Sixth Circuit Affirms Dismissal of FLSA Action Where Employer Paid Twice the Required Overtime Premium Under Fluctuating Work Week Method

This morning, the Sixth Circuit affirmed the dismissal of a collective FLSA action on the grounds that the employer’s fluctuating work week overtime payroll practices did not violate the Fair Labor Standards Act.   Hall v. Plastipak Holdings, Inc. No. 17-1694 (6^th Cir. 2-28-18).   First, the Court noted that the employer paid its employees at twice overtime rate that was legally required under the FLSA regulations.  The plaintiffs’ arguments were based on a misunderstanding of how the fluctuating work week method operates.   Further, it was “absurd” for the plaintiffs to argue that they were not paid a “fixed salary” when their vacation pay banks were docked as they took vacation because that would result in employees being paid twice as much for not working.  The Court also rejected their argument that they were prevented from conducting discovery as to whether the employer would dock their salary if they missed work after exhausting their vacation banks because the plaintiffs never raised this argument before the trial court and cannot raise arguments – even good ones – for the first time on appeal.

As explained by the Court:

Various methods can be used to calculate this overtime premium, depending on the particular employment circumstances.  One such method is the “Fluctuating Workweek” (“FWW”) method, described in 29 C.F.R. § 778.114(a).  Under this approach, employees receive a fixed salary as compensation for all hours worked, whether above or below forty hours, plus an overtime premium for each overtime hour.  Id.

             . . .. .

The FWW method can only be used if four requirements are met: (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed salary that does not vary with the number of hours worked (excluding overtime premiums); (3) the fixed salary at least equals the minimum wage; and (4) the employer and employee share a “clear mutual understanding” that the employer will pay the fixed salary regardless of the number of hours worked.  29 C.F.R. § 778.114(a).

The plaintiffs disputed that they were paid a fixed salary or that they had agreed to this method of compensation.    However, the plaintiffs had each signed a detailed agreement specifying how their overtime would be calculated and they would be paid, including numeric examples.  They also accepted paychecks using this method for years without complaint or objection.

The Court observed that the employer paid its employees a higher overtime rate than required by the FWW regulations:

[T]he FWW method calculates overtime premiums according to the following formula:

            overtime premium = ½ x (salary/40 hours +overtime hours) x overtime hours

The parties agree that [the employer] did not use this formula.  Instead, [it] used a different one: 

            overtime premium = (salary/40 hours)          x overtime hours

When compared, these formulae show that [the employer’s] approach was more generous than the FWW’s approach in two ways.  First, [the employer] used a higher base salary rate: it divided base salary by 40 hours, whereas the FWW method divides base salary by the sum of 40 hours and overtime hours.  Second, [it] paid the full salary rate for overtime hours, whereas the FWW method requires only a minimum of half of the salary rate.  Taken together, these changes ensured that Plaintiffs were paid more than twice the minimum overtime premiums.  That was plainly permissible.  § 778.114(a)

The Court rejected as “absurd” the plaintiffs’ argument that they were not paid a “fixed salary” when their accrued vacation pay banks were “docked” after they requested and took time off work.

Reducing an employee’s bank  of vacation time is obviously appropriate in such circumstances.  See DOL Opinion Letter FLSA,   . . .  Indeed, it would be absurd to suggest that a vacationing employee should be paid twice for not working, once because the employee took paid vacation  and a second time because the employee is guaranteed a fixed salary.

The Court also rejected the plaintiff’s objection to being paid the same rate of pay for both overtime and regular 40 hours because they misunderstood the FWW method.  Hourly employees are not guaranteed a “fixed salary” regardless of how many hours they work.  If they work less than 40 hours, they are paid less than 40 hours, whereas  under the FWW, they receive the same pay every week whether they work more or less than forty hours.  So, hourly employees have not been paid at all for the hours worked over 40 in a week, which means that their overtime is time and a half.  In contrast, FWW employees have already been paid a fixed salary for all hours worked, even those over 40.  Because they have already been paid the “time” with the fixed salary, they only get “a half” for the overtime hours.   Nonetheless, the defendant employer in this case paid them twice that amount and gave them not just time and a half, but time and time again.  Still, the employees brought suit because they wanted time and time and a half.

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.

