On February 20, 2018, the Supreme Court of the United States tackled another controversy from the Sixth Circuit Court of Appeals regarding whether retiree medical benefits enjoyed by individuals who retired while a collective bargaining agreement (CBA) was in effect must be continued by the employer even after the expiration of the labor contract that created the benefits. Once again, the Supreme Court reversed the Sixth Circuit in ruling that the CBA at issue did not clearly obligate the employer to provide retiree medical benefits indefinitely. Nor was the contract ambiguous, the Court noted saying that “[t]he Sixth Circuit read it that way only by employing the inferences that this Court rejected.” CNH Industrial N.V. v. Reese, No. 17-515, Supreme Court of the United States (February 20, 2018).

Background

Over the past few years, classes of retirees have brought several cases against their former employers alleging retiree health care benefits provided for in collective bargaining agreements were vested, lifetime benefits because the contracts did not specifically state such rights would expire. Clarity for unions, retirees, and employers seemed to come in 2015 when the Supreme Court issued an opinion in M&G Polymers USA, LLC v. Tackett directing such disputes must be governed by ordinary principles of contract law. In other words, in the absence of ambiguity, the Court directed lower courts to look at the contract itself, rather than evidence from outside the contract (like what a manager allegedly said to the union 20 years ago), in examining these issues. In Tackett, the Court found health benefits are only vested if the CBA so provides, as obligations under a CBA ordinarily cease with the termination of the agreement. 

Despite the Supreme Court’s guidance in Tackett, retirees continued to file suits, urging courts to look to extrinsic evidence to find vested health care benefits. Splitting from every other court of appeals, the Sixth Circuit continued to find health care benefits vested in CBAs silent on the specific duration of those benefits. In April 2017, in Reese v. CNH Industrial NV, the Sixth Circuit took a pro-vesting stance. It refused to apply the general durational clause of the labor contract at issue to determine the duration of retiree health care benefits, and instead the court found the “silence” of the contract concerning the duration of those benefits rendered the contract ambiguous. It then declared, based on other evidence, that the employer had contractually obligated itself to provide retirees with lifetime benefits.

CNH Industrial asked the Supreme Court to review that decision.

The Supreme Court’s Decision

In a victory for employers, the Supreme Court reversed the Sixth Circuit’s holding. The Court reiterated that CBAs must be interpreted through “ordinary principles of contract law” and firmly rejected the Sixth Circuit’s holding that courts can consult extrinsic evidence to determine whether retiree health benefits are vested for life. The Court rejected the pro-vesting inference—namely that the CBA’s alleged “silence” on the duration of health care benefits showed that the labor contract was ambiguous, and therefore needed to be interpreted by reference to facts existing outside the written contract.

The Sixth’s Circuit’s holding simply did “not comply with Tackett’s direction to apply ordinary contract principles,” the Court noted. The Court reasoned that “[w]hen a collective-bargaining agreement is merely silent on the question of vesting, other courts [with the exception of the Sixth Circuit] would conclude that it does not vest benefits for life.” [Emphasis in original.] The “only reasonable interpretation” of the CBA at issue was “that the health care benefits expired when the collective-bargaining agreement expired” because it contained a  “general durational clause that applied to all benefits, unless the agreement specified otherwise” and “[n]o provision specified that the health care benefits were subject to a different durational clause.” The Supreme Court also acknowledged a fundamental reality that “[i]f the parties meant to vest health care benefits for life, they easily could have said so in the text.  But they did not.”

Key Takeaways

The CNH Industrial holding undercuts the viability of claims that retirees are entitled to a lifetime of medical benefits in the absence of contract language that explicitly provides for such. Nonetheless, employers can take precautions against the possibility of such retiree claims for lifetime health care benefits. For example, employers can use reservations of rights provisions in benefits documents such as Summary Plan Descriptions. These provisions confirm the employer’s reserved right to alter or even terminate the benefits in the future.  Employers may decide to replicate the reservation of rights language in communications to employees and to retirees regarding benefits. Lastly, employers should be careful with the language in their labor contracts particularly with regard to terminology that retiree health care benefits are granted on a “lifetime” or “for life” basis, extending beyond the duration of the CBA, and can never be changed.