The Supreme Court was recently presented the question of whether collective-bargaining agreements (“CBAs”) that provide for benefits governed by the Employee Retirement Income Security Act (“ERISA”) should be interpreted differently than other contracts. The Court’s response in M&G Polymers USA, LLC v. Tackett, 574 U.S. __, No. 13-1010, 2015 U.S. LEXIS 759 (Jan. 26, 2015), was an emphatic “no.”
The Tackett case arises from a 2000 Pension, Insurance, and Service Award Agreement (“P&I Agreement”) entered into between Petitioner M&G Polymers, USA, LLC (“M&G”) and Respondents’ (“Retirees”) union. Tackett, 2015 U.S. LEXIS, at *7-8. The P&I Agreement contained a provision by which M&G agreed to pay the health benefits of retirees and their dependents “‘for the duration of this Agreement,'” which “provided for renegotiation of its terms in three years.” Id. at *8. In December 2006, more than a year after M&G and the union reached a new agreement, “M&G announced that it would begin requiring retirees to contribute to the cost of their health care benefits.” Id. The Retirees sued, claiming that the 2000 P&I Agreement “had created a vested right” to employer-funded health care benefits that went beyond the expiration of the P&I Agreement. Id. at *8-9. The new contribution requirement, they argued, violated the Labor Management Relations Act, 29 U.S.C. § 185 (“LMRA”), and ERISA, 29 U.S.C. § 1132(a)(1)(B). Id.
The Sixth Circuit reversed the district court’s dismissal for failure to state a claim. In doing so, the Appellate Court held that “[l]anguage in a collective bargaining agreement that equate[s] eligibility for retiree health benefits with eligibility for a pension suggests an intent to vest.” Tackett v. M&G Polymers, USA, LLC, 561 F.3d 478, 489 (6th Cir. 2009) (per curiam) (internal quotation marks and citations omitted). The appellate court further held that district courts “must . . . keep in mind the context of labor-management negotiations on retiree health-care benefits” and that because such benefits “are ‘typically understood as a form of delayed compensation or reward for past services’ it is unlikely that they would be ‘left to the contingencies of future negotiations.'” Id. (quoting Yolton v. El Paso Tenn. Pipeline Co., 435 F.3d 571, 580 (6th Cir. 2006) (quoting UAW v. Yard-Man, Inc., 716 F.2d 1476, 1481-82 (6th Cir. 1983), cert. denied, 465 U.S. 1007, 104 S. Ct. 1002 (1984)). Applying the inferences set out in Yard-Man, the Sixth Circuit concluded that it was “unlikely that the [union] would agree to language that ensures its members a ‘full Company contribution,’ if the company could unilaterally change the level of contribution.” Tackett, 561 F. 3d at 490.
The Supreme Court unanimously held that the Yard-Man inferences “violate 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.” 2015 U.S. LEXIS 759, at *18. Moreover, the Sixth Circuit’s “suppositions about the intentions of employees, unions, and employers negotiating retiree benefits” were “too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention.” Id. at *19.
Noting that the Sixth Circuit “failed to consider the traditional principle that contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement,” id. at *23 (internal quotation marks and citation omitted), the Court stated that “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.” Id. at *24. Applying that principle, the Court remanded the case so that the Sixth Circuit could apply traditional principles of contract interpretation, id. at *25, most notably that the parties show “a clear manifestation of intent before conferring a benefit or obligation.” Id. at *23 (internal quotation marks and citation omitted).
The Tackett decision, while brief and straightforward, has major implications for labor relations and provision of health care. Courts must confine themselves to the four corners of the contract when interpreting CBAs; absent an express intent by the bargaining parties to the contrary, courts may no longer place their thumbs on the scale in favor of retirees who are unable to participate in collective bargaining. Existing and future benefits for retirees are subject to elimination if not included in CBA, even if the union and business have not expressed an intention or desire that those benefits terminate. Absent new legislation that would maintain such benefits, retirees must now rely on their former union and employer to maintain the benefits provided for them once the existing CBA expires and the union and the employer enter into a new CBA. If those benefits are dropped, then it could substantially increase the number of retirees enrolling in Medicare.
Whether retiree health costs remain an obligation of an employer or are shifted to taxpayers depends largely on whether unions and employers will provide benefits for past members. As with so many Supreme Court decisions, the answer to that question — and the true impact of the Tackett decision — will not be clear for several years.