Pension & Benefits News Honeywell retirees not entitled to lifetime health care benefits
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Friday, April 17, 2020

Honeywell retirees not entitled to lifetime health care benefits

By Pension and Benefits Editorial Staff

In light of the Supreme Court’s ruling in M&G Polymers USA, LLC v. Tackett, the Sixth Circuit U.S. Court of Appeals concluded that the general durational clause included in a series of collective bargaining agreements between Honeywell and a union precluded the vesting of lifetime retiree health care benefits. The appeals court’s decision in Fletcher v. Honeywell Int’l, Inc. settled on a "clear rule—a CBA’s general durational clause applies to health care benefits unless it contains clear, affirmative language indicating the contrary." Accordingly, none of the CBAs in question vested lifetime benefits. Judge Stranch filed a separate opinion concurring in part and dissenting in part.

 

Health care benefits. Beginning in 1965, Honeywell and the union negotiated a series of collective bargaining agreements in which the employer agreed to pay "the full [health care benefit] premium or subscription charge applicable to the coverages of [its] pensioner[s]" and their surviving spouses. Over the next four decades, each successive CBA guaranteed full-premium contributions on behalf of pensioners and their surviving spouses. Each CBA also contained a general durational clause stating that agreement would expire on a specified date and time.

Cost controls. When the 1999 CBA expired in 2003, Honeywell’s negotiators emphasized the effect of rising retiree medical costs on its bottom line and concluded that "[c]ost controls" were "required . . . to remain competitive." The company thus proposed setting a "limit" on Honeywell’s contribution for all retirees going forward.

Union negotiators objected, in part, because they believed that the pre-2003 CBAs had vested lifetime, full-premium benefits for pre-2003 retirees. This meant that Honeywell had no right to reduce its contribution (at least with respect to those retirees). For its part, the employer insisted that none of the CBAs had vested lifetime benefits. Rather than reach a common understanding, the parties settled on language that left open whether the pre-2003 CBAs had vested full-premium benefits. The parties included that same language when they renegotiated the CBA in 2007.

Vested full-premium benefits. When the parties met to renegotiate in 2011, the UAW restated its position that the pre-2003 retirees were "entitled to 100 percent of company paid health insurance" because the pre-2003 CBAs had already vested full-premium benefits. However, it conceded that for those who retired in 2003 or after, "[t]he company contribution amount [would] be limited to the amounts described in the 2003 and 2007 agreements." The parties then again agreed to disagree on whether the pre-2003 CBAs had vested full-premium benefits.

In anticipation of the contribution limit’s effective date of January 2012, both parties filed suit. After the claims were consolidated, both parties filed motions for summary judgment. Honeywell began enforcing the contribution limit on post-2003 retirees in 2014 and on pre-2003 retirees in 2015. After the 2011 CBA expired in 2016, the parties signed the 2017 CBA that did not provide for any health care benefits.

General durational clause. The district court ruled on the parties’ summary judgment motions in March 2018. It determined that the pre-2003 CBAs did not vest lifetime, full-premium benefits for the pre-2003 retirees. The court reasoned that each CBA had a general durational clause and, "absent an express clause providing that retirees are entitled to vested lifetime health care benefits, the CBAs do not vest retirees with lifetime health care benefits when the general durational clause is for the term of the agreement." As for the contribution limit, the court held that the CBA’s "shall not be less than" language did not end Honeywell’s obligation to make full-premium contributions. Thus, the court ordered Honeywell to reimburse retirees for any co-payments they made during the 2011 CBA in which the company enforced the contribution limit.

A week after the district court issued its order, Honeywell sent a letter to its retirees stating that it had "no legal obligation to continue providing retiree medical coverage" and announced its intent to terminate the retiree medical and prescription drug coverage. The union responded by filing a second motion for summary judgment, arguing that the 2003 CBA’s "shall not be less than" language had at least vested lifetime, floor-level benefits. The district court denied the union’s motion.

Floor-level limit. On appeal, Honeywell challenges the district court’s finding that the floor-level limit did not end its obligation to make full-premium contributions during the life of the 2011 CBA. The union appeals the district court’s decision that the pre-2003 CBAs did not vest lifetime, full-premium benefits for pre-2003 retirees, and that the 2003, 2007, and 2011 CBAs did not vest lifetime, floor-level benefits for the remaining retirees. Finally, the union argued that remand was necessary because the district court improperly denied its claim that Honeywell took certain "windfall" financial advantages at the expense of retirees.

"Not less than" language. The Sixth Circuit determined that: (1) none of the CBAs vested lifetime benefits, (2) the "not less than" language did not end Honeywell’s obligation to make full-premium contributions until each CBA’s expiration date; and (3) the union’s claims that Honeywell had taken certain "windfall" advantages at the expense of retirees were moot.

Ever since the Supreme Court issued M&G Polymers USA, LLC v. Tackett, the Sixth Circuit has obeyed its command to interpret CBAs under "ordinary principles of contract law." Applying ordinary contract-law principles means applying the general durational clauses. Since then, the Sixth Circuit has almost always concluded that a CBA with a general durational clause unambiguously does not vest health care benefits for retirees beyond the life of the agreement. In Fletcher v. Honeywell Int’l, Inc., the Sixth Circuit settled on a "clear rule—a CBA’s general durational clause applies to health care benefits unless it contains clear, affirmative language indicating the contrary."

Here, none of the language in any of the CBAs satisfied the Fletcher rule. Without an unambiguous vesting clause, the general durational clause controlled.

The pre-2003 CBAs stated that Honeywell would pay the full premium or subscription charge applicable to the coverages of its pensioners and their surviving spouses. But each CBA also contained a general durational clause stating the agreement’s terms would expire on a specified date and time. Here, the appeals court determined that language in the CBAs stating that Honeywell would pay health care benefits as long as the retirees were "receiving a monthly pension," the retirees’ surviving spouses would receive benefits, and retirees would receive Medicare Part B reimbursement, was insufficient to disconnect retiree benefits from a CBA’s durational clause.

The court next considered whether the 2003 to 2011 CBAs vested lifetime, floor-level benefits. Retirees argued that language in the CBAs vested them with floor-level benefits. Again, the appeals court observed that their argument failed because the language in the agreement did not disconnect Honeywell’s contribution requirement from the CBA’s general durational clause. Thus, under Fletcher, the general durational clause controlled the termination of retiree health care benefits in the 2003 to 2011 CBAs. Accordingly, the appeals court affirmed the district court’s judgment that the limiting language in the 2003 to 2011 CBAs did not vest retirees with lifetime, floor-level benefits.

SOURCE: International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) v. Honeywell International, Inc. (CA-6), Nos. 18-1471/1975/1976, April 3, 2020.

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