On January 26, in M&G Polymers USA, LLC v. Tackett, the United States Supreme Court rejected the Sixth Circuit’s “thumb on the scale” approach to reviewing retiree health benefits cases.  This will level the playing field in such cases and result in applying ordinary principles of contract interpretation when reviewing claims for lifetime health benefits.  The decision will affect employers in Michigan, Ohio, Kentucky, and Tennessee.  Here is what it means in plain terms.

For many years, the Sixth Circuit has applied a standard called the “Yard-Man” standard when it considered cases involving changes to retiree health benefits.  Essentially, this approach placed a “thumb on the scale” in favor of finding that such benefits are vested for life when the contract language establishing the benefits did not clearly provide that the benefits were not lifetime benefits.  The result of the Yard-Man decision was that federal courts throughout the Sixth Circuit began applying rules that often skewed the interpretation of such contracts, typically labor union contracts, in favor of lifetime benefits.  In some cases, trial courts were finding lifetime benefits even where the contracts said the benefits were established “for the term of this agreement.”  This approach by the federal courts often prevented employers from modifying or terminating expensive retiree health benefits even in cases where the contract language seemed to permit such changes.

The Sixth Circuit’s "Yard-Man" decision and the cases that followed it created an environment where different legal standards applied to the same contract language depending upon the state where the employer in question was located.  Employers in Michigan, Ohio, Kentucky, and Tennessee were placed at a distinct disadvantage in dealing with expensive employee benefits promises.  It also resulted in a situation where major unions, including the United Auto Workers, developed a strategy to avoid addressing retiree health benefits in labor negotiations in order to take advantage of the presumption set up by the Sixth Circuit.

The U.S. Supreme Court has ended this era of uncertainty and ordered the Sixth Circuit to reconsider the M&G case using ordinary principles of contract interpretation—i.e., no “thumb on the scale.”  It remains to be seen how the Sixth Circuit will rule in the M&G case, but it is safe to say that a new day has dawned in the Sixth Circuit.  Employers will be better able to analyze their retiree benefit liabilities and, if necessary and allowed by their plan documents, make much-needed changes as a result of the Supreme Court’s ruling.

If your company has facilities in Michigan, Ohio, Kentucky, or Tennessee, and it provides health or other welfare benefits to retirees, you should review your plan documents or labor contracts to determine whether you can now make cost saving changes to the benefits in light of this new ruling.