Ohio Court of Appeals Finds Public Policy Jeopardized by Discharge of Waitress for Objecting to Employer’s Payroll Tax Evasion

Earlier this month, the Ohio Court of Appeals recognized a public policy wrongful discharge claim when a waitress was fired for objecting to her employer’s failure to properly pay all unemployment taxes on her account.  House v. Iacovelli, 2018-Ohio-443. “While the administrative appeal process [to challenge the amount of awarded benefits] provides a viable mechanism to challenge a determination of benefits, it fails to set forth a remedial scheme for a situation such as this where an employee is terminated merely for inquiring about why her pay did not reflect the amount she had earned.”  The Court also found that failing to recognize such a claim would chill public policy because employees would not report such payroll failures if they could be fired for bringing them to the employer’s attention.

According to the Court’s opinion, the plaintiff waitress alleged in her complaint that she confronted the restaurant’s owner about her payroll stubs underreporting her wages and tips.  He allegedly admitted that he had underreported her income and failed to make all of the required contributions in violation of Ohio Revised Code Chapter 4141.  She “further alleged that instead of addressing the issue, [he]  accused [her] of creating “too much drama” and terminated her employment.”  Thereafter, she alleged that he requested that she mislead ODFJS by claiming that she was laid off for lack of work and he agreed to give her $150 every two weeks to make up for the unemployment tax shortfall.

Even though the defendant failed to file a timely motion to dismiss or summary judgment motion, the trial court dismissed the claim on the eve of trial on the basis that the plaintiff failed to satisfy the jeopardy element for public policy wrongful discharge claims.  That trial court found that the sole remedy under ORC 4141 was for the Attorney General to bring suit; no individual remedies were created.  The Court of Appeals reversed on the grounds that the statutes “fail to adequately protect society’s public policy interest in establishing and maintaining an unemployment compensation program.”

The Supreme Court of Ohio has explained that analyzing the jeopardy element of  a public policy wrongful termination action requires assessing whether prohibiting the action from going forward would compromise the objectives of the public policy in question.   . . .  Thus,“[a]n analysis of the jeopardy element necessarily involves inquiring into the existence of any alternative means of promoting the particular public policy to be vindicated by the common-law wrongful discharge claim.”   . . .  The public policy expressed in a statute is not jeopardized by the absence of a wrongful termination action when the aggrieved employee “has an alternate means of vindicating his or her statutory rights[,] [] thereby discouraging an employer from engaging in the unlawful conduct.”  Id.  “Wiles made clear that the method to determine whether a plaintiff can file statutory and public policy causes of action involves reviewing the adequacy of the remedy, not ensuring the aggrieved party receives the greatest recovery.”   . . .  “[A] remedy is not inadequate merely because it does not allow for all avenues of recovery.”  Coon at ¶ 22.

While society’s interests may be protected by the Attorney General’s intervention and the employee may have the right to file an administrative appeal to challenge unemployment benefits that are awarded, the statute fails to address any remedies for an employee when an employer refused to comply with the statute. “[W]e emphasized in Coon that “the purpose of a remedy in a  wrongful termination case is * * * to deter the employer from violating the law and to place the  employee in the position they would have been had the employer not violated the law.”  However,   the statute “does not contain any provision that would provide [the plaintiff] with a “meaningful opportunity” to return to the position she occupied prior to the adverse employment action.”    Therefore, the statutory remedies are inadequate and the plaintiff has satisfied the jeopardy element of a public policy wrongful discharge claim.

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.

Sixth Circuit Affirms Employee Jury Verdict When Employer Denied Temporary Telecommuting Request During Employment Attorney’s Pregnancy

Yesterday, a unanimous Sixth Circuit affirmed a jury award of $92,000 to an inside employment law attorney who sued under the ADA and PDA after she was required to take paid medical leave during a ten week period of modified bed rest relating to a difficult pregnancy.   Mosby-Meachem v. Memphis, Light, Gas & Water Div., No. 17-5483.  The biggest take away is that employers should not argue with their inhouse employment attorneys.   Based on the conflicting evidence presented at trial, the jury was entitled to conclude that ten weeks of telecommuting was a reasonable accommodation under the ADA.  Further, by not raising it before the trial court, the employer waived its argument that the paid leave of absence it provided the plaintiff was a suitable and effective accommodation (when the employer typically gets to select which reasonable accommodation to provide). In any event, there was evidence that the employer had made its decision to deny telecommuting before engaging in the interactive process with the plaintiff because the decisionmakers were constrained by the prior directive from the company president to never allow telecommuting as a reasonable accommodation.  Therefore, when there is evidence that temporary telecommuting may be a reasonable accommodation, employers are required to consider that option even if regular, physical attendance is an essential job function.

