By Pension and Benefits Editorial Staff
Given that an effects bargaining agreement (EBA) unambiguously vested medical coverage for retirees who retired prior to the expiration of the agreement, the Second Circuit affirmed a district court’s grant of summary judgment in favor of retirees, and their surviving spouses, who retired prior to the expiration of the EBA. Moreover, the district court’s order permanently enjoining Honeywell from terminating medical coverage for those retirees and their surviving spouses was proper. Similarly, the appeals court affirmed the district court’s order preliminarily enjoining Honeywell from terminating the medical benefits of post-expiration retirees.
This consolidated appeal concerned the medical benefits of workers who retired after October 28, 1994, from a plant in Stratford, Connecticut, and the medical benefits of their surviving spouses. The retirees were members of two local unions that entered several agreements regarding employee and retiree benefits with Textron Corporation, the owner and operator of the plant between 1984 and 1994.
Contractual agreements. In 1993, Textron began negotiating a sale of the plant to AlliedSignal. The purchase was conditioned on Textron reaching a satisfactory collective bargaining agreement with the unions to replace expiring agreements. Ultimately, AlliedSignal approved the new CBAs, and an effects bargaining agreement (EBA), which specifically concerned "the financial and economic impact and effects of a potential sale of assets to AlliedSignal. Among other things, the EBA outlines medical benefits for union retirees. The EBA was to remain in effect from May 30, 1994 until June 6, 1997. The parties explicitly incorporated the EBA into the CBA. The CBA concerns medical insurance benefits for union members, and like the CBA, the EBA contains a durational clause.
AlliedSignal agreed to assume the 1994 CBA and Textron’s obligations thereunder as of the date it acquired the plant—October 1994. It subsequently terminated the agreements at the earliest permissible opportunity, June 6, 1997. Still, the company continued to provide retirees with medical benefits without interruption. On September 30, 1998, AlliedSignal closed the plant. In 1999, AlliedSignal acquired Honeywell, and assumed the Honeywell name.
Planned termination of medical coverage. Now doing business as Honeywell, the employer continued to provide medical coverage to the retirees for a number of years, when, in December 2015, it undertook a review of its CBAs in light of the Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett. Following the review, Honeywell announced that it intended to terminate retiree medical coverage on December 31, 2016.
In response, the retirees brought suit over Honeywell’s decision to terminate their medical coverage, claiming they were entitled to coverage for their lifetimes. The district court ultimately awarded summary judgment and a permanent injunction to the retirees who retired before the EBA expired. The district court also preliminarily enjoined Honeywell from terminating medical benefits for retirees who retired after the EBA expired.
Honeywell appealed from the judgment of the district court granting summary judgment to union retirees who retired before June 6, 1997, and permanently enjoining the employer from terminating their medical benefits (pre-expiration retirees). The employer also appealed from the district court’s order preliminarily enjoining it from terminating medical coverage for retirees who retired after the EBA expired (post-expiration retirees).
Lifetime medical coverage. On appeal, Honeywell offered two reasons why the EBA’s promise that retired employees and surviving spouses would continue to receive full medical coverage for life did not vest retiree medical coverage. First, it argued that the general durational clauses in the EBA and the CBA and a cancellation agreement in a supplemental agreement prevented retiree medical benefits from vesting. Second, it contended that the cancellation provision in the supplemental agreement operated as the functional equivalent of a reservation of rights clause, enabling Honeywell to unilaterally terminate medical benefits when it terminated the CBA.
Vesting language. For their part, the retirees argued that Honeywell’s contractual promise to provide medical coverage "for the life of the retiree or surviving spouse," is affirmative lifetime language that can only be interpreted to vest medical coverage for retirees and was thus unaffected by the durational language in the EBA or supplemental agreement.
The appeals court first considered whether the EBA contained language vesting the retiree medical benefits. If so, it had to determine whether other contractual provisions—such as a reservation of rights clause—defeated vesting.
Here, the appeals court had little trouble finding that the language in the EBA constituted affirmative lifetime language. It declared that "all past and future retired employees and surviving spouses shall continue to receive full medical coverage as now in effect or as hereafter modified by the parties for the life of the retiree and surviving spouse." The plain text of the EBA therefore manifested the parties’ intent to secure medical coverage for qualifying retirees’ lifetimes.
Cancellation clause. Next, the appeals court had to consider whether the durational clauses in the agreements prevented the vesting of retiree medical benefits. But first, it addressed Honeywell’s argument that the supplemental agreement contained a cancellation clause that was the functional equivalent of a reservation of rights clause, enabling it to unilaterally terminate medical benefits when it terminated the CBA.
However, the court pointed out that the EBA expressly prohibited Honeywell from unilaterally cancelling retiree medical benefits, as it claimed the supplemental agreement allowed. In order to modify retiree benefits, both parties must agree. Thus, the court declined to read the "cancellation" clause as explicitly limiting the duration of benefits.
Further, the supplemental agreement did not clearly reserve Honeywell’s right to amend retirees’ medical benefits because the cancellation clause primarily functioned to tie the supplement agreement to the CBA. The cancellation clause merely articulated that if the CBA were cancelled, the supplement agreement would not continue, and it did not provide an alternative means to terminate benefits.
Effect of durational clauses. The appeals court also rejected Honeywell’s contention that the general durational clauses in the EBA and CBA prevented retiree medical benefits from vesting. The Supreme Court has specifically noted that when an agreement provides for lifetime benefits, the expiration of that agreement does not prevent welfare benefits from vesting. Further, reading the durational clauses to prevent vesting would violate the ordinary contract principles by rendering the lifetime language in the EBA superfluous.
Here, the EBA contained affirmative language stating that retiree medical benefits will continue "for the life of the retiree or surviving spouse." The contract provided a specific duration for retiree medical benefits that, for retirees who survived the agreement’s duration, exceeded the duration of the agreement. As such, the durational clause did not prevent medical benefits from vesting, and Honeywell had an obligation to provide medical coverage to the retirees for their lifetimes.
Accordingly, the district court properly granted summary judgment to the pre-expiration retirees and permanently enjoined Honeywell from terminating their medical benefits.
SOURCE: Kelly v. Honeywell International, Inc., (CA_2), Nos. 17-675(L) and 17-2075(CON), August 7, 2019.
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