The U.S. Supreme Court has discarded a legal rule that said the absence of a termination provision specifically addressing retiree benefits in a collective bargaining agreement expressed an intent to vest those benefits for life.
A lower court had used what is known as the Yard-Man presumption to find that a company had committed to providing health insurance free of cost for life for retirees. Retired employees sued M&G Polymers USA when the company, which had provided retiree health benefits in previous contracts, said it would begin asking retirees to contribute toward the cost of those benefits.
But the Supreme Court ruled Monday that the U.S. 6th Circuit Court of Appeals’ decision “rested on principles that are incompatible with ordinary principles of contract law.”
“Yard-Man distorts the attempt to ascertain the intention of the parties by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements,” Justice Clarence Thomas wrote for a unanimous court in sending the case back to the 6th Circuit.
Employers have been pushing to reduce health costs by eliminating benefits for retirees. A Kaiser Family Foundation survey found only 28% of companies with 200 or more workers offered retiree health benefits to active employees in 2013, down from 66% in 1988.
But the implications of the Supreme Court’s ruling may be limited since only the 6th Circuit had adopted the Yard-Man presumption. And in applying contract principles to interpreting the CBA, the appeals court could still rule that M&G must provide free health benefits to retirees.
Stuart M. Gerson, a partner in the Washington office of law firm Epstein Becker & Green, told FierceCFO.com that other appeals courts had, contrary to the 6th Circuit, presumed “that in order to have surviving health benefits, you had to have a specific reference to it in the collective bargaining agreement. That’s not the law either.”
The Supreme Court decision “levels the playing field,” he said, by reminding courts “to consider the intent of the parties from all the available evidence.”
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