Recently, the United States Supreme Court undertook a significant course-correction in the vesting of retiree health benefits under collective bargaining agreements (“CBAs”). In January of this year, the Supreme Court decided M&G Polymers USA, LLC v. Tackett, and unanimously struck down three-decades-old precedent from the Sixth Circuit. Known as the “Yard-Man inference” from the case that first created the rule, UAW v. Yard-Man, Inc., the Sixth Circuit established an inference that retirement health care benefits were intended to vest for life, unless there was clear language to the contrary in the CBA. In a clear win for employers, the Supreme Court determined that such a presumption was in clear contradiction to basic principles of contract law.

“Vested” benefits are retirement benefits to which an employee has a nonforfeitable claim, and thus, is entitled to keep and are not subject to change. Courts have long struggled with how to interpret CBAs that provide retiree welfare benefits, but are silent as to the duration of these benefits. Specifically, the issue before the Supreme Court in M&G Polymers was whether retiree health care benefits survive the expiration of a collective bargaining agreement.

Federal employment laws such as the Employee Retirement Income Security Act (“ERISA”) and the Labor Management Relations Act (“LMRA”) do not provide guidance as to how these benefits vest in this circumstance. ERISA, for example, requires pension plan benefits to vest after a certain number of years, but is silent as to what happens under a CBA. The Sixth Circuit solved this problem by inferring that a CBA intends to vest retiree benefits for life upon the employee’s retirement, absent clear language to the contrary. However, other federal circuits generally rejected the Yard-Man inference, requiring affirmative language in the CBA evidencing an intent for retiree health care benefits to vest.

Settling the matter once and for all, the Supreme Court expressly rejected the Sixth Circuit’s Yard-Man inference, stating, “We disagree with the Court of Appeals’ assessment that the inferences applied in Yard-Man and its progeny represent ordinary principles of contract law. As an initial matter, Yard-Man violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements. That rule has no basis in ordinary principles of contract law. And it distorts the attempt ‘to ascertain the intention of the parties.’” In sum, the Supreme Court took issue with the idea that courts would construe ambiguous language in CBAs to create lifetime obligations for employers.

This case finally provides courts in the Sixth Circuit, and elsewhere, guidance on the proper interpretation of ambiguous language in CBAs, and enables employers and unions to more effectively bargain over retiree health benefit terms Not only does the Supreme Court’s decision resolve a circuit split, giving consistency to employers who operate across different circuits, it also brings durational clauses in CBAs back into consideration to determine the terms of the agreement between the parties. Courts must now use ordinary contract principles when interpreting a CBA, and courts may not infer that benefits vest in the absence of specific language to that effect.

This is a monumental change in Sixth Circuit jurisprudence, and all employers in Kentucky, Ohio, Tennessee, and Michigan should watch this case on remand. Employers who have erred on the side of caution and assumed the Yard-Man inference applied to their own CBAs might now be able to review those agreements under a lesser burden. If you need to take a fresh look at your CBA under the new rules, do not hesitate to contact the attorneys of McBrayer for assistance in determining your obligations.