According to the Court’s opinion, the employer’s new General Counsel had re-affirmed in writing shortly after she began working that inhouse attorneys were expected to be in the office during business hours.  Nonetheless, the plaintiff attorney (who was responsible for employment law compliance) was permitted to work from home during a two week medical leave following neck surgery.  Other attorneys were also permitted to telecommute on occasion.  During a difficult period of her pregnancy, the plaintiff attorney was instructed by her physicians to stay in bed (or close to it) for 10 weeks.  She then requested to telecommute for those ten weeks and did so for the next month while her request was being considered by the employer’s ADA accommodations committee.   However, her request was ultimately denied because her physical presence was an essential function of her position and there were concerns about her ability to maintain confidentiality while working from home.  Her appeals were denied.  Nonetheless, she was placed on paid FMLA leave and when that was exhausted, was placed on short term disability (STD).   In the meantime, she lost her law license for failing to pay an annual registration fee and she fixed that as soon as she was notified a few months after returning to work (at full pay) shortly after giving birth.  Dissatisfied at being required to take reduced STD pay and exhaust her FMLA leave before the birth of her child (and presumably unable to take leave following the birth of her child), she brought suit for violations of the ADA and Pregnancy Discrimination Act.  The jury ruled in favor of the employer on the pregnancy discrimination claim, but ruled in her favor on her ADA claim and awarded her $92,000.  The trial court also awarded her $18,000 in equitable relief based on lost pay and exhaustion of paid medical leave.  It rejected the employer’s request to reduce her recovery for the period of time when she was not licensed to practice law.  The employer appealed.

The employer argued that physical presence was an essential function of the job per the job description, admissions and witness testimony.  As faithful readers may recall, the en banc Sixth Circuit previously ruled that physical presence is an essential function of most jobs, meaning that employers cannot be required to eliminate that function and permit telecommuting.   The employer specifically identified her job duties to supervise staff, be available for emergency “call outs” to meet in the field, interview and depose witnesses, attend court, etc.  (Oddly, there was no discussion in the opinion about any concerns with her maintaining client confidentiality from home).   However, the Court noted that the plaintiff had introduced conflicting evidence – which the jury was entitled to believe – that she was “otherwise qualified.”   Remarkably, at least two of the employer’s outside attorneys testified that they could do some of these tasks for her (for an hourly fee, I’m sure).   In addition, the plaintiff testified that she had never tried a court case or taken a witness deposition.  Moreover, the job description was 20 years old and had not been updated as she had recommended a few years earlier.  In light of this evidence, a rational jury could conclude that the plaintiff was qualified to perform the essential functions of her position from home for ten weeks.

The Court distinguishes the Ford case on the basis that the plaintiff there was a poor performer with poor attendance and this plaintiff was not (as though any of those issues bear on the essential job function analysis).   More importantly, the telecommuting accommodations sought in Ford and Williams v. AT&T Mobility were for an indefinite time, while the accommodation request in this case was only for ten weeks. “Because the Ford and Williams cases leave open the possibility of teleworking as a reasonable accommodation, particularly for a finite period of time, a jury could have reasonably concluded from the evidence presented at trial that [the plaintiff] could perform all the essential functions of her job remotely for ten weeks.”

By now, many readers are wondering why the paid leave provided to the plaintiff was not a sufficient reasonable accommodation.  The employer finally raised that issue on appeal, but the Court rejected it because the employer apparently failed to raise it before the trial court and parties cannot raise arguments – even good ones – for the first time on appeal.  In any event, the Court observed that the plaintiff had introduced evidence that the employer had failed to engage in the interactive process in good faith (at the conclusion of which, the employer would be permitted to select an effective accommodation, even if not the one most preferred by the employee).  Specifically, the plaintiff was told before any discussion about her accommodation request that the company president had made clear that no one would be permitted to telecommute and that the ADA Committee resolved her request with that directive in mind.  Thus, even considering the employer’s right to provide any effective accommodation, the Court seemed to imply that the jury would be entitled to reject the employer’s choice if there had not first been good faith discussions during the interactive process.

