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Corporate Counsel Connect collection

May 2014 edition

SCOTUS poised to resolve circuit split on vesting of retiree healthcare benefits in collective bargaining agreements

Jeremy Byellin, JD

Jeremy ByellinEarlier this month, amidst the announcements of landmark Supreme Court decisions such as Town of Greece, N.Y. v. Galloway, the Court also granted certiorari in a case that could have significant implications nationwide. Granted, the effects of the case will be somewhat more limited in its scope than those rulings that get top billing by the media. Nevertheless, where the case does make an impact, that impact will certainly be felt.

The case is M&G Polymers USA, LLC v. Tackett, and it pertains to the vesting (that is, the indefinite continuance) of retiree healthcare benefits as part of collective bargaining agreements.

Unless you immediately understood and recognized the significance of the second half of that sentence, the case may strike you as another in the long line of inconsequential matters that the Supreme Court routine addresses between its landmark decisions. Admittedly, I initially believed the same. But once I discovered more details about the case, I could see how broad the implications could be.

Facts of the case

M&G was the latest in a line of owners of the Point Pleasant Polyester Plant. The plaintiffs are retired employees of that plant. M&G and the various previous owners all entered into collective bargaining agreements with the plant's labor union, and plaintiffs were all covered under at least one of them.

In December 2006, M&G announced that it would begin requiring retirees to contribute to the cost of their medical benefits. Some of the plaintiffs refused and lost their medical coverage, while others paid under protest to remain enrolled in their plans.

The plaintiffs then brought suit against M&G, claiming that "the promise of a 'full Company contribution towards the cost of [healthcare] benefits' in the CBAs provided them with a vested right to receive healthcare benefits in retirement without making any contributions." M&G responded that the existence of several "cap letters" – that is side letters that purportedly "capped" the company's contribution towards the cost of retiree healthcare benefits – prevented the healthcare benefits from vesting.

After some back and forth between the trial court and the Sixth Circuit Court of Appeals, the case was largely decided in the retiree's favor, and M&G appealed to the Supreme Court.

I left out quite a bit of details about the case, and I did so because the details of this individual case aren't quite as relevant as they may be in other cases – primarily because the Supreme Court is poised to resolve a split among the circuits with this case.

Split opinions

Just how "split" the circuits varies greatly based on whether you are an attorney for M&G or for the plaintiff-retirees. According to M&G's certiorari writ petition, the circuits are "all over the lot" in determining when retiree healthcare benefits in a collective bargaining agreement have vested.

According to M&G, at the end of the spectrum most in favor of retirees is the Sixth Circuit, which "silence or ambiguity in a collective bargaining agreement as creating an 'inference' or 'presumption' that the agreement vests a right to lifetime, contribution-free benefits in the absence of extrinsic evidence to the contrary." At the other end of this spectrum is the Third Circuit, which "requires a clear statement in collective bargaining agreements that the parties intend the benefits to continue indefinitely."

The retirees, on the other hand, contend that the circuits all govern such cases using traditional contract interpretation rules applied to particular circumstances "with minor variations in approach." The retirees further assert that in this specific case, the trial court found that the retirees had "proven that lifetime, vested benefits were promised."

The fact that the Supreme Court agreed to review the case doesn't appear to be good news for retirees, who now face the possibility of having their favorable decision overturned. But it doesn't necessarily mean that it's bad news for the retirees, either, since the Supreme Court rarely misses an opportunity to resolve a split among the circuits.

What are the implications?

There actually won't be a big impact in the drafting of new collective bargaining agreements, since all the Court decision will do is provide guidance on what sort of explicit language is required pertaining to the vesting of retiree healthcare benefits. But for the plethora of collective bargaining agreements already in place – particularly those with missing or ambiguous language on the vesting of healthcare benefits – this decision will be significant.

Depending on how the Court rules, companies may find themselves either in the position of paying retiree benefits indefinitely or being able to unilaterally modify or terminate such plans with no legal repercussions.

While such a ruling may not see as much news coverage as one expanding the use of prayer at town meetings, it will almost certainly make a stronger impact on the operations of many businesses and the lives of many retirees.

About the author

Jeremy Byellin is a practicing attorney in the state of Minnesota and a writer for the Westlaw Insider blog. His articles for the blog cover a wide range of legal topics, with a specific focus on major legal developments and cyberlaw.

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