Employment Law Daily Dispute over retiree healthcare benefits not subject to arbitration as retirees are not ‘employees’ under CBA
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Tuesday, September 4, 2018

Dispute over retiree healthcare benefits not subject to arbitration as retirees are not ‘employees’ under CBA

By Ronald Miller, J.D.

In an appeal raising important questions of appellate jurisdiction and contract interpretation, the Third Circuit ruled that where a district court compelled arbitration, dismissed a union’s substantive claims, and administratively closed the case, the district court’s order was an appealable final order. Further, the appeals court agreed with an employer that a dispute over retiree healthcare benefits was not subject to arbitration because retiree health benefits were not covered under a CBA. Former employees who retired before the CBA went into effect were not “employees” under the agreement. Further, the appeals court found that a single mention of retiree healthcare benefits in the CBA was insufficient to incorporate a memorandum of agreement on the subject of retiree healthcare into the CBA absent an express intent to incorporate the MOA (Cup v. Ampco Pittsburgh Corp., August 29, 2018, Hardiman, T.).

Retiree healthcare benefits. Akers National Roll operates a manufacturing facility. The plant’s employees are represented by a union. For many years the employer and union engaged in negotiations that culminated in collective bargaining agreements, as well as memoranda of agreement (MOA) addressing the details of various employment policies. In 2016, Akers was acquired by Ampco and a dispute arose over healthcare benefits. At that time, former employees who had retired but were still under the age of 65 paid $195 per month for their healthcare. But in July 2016, Ampco announced its intention to eliminate this healthcare plan for former employees who had retired before March 1, 2015. The new plan would require retirees to purchase health insurance on the private market and then be reimbursed up to $500 per month for individuals or $700 per month for families. The affected retirees opposed the change, and also concluded that the change violated a MOA dated February 26, 2015, which provided that current retirees would remain on their existing plan ($195 monthly premium).

Motion to compel arbitration. The union sought recourse under the CBA in effect at the time. It filed a grievance under the CBA. Ampco rejected the grievance on the ground that the union no longer represented the retirees. The union and a retiree sued on behalf of workers who retired before March 1, 2015. The employer moved to dismiss for failure to state a claim. In response, the union moved to compel arbitration, arguing that Section 6 of the CBA permitted the union to appeal to arbitration for an “unsatisfactory” company grievance determination. The district court agreed and granted the motion to compel arbitration. The district court also dismissed the union’s two substantive counts without ruling on their merits, denied the employer’s motion to dismiss as moot, and administratively closed the case. The employer appealed, arguing that the district court erred when it ordered arbitration of the dispute.

Procedure. As an initial matter, the appeals court had to determine whether it had jurisdiction to hear the employer’s appeal. Thus, it had to determine whether the district court’s order compelling arbitration and administratively closing the case was final. The union claimed that the district court’s administrative closure did not mean that its order compelling arbitration was final and appealable. While the Third Circuit concluded that the union was right on that point, it noted that the order under review did more than close the case administratively. The district court also ordered arbitration and dismissed all other claims without prejudice. These additional components implicated the circuit’s decision in Freeman v Pittsburgh Glass Works, LLC, where it held that an administrative closure was not an appealable final judgment where the district court had ordered arbitration while the plaintiff’s claim was still pending. Unlike Freeman, the district court here compelled arbitration and dismissed the union’s substantive claims, ending the litigation on the merits. Because there was “nothing more for the court to do but execute the judgment,” the district court’s order was an appealable final order. Accordingly, the appeals court held that the order compelling arbitration was final.

Retiree benefits not covered. The appeals court next turned to the arbitration order itself. The employer argued that this dispute was not subject to arbitration under the Section 6 of the CBA because retiree health benefits were not covered under the agreement. The appeals court agreed. According to the union, the key provision was found in Section 19, “Other Plans,” which provides that the employees subject to the CBA are covered by various benefit “Plans,” which include “Medical Insurance.” However, the union mischaracterized Section 19 as identifying company benefit plans enjoyed by both employees and retirees. Rather, the CBA states that it applies only to “employees.” So former employees, who retired before the CBA went into effect on March 1, 2015, are not “employees” under the CBA.

The appeals court also rejected the union’s contention that even if retirees were not among the “employees” to whom Section 19 expressly applies, Section 19 implicitly incorporates the MOA, which does discuss retiree health benefits. Even assuming Section 19’s reference to “Medical Insurance” included retiree health benefits, this single mention was insufficient to incorporate the MOA on the subject of retiree healthcare into the CBA. There must be an express intent to incorporate, and there was no such expression here.

Enforcing the contract as written, the appeals court noted that the employer correctly pointed out that there was no provision in the CBA regarding retiree medical benefits, and the MOA did not provide for arbitration. Accordingly, because the parties’ dispute over retiree medical benefits was not subject to Section 6 of the CBA, it is not arbitrable. The judgment of the district court was reversed and remanded.

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