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.

Supreme Court: Does a Whistleblower by Any Other Statutory Definition Still Smell as Sweet?

A unanimous Supreme Court this morning reversed the Ninth Circuit, rejected the SEC’s own regulation and ruled that the whistleblowing protections under Dodd-Frank are not parallel to the whistleblower provisions of Sarbanes-Oxley.   Digital Realty Trust v. Somers, No. 16-1276.   In particular, while the Dodd-Frank statute protects “whistleblowers” from retaliation for activities that are protected under Sarbanes-Oxley, an individual is not a “whistleblower” under Dodd-Frank unless the individual first reported information about securities law violations to the SEC.  In other words, while Sarbanes-Oxley protects internal reports of misconduct by employees to upper management, the SEC, Congress or another federal agency if the employee complies with that statute’s shorter statute of limitations and administrative exhaustion requirements, such activity would not also be protected under Dodd-Frank (with its longer statute of limitations and no administrative exhaustion requirements) unless the individual first reported the matter to the SEC before suffering retaliation.  Accordingly, the employee who was fired allegedly in retaliation for reporting possible illegal activity to senior management and not to the SEC was not a “whistleblower” under Dodd-Frank even though he might have been under Sarbanes-Oxley if he had fist filed a complaint with the DOL within the 180-day statute of limitations.  In short, “[t]o sue under Dodd-Frank’s anti-retaliation provision, a person must first “provid[e] . . . information relating to a violation of the securities laws to the” SEC.

According to the Court’s opinion, the employer REIT employed the plaintiff as a vice president.  He reported to senior management that he suspected that the company was violating certain securities laws.  He never reported this to the SEC and was later fired.  The Court does not describe the amount of time that passed between his report, his termination or his lawsuit.  He never filed an administrative complaint with the DOL.   The employer moved to dismiss because the Dodd-Frank statute only protected employees who blow the whistle to the SEC.  The court found the statute to be ambiguous and deferred to the SEC regulation which did not require whistleblowers to ever contact the SEC under its anti-retaliation provision.   The Court of Appeals affirmed, noting that a contrary holding would nullify the anti-retaliation provisions encompassing Sarbanes-Oxley, etc. However, the Fifth Circuit ruled to the contrary in a similar case, so the Supreme Court agreed to resolve the split of authority.  Justice Ginsburg wrote for the majority, but there were also two concurring opinions which debated whether the Court should focus only on the statute’s language or also consider its legislative history and purpose.

The Court concluded that the case rested on a simple rule: ““When a statute includes an explicit definition, we must follow that definition,” even if it varies from a term’s ordinary meaning.”  Whistleblower was “unequivocally” defined in Dodd-Frank. “Section 78u–6 begins by defining a “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” 15 U.S.C §78u–6(a)(6).   The definition explained “who” was protected and the rest of the statute explained what conduct of that individual was protected.  The anti-retaliation provision, among other things, “protects disclosures made to a variety of individuals and entities in addition to the SEC. For example, the clause shields an employee’s reports of wrongdoing to an internal supervisor if the reports are independently safeguarded from retaliation under Sarbanes-Oxley.”  Importantly, “an individual who falls outside the protected category of “whistleblowers” is ineligible to seek redress under the statute, regardless of the conduct in which that individual engages.”  In contrast, a different anti-retaliation provision in the statute did not require employees to report misconduct to any government agency about matters within the jurisdiction of the Consumer Financial Protection Bureau. 

Requiring reporting to the SEC was core function of Dodd-Frank because it was enacted following the 2008 financial crises, whereas Sarbanes-Oxley was enacted in response to the collapse of Enron.  Dodd-Frank wanted to encourage more government reporting, not more internal reporting, in order to improve the SEC’s enforcement.   Moreover, Dodd-Frank enacted stronger whistleblower protections than Sarbanes-Oxley, eliminating the administrative exhaustion requirement, lengthening the statute of limitations and doubling the back pay recovery, in order to encourage more reporting to the SEC, not less.  As for concerns that employees may suffer retaliation for internal reporting if they were unaware of the requirement to also notify the SEC,

Overlooked in this protest is Dodd-Frank’s core objective: to prompt reporting to the SEC.  . . . In view of that precise aim, it is understandable that the statute’s retaliation protections, like its financial rewards, would be reserved for employees who have done what Dodd-Frank seeks to achieve, i.e., they have placed information about unlawful activity before the Commission to aid its enforcement efforts.

