This morning, the Supreme Court unexpectedly issued yet
another decision reversing the Sixth Circuit’s continued application of Yard-Man. CNH
Industrial, N.V. v. Reese, No. 17-515. As faithful readers know, the Sixth Circuit
for decades presumed that a collective bargaining agreement which provided
health insurance benefits to retirees was a vested lifetime benefit that could
not be altered, modified or eliminated without a bankruptcy court’s
intervention. This resulted in the
bankruptcies and closures of numerous companies which provided 100% coverage
(i.e., before managed care brought us co-pays, shared premiums, deductibles and
approved providers) when the companies were growing but then could not afford
such coverage (which can cost more than $20k/employee) when they had fewer
employees, fewer and smaller factories and shrinking profits. As reported here,
the Supreme Court held three years ago in M&G
Polymers USA LLC v. Tackett that collective bargaining agreements
are like all other contracts and that courts should not infer terms into them
that the parties did not negotiate themselves. Duly
chastised, the Sixth Circuit then agreed that they would not infer lifetime vested coverage from an
agreement’s silence as to the duration of retiree medical benefits, but then in
CNH
Industrial, a divided court decided that it would still use the silence
of the agreement concerning the duration of retiree health benefits to find that
agreement to be ambiguous as a matter of law, and thus, enable the retirees to
introduce extrinsic evidence (i.e., promises and statements made outside the
four corners of the agreement) to prove their entitlement to lifetime, vested
medical insurance. Incredulous, the
Supreme Court in a per curiam opinion
reversed. If it is forbidden to infer
vested benefits from the silence of a bargaining agreement as to the duration
of those benefits, it is likewise forbidden to infer ambiguity from that same
silence.
As summarized in the Court’s decision, since 1971, the
bargaining agreement provided health insurance to its employees and to those
employees who qualified for a pension. The employer paid 100% of the premiums. Otherwise, all other benefits terminated on
the date of the employee’s retirement. In 1998, the UAW and employer negotiated new
language about retirees being eligible for group medical benefits, without
detailing what those benefits were.
However, the retirees were still not required to make any contributions
for their medical benefits. The group
medical plan was incorporated into the bargaining agreement and ran
concurrently with it. The agreement
expired in three years. Upon the
agreement’s second expiration, a group of retirees brought suit to prevent the
employer from modifying the existing health plan (to, for example, require
premium contributions, co-pays or deductibles).
After several appeals and the Tackett decision, a divided Sixth Circuit found that the silence of
the agreement about when retiree health care benefits terminated (when it
mentioned that life insurance and other benefits terminated upon retirement)
created an ambiguity. “There is surely a difference between finding ambiguity
from silence and finding vesting from silence.” It explained:
Further, just as the Supreme Court has commanded that we not
infer vesting from silence, it has directed us not to infer vesting from the tying
of benefits to achievement of pensioner status.
But, as with silence, it has not directed us to ignore tying’s ability
to create ambiguity. Here, healthcare
benefits were tied to pension eligibility.
This, by itself, says little about whether those healthcare benefits
should vest for life. It does, however,
create an ambiguity about the parties’ intentions. Inferring
vesting from tying alone violates Tackett
and ordinary principles of contract interpretation. Finding an ambiguity from tying allows a
court to explore the extrinsic evidence to discover what the parties actually
intended. This, as with silence, does
not offend any principle of contract interpretation. Instead, it moves us closer to the ultimate
goal in any contract dispute: discovering the parties’ true intentions. (emphasis added).
The Supreme Court was not impressed. To find an ambiguity,
there must be two plausible interpretations from
the language of the agreement.
However, there are no competing interpretations when a court relies on
the Yard-Man inference to create one
interpretation and the other interpretation is that the retiree benefits – like
all other terms and benefits in the agreement – terminate when the agreement
does. The panel’s majority did not quote
any contract language or industry practice which created an ambiguity that
would treat retiree benefits differently from all of the terms in the
agreement. Further, the panel’s
majority could not and did not cite to any other circuit courts which had
similarly found contractual ambiguity from the absence of a specific durational
clause that applied only to the retiree medical benefits.
Shorn of Yard-Man
inferences, this case is straightforward.
The 1998 agreement contained a general durational clause that applied to
all benefits, unless the agreement specified otherwise. No provision specified
that the health care benefits were subject to a different durational clause.
The agreement stated that the health benefits plan “r[an] concurrently” with
the collective-bargaining agreement, tying the health care benefits to the
duration of the rest of the agreement. .
. . . . If the parties meant to vest health care benefits for life, they easily
could have said so in the text. But they
did not. And they specified that their agreement “dispose[d] of any and all
bargaining issues” between them. . . . . Thus, the only reasonable interpretation of
the 1998 agreement is that the health care benefits expired when the
collective-bargaining agreement expired in May 2004. “When the intent of the
parties is unambiguously expressed in the contract, that expression controls, and the court’s
inquiry should proceed no further.”
NOTICE:
This summary is designed merely to inform and alert you of recent legal
developments. It does not constitute legal advice and does not apply to any
particular situation because different facts could lead to different results.
Information here can be changed or amended without notice. Readers should
not act upon this information without legal advice. If you have any questions
about anything you have read, you should consult with or retain an employment
attorney.
