Justice Ginsburg noting that in determining whether the parties intended to vest retiree health benefits implied terms of the agreement, e.g., whether the retiree health benefits were equated to pension benefits, should be examined, as should extrinsic evidence).