Employment Law Daily Yard-Man inferences can’t create ambiguity in CBA to find lifetime vesting of healthcare benefits
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Friday, February 23, 2018

Yard-Man inferences can’t create ambiguity in CBA to find lifetime vesting of healthcare benefits

By Joy P. Waltemath, J.D.

Responding to a certiorari petition, the Supreme Court reversed and remanded a Sixth Circuit decision that had held that the same Yard-Man inferences it once used to presume lifetime vesting could be used “to render a collective bargaining agreement ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about lifetime vesting.” That approach was inconsistent with the High Court’s decision in M&G Polymers USA, LLC v. Tackett, which required ordinary principles of contract law to be applied to CBAs. Because Yard-Man inferences are not “ordinary principles of contract law,” stressed the Court in an unsigned opinion, they can’t be used to support more than one “reasonable interpretation” of a contract to create an ambiguity and bring in extrinsic evidence (CNH Industrial, N.V. v. Reese, February 20, 2018, per curiam).

Talking Tackett. In its ruling, the Supreme Court discussed the series of Yard-Man inferences that the Sixth Circuit, and no other circuit, applied to CBAs to favor a finding that retirement benefits had vested for life. Among other things, the Yard-Man inferences incorrectly inferred lifetime vesting whenever “a contract is silent as to the duration of retiree benefits.” The Court’s 2015 Tackett decision had explained instead that the “traditional principle” is that “‘contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.’” As for tying retiree benefits to pensioner status, Tackett had rejected this Yard-Man inference as “contrary to Congress’ determination” in ERISA.

1998 CBA. Like Tackett, the case before the Court was a dispute between retirees and their former employer CNH about whether an expired CBA created a vested right to lifetime health care benefits. The operative CBA was from 1998 and provided health care benefits under a group benefit plan to certain “employees who retire under the… Pension Plan,” but it said that “all other coverages,” such as life insurance, ceased upon retirement. The group benefit plan was made part of the CBA and ran concurrently with it. The 1998 CBA said it disposed of all bargaining issues, whether or not they were presented during the agreement, and it contained a general durational clause that it would terminate in May 2004.

Found ambiguous? When the 1998 agreement expired in 2004, a class of retirees and surviving spouses filed suit, seeking a declaration that their health care benefits vested for life and an injunction preventing CNH from changing them. Tackett was decided while their lawsuit was pending. First granting summary judgment to CNH, after reconsideration the district court awarded summary judgment to the retirees. The Sixth Circuit affirmed, reasoning that while it considered features of the CBA it previously had used to “infer vesting” under Yard-Man, nothing in Tackett precluded its analysis: “There is surely a difference between finding ambiguity from silence and finding vesting from silence.”

Inferences already rejected in Tackett. Hold on, said the Supreme Court: A contract is not ambiguous unless, after applying established rules of interpretation, it remains reasonably susceptible to at least two reasonable but conflicting meanings. The 1998 CBA was not ambiguous unless it could reasonably be read as vesting health care benefits for life, reasoned the Court, and the Sixth Circuit interpreted it that way only by employing inferences that the Supreme Court rejected in Tackett. There were no explicit terms, implied terms, or industry practice suggesting that the 1998 CBA vested health care benefits for life. Instead, to find ambiguity, the Sixth Circuit applied several Yard-Man inferences: It declined to apply the general durational clause to the health care benefits, and then it inferred vesting from the presence of specific termination provisions for other benefits and the tying of health care benefits to pensioner status.

But Tackett rejected those inferences precisely because they are not “established rules of interpretation”—not because of the consequences that the Sixth Circuit attached to them (presuming vesting versus finding ambiguity). “They cannot be used to create a reasonable interpretation any more than they can be used to create a presumptive one,” stressed the Court. And no other court of appeals would find ambiguity in these circumstances. When a CBA is merely silent on the question of vesting, other courts would conclude that it does not vest benefits for life; when a CBA does not specify a duration for health care benefits, other courts would simply apply the general durational clause; and other courts would not find ambiguity from the tying of retiree benefits to pensioner status, concluded the Court.

No Yard-Man, no ambiguity, no lifetime vesting. Without those Yard-Man inferences, the case was straightforward. The 1998 CBA contained a general durational clause that applied to all benefits unless the agreement specified otherwise, and there was no provision subjecting health care benefits to a different durational clause. Plus, the CBA said that the health benefits plan “ran concurrently” with the CBA, thus tying the health care benefits to the duration of the rest of the agreement. Had the parties “meant to vest health care benefits for life, they easily could have said so in the text. But they did not.” Because the only reasonable interpretation of the 1998 CBA was that the health care benefits expired when the CBA expired in May 2004, the Court reversed and remanded.

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