According to the Court’s opinion, the bargaining agreement
at issue provided in relevant part that:
“Employees who retire on or after January 1, 1996 and who are
eligible for and receiving a monthly pension under the 1993 Pension Plan . . .
whose full years of attained age and full years of attained continuous service
. . . at the time of retirement equals 95 or more points will receive a full
Company contribution towards the cost of [health care] benefits described in
this Exhibit B–1 . . . . Employees who have less than 95 points at the time of
retirement will receive a reduced Company contribution. The Company contribution
will be reduced by 2% for every point less than 95.
Exhibit B-1, which was incorporated by reference into this
clause, specifically provided: “Effective January 1,
1998, and for the duration of this Agreement thereafter, the Employer will
provide the following program of hospital benefits, hospital-medical benefits,
surgical benefits and prescription drug benefits for eligible employees and
their dependents . . . . ” Exhibit B-1
did not specifically refer to retirees and was, therefore, ambiguous.
Several years after the bargaining agreement (and Exhibit B-1) expired, the
defendant employer announced that retirees would need to begin contributing to
the cost of their healthcare. The
plaintiffs filed suit, which was dismissed by the federal court for the Southern
District of Ohio. On appeal, the Sixth
Circuit reversed on the grounds that retiree healthcare benefits are presumed
under Yard-Man to vest for life and,
therefore, the employer could not modify the benefits by requiring a
contribution.
On appeal, the unanimous Supreme Court found
that the Sixth Circuit's decision in International Union, United Auto, Aerospace, & Agricultural
Implement Workers of Am. v. Yard-Man, Inc., 716 F. 2d 1476, 1479
(1983) and the subsequent cases applying its logic were inconsistent with many ordinary
and basic principles of contract law, which the Court has always utilized to
interpret collective bargaining agreements and ERISA welfare plans:
·
“As an initial matter, 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.”
·
Yard-Man imputed
the intention of the parties without consideration of any evidence of the parties’
actual intent. “Yard-Man’s assessment of
likely behavior in collective bargaining is too speculative and too far
removed from the context of any particular contract to be useful in discerning
the parties’ intention.”
·
Yard-Man applied its inference “indiscriminately across industries”
without consideration of each specific industry’s custom or usage. “Although a court may look to known customs or usages in a
particular industry to determine the meaning of a contract, the parties must
prove those customs or usages using affirmative evidentiary support in a given
case.”
·
Yard-Man relied
too heavily on the fact that retiree benefits are a permissible subject of
bargaining when it often becomes a mandatory subject once the parties include
it in their bargaining agreement.
·
“Yard-Man also relied on the premise that retiree benefits are a form of
deferred compensation, but that characterization is contrary to Congress’
determination otherwise” in ERISA, where retiree health benefits are welfare
benefits, not pension benefits.
·
Yard-Man “distort[s] the
text of the agreement and conflict[s] with the principle of contract law that
the written agreement is presumed to encompass the whole agreement of the
parties” because it refused to apply the agreement’s general durational clause
unless it specifically referred to retiree health benefits. It also “failed to
consider the traditional principle that “contractual obligations will cease, in
the ordinary course, upon termination of the bargaining agreement.”
That principle does not preclude the conclusion that the
parties intended to vest lifetime benefits for retirees. Indeed, we have
already recognized that “a collective-bargaining agreement [may] provid[e] in
explicit terms that certain benefits continue after the agreement’s expiration.” Ibid. But when a contract is silent as to the
duration of retiree benefits, a court may not infer that the parties intended
those benefits to vest for life.
·
Yard-Man violated the principle that “courts should not construe ambiguous writings to create
lifetime promises.” Instead, “contracts
that are silent as to their duration will ordinarily be treated not as ‘operative
in perpetuity’ but as ‘operative for a reasonable time.’”
·
Yard-Man misapplied the illusory promise
doctrine by requiring a promise of retiree healthcare to benefit all retirees
equally. Bargaining agreements often
benefit employees differently. It does
not render a promise to a union as illusory merely become some employees
benefit while others do not.
That interpretation
is a contradiction in terms—a promise that is “partly” illusory is by
definition not illusory. If it benefits
some class of retirees, then it may serve as consideration for the union’s
promises. And the court’s interpretation is particularly inappropriate in the
context of collective-bargaining agreements, which are negotiated on behalf of
a broad category of individuals and consequently will often include provisions
inapplicable to some category of employees.
In
a concurring opinion, four of the justices noted that extrinsic evidence and
the entire agreement may be considered to divine the intent of the parties when
drafting the particular clause about healthcare benefits. In such a case, the plaintiffs do not need to
show “clear and express” language before retiree healthcare benefits will
vest. “Because the
retirees have a vested, lifetime right to a monthly pension, App. 366, a
provision stating that retirees “will receive” health-care benefits if they are
“receiving a monthly pension” is relevant to this examination.”
