Recent 6th Circuit Case Has Implications For Retiree Healthcare Benefits

The Sixth Circuit has issued a decision which significantly impacts the question of whether retiree healthcare benefits provided under expired collective bargaining agreements are vested for life, or whether the benefits can later be altered or eliminated by former employers.

Since 1983, when interpreting collective bargaining agreement provisions relating to retiree healthcare benefits, the Sixth Circuit has applied what is known as the “Yard-Man” principle, which applied a presumption in favor of vesting absent a clear indication that the benefits expired with the agreement. The United States Supreme Court finally rejected the principle in the case of M&G Polymers v. Tackett, 135 S.Ct. 926 (2015), which held that courts should apply “ordinary principles of contract law” when interpreting collective bargaining agreements, without “plac[ing] a thumb on the scale in favor of vested retiree benefits.” Despite this ruling, however, lower courts in the Sixth Circuit have continued to readily find that retiree healthcare benefits had vested.

On February 8, 2016, the Sixth Circuit decided the case of Gallo v. Moen, Inc., which involved the question of whether several collective bargaining agreements entitled a class of retirees to vested healthcare benefits for life. Moen had continued to provide retiree healthcare benefits for five (5) years after the expiration of the agreements at issue, but stopped providing benefits for all Medicare-eligible retirees after the enactment of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18001. Several retirees and the Union sued, arguing the healthcare benefits had vested for life under the relevant agreements.

The Court disagreed, holding that: “Guided by the [Supreme] Court’s directives about what to do and what not to do in this area, we must conclude that the Moen-UAW collective bargaining agreements do not provide unalterable healthcare benefits for life” to the retirees. In its analysis, the Court noted that “nothing” in any of the agreements said that Moen “committed to provide unalterable healthcare benefits to retirees and their spouses for life. That is what matters, and that is where the plaintiffs fall short.” The Court also looked to the agreements’ general, three (3) year durational clauses, which “supplied a concrete date of expiration after which either party could terminate the agreement. Absent a longer time limit in the context of a specific provision, the general durational clause supplies a final phrase to every term in the CBA.”

The Court further found that the fact that Moen had continued to provide benefits for five (5) years following the expiration of the agreements was irrelevant:

That a company to its credit hopes to subsidize healthcare benefits for its retirees for as long as possible does not mean it has promised to do so, and above all such action does not mean that it has no right to alter those benefits in the future to account for changes to its healthcare plans for employees.

Moen was thus free to alter - or even eliminate - the retiree healthcare benefits.

While this decision will significantly decrease the likelihood retiree healthcare benefits will be found to have vested for life, the question will continue to turn on the specific language in each applicable collective bargaining agreement. Moen will also have a significant impact on future collective bargaining negotiations.

Please feel free to contact a Keller Thoma attorney at (313)965-7610 with any questions regarding the potential effect of Moen on retiree healthcare benefits.

Categories: Case Alerts