Employment Law Daily Court must now apply ordinary contract principles to find if retiree benefits have vested
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Monday, January 25, 2016

Court must now apply ordinary contract principles to find if retiree benefits have vested

By Ronald Miller, J.D. On remand from the Supreme Court, the Sixth Circuit remanded its decision in Tackett v. M&G Polymers USA, LLC, to the district court so it can use ordinary principles of contract law to answer questions regarding whether retirees enjoyed vested lifetime health care benefits. Outside the “shadow of Yard-Man,” the district court must decide: (1) what documents make up the parties’ agreements; (2) whether reference to extrinsic evidence is appropriate; and (3) whether the agreements, and any extrinsic evidence that may be considered, vests the retirees with lifetime contribution-free health care benefits (Tackett v. M&G Polymers USA, LLC, January 21, 2016, Cole, G.). In M & G Polymers USA, LLC v. Tackett, the Supreme Court abrogated the primary precedent on which the Sixth Circuit relied when issuing earlier rulings in this much-traveled case, including Int’l Union, United Auto., Aerospace, & Agric. Implement Workers of Am. (UAW) v. Yard-Man, Inc. (Yard-Man). On remand, the appeals court was directed to construe the parties’ agreements using “ordinary principles of contract law.” Because prior factual determinations as to the parties’ agreements were made in the “shadow of Yard-Man,” the Sixth Circuit remanded the matter to the district court to make these determinations in light of the Supreme Court’s holding. The plaintiffs in this action were manufacturing plant retirees and their spouses. From 1991 to 2005, the retirees entered into several collective bargaining agreements with the employer and its predecessors, which outlined retiree health care benefits (P&I). The P&Is provided that the employer will make “a full Company contribution towards the cost of [health care] benefits” for certain retirees. However, in December 2006, the employer announced that retirees would, for the first time, be required to contribute to their health care costs or risk being dropped from the plan. “Thumb on the scale.” The retirees filed a class action suit against the employer and its health care plans alleging that the agreements under which they retired granted a vested right to lifetime contribution-free health care benefits. Following extensive litigation, the Sixth Circuit ultimately ruled in Tackett II that the district court did not clearly err in finding the cap agreements inapplicable to retirees. That decision went to the Supreme Court, which abrogated Yard-Man, which it characterized as requiring courts to analyze CBAs with a “thumb on the scale” in favor of vesting. The Supreme Court unanimously concluded that courts should review CBAs applying ordinary principles of contract law. Importantly, the High Court rejected Yard-Man’s inferences in favor of retirees, but also declined to adopt an “explicit language” requirement in favor of companies. Thus, while the Supreme Court’s decision prevents the Sixth Circuit from presuming that “absent specific durational language referring to retiree benefits themselves, a general durational clause says nothing about the vesting of retiree benefits,” the appeals court also cannot presume that the absence of such specific language, by itself, evidences an intent not to vest benefits or that a general durational clause says everything about the intent to vest. Vesting under agreements. The Sixth Circuit next considered the documents that made up the parties’ agreements to determine whether they vested retirees with lifetime contribution-free health care benefits using ordinary principles of contract law. First, the appeals court examined the employer’s contention that cap letters were part of the agreements or could serve as extrinsic evidence of dealings with retirees. The court concluded that now that Yard-Man has been abrogated, additional evidence or arguments may be relevant to an inquiry under ordinary contract principles. Thus, it remanded that issue so the district court may determine whether the cap letters, or other documents, are part of the agreement or may otherwise serve as extrinsic evidence. Reverting to Tackett 2007. The employer also argued that the appeals court should reinstate the district court’s initial decision dismissing the complaint because it rested on “simple principles of contract construction.” However, Tackett 2007 largely relied on the cap letters and did not consider other evidence submitted by the retirees, explained the court. Once that evidence was considered, the district court held that the cap letters did not apply to the retirees. In light of the remand decision, the appeals court anticipated that the district court will consider any admissible evidence that is probative of the Supreme Court’s direction to construe the parties’ agreements in accordance with standard contract law principles.

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