The Court rejected the argument that its strict interpretation would nullify the statute’s prohibition against retaliating against an employee who engages in conduct that is also protected under Sarbanes-Oxley:

With the statutory definition incorporated, clause (iii) protects a whistleblower who reports misconduct both to the SEC and to another entity, but suffers retaliation because of the latter, non-SEC, disclosure.  That would be so, for example, where the retaliating employer is unaware that the employee has alerted the SEC.  In such a case, without clause (iii), retaliation for internal reporting would not be reached by Dodd-Frank, for clause (i) applies only where the employer retaliates against the employee “because of ” the SEC reporting.  §78u–6(h)(1)(A). Moreover, even where the employer knows of the SEC reporting, the third clause may operate to dispel a proof problem: The employee can recover under the statute without having to demonstrate whether the retaliation was motivated by the internal report (thus yielding protection under clause (iii)) or by the SEC disclosure (thus gaining protection under clause (i)).

 . . . The SEC is required to protect the identity of whistleblowers, see §78u–6(h)(2)(A), so employers will often be unaware that an employee has reported to the Commission.  In any event, even if the number of individuals qualifying for protection under clause (iii) is relatively limited, “[i]t is our function to give the statute the effect its language suggests, however modest that may be.”

In light of the clear language of the statute the Court refused to accord any deference to the SEC regulation.  The Obama SEC initially proposed to define “whistleblower” as “as one or more individuals who “provide the Commission with information relating to a potential violation of the securities laws.” The SEC ultimately published regulations defining “whistleblower” differently for the reward and anti-retaliation provisions.  A whistleblower for purposes of obtaining a financial reward from the SEC was essentially the same as initially proposed, but required the information to be provided by fax, mail or through its website.  For the anti-retaliation provision, a “whistleblower” was defined as covering individuals who “possess a reasonable belief that the information you are providing relates to a possible securities law violation” and “[y]ou provide that information in a manner described in” clauses (i) through (iii) of §78u–6(h)(1)(A)” regardless of whether the individual satisfied the requirements of qualifying for a financial reward by reporting the information in a specified manner.  As noted by Justice Ginsburg, the SEC regulation was clear that the whistleblower need not report anything to the SEC in order to be protected by the Dodd-Frank anti-retaliation provisions and reiterated that interpretation in a 2015 interpretative rule:

An individual may therefore gain anti-retaliation protection as a “whistleblower” under Rule 21F–2 without providing information to the SEC, so long as he or she provides information in a manner shielded by one of the anti-retaliation provision’s three clauses. For example, a report to a company supervisor would qualify if the report garners protection under the Sarbanes-Oxley anti-retaliation provision.

The Court agreed that its application of the statutory definition could result in no protection for employees who are fired for testifying, initiating or participating in an SEC investigation if they did not first report the securities law violations to the SEC.  However, it noted that the SEC could easily rectify this by regulation to establish the manner in which whistleblowers could report information to the SEC to include such testimony, etc.   I'm sure that the Trump Administration will get right on that, although it did argue in favor of the employee and the SEC before the Court. 

As for the concurring opinions, Justice Thomas and two other Justices opined that: “Even assuming a majority of Congress read the Senate Report, agreed with it, and voted for Dodd-Frank with the same intent, “we are a government of laws, not of men, and are governed by what Congress enacted rather than by what it intended.”  Justice Thomas then quoted from an amusing Senate debate in which former Senate President Bob Dole admitted that neither he nor any other Senator wrote the Senate Report and that he had never even read it.  Instead, Thomas noted the reports are written by staffers, who are aware that Congress never reads them and that Senators do not even have the authority to amend or modify them.  In contrast, Justice Sotomayor disagreed with that view and asserted that a Senate Report was an appropriate source to consider when interpreting statutory language.

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.

Has the Supreme Court Finally Put the Nail in the Coffin of Yard-Man?

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.