Opinion analysis: Justices reject presumption of health-benefit vesting, calling for analysis under ordinary contract principles
on Jan 26, 2015 at 4:46 pm
Monday’s decision in M&G Polymers USA, LLC v. Tackett resolves a dispute about the vesting of health-care benefits under a collective bargaining agreement. Neither the Employee Retirement Income Security Act nor the National Labor Relations Act obligates employers to provide health-care benefits, but of course employers often do, and their commitments to provide those benefits often appear in collective-bargaining agreements. As so many companies struggle to deal with the overhang of providing employee benefits to long-retired employees, it should be no surprise that employers are pressing harder and harder to limit those obligations. Hence the litigation at hand.
The issue in this particular case is how to decide whether health-care benefits have “vested,” so that the employer must pay them for the life of the retired employee. The Sixth Circuit has adopted a rule – commonly called the Yard-Man presumption – under which courts treat health-care benefits as vested unless the collective-bargaining agreement includes clear language to the contrary. Simply stating that rule immediately suggests two things: that other circuits would disagree, and that the Court would step in to resolve the matter.
At the argument, all the Justices who spoke in any detail seemed to have convinced themselves that this was nothing but a dispute about contract interpretation, leaving how ordinary principles of contract interpretation would resolve the question here as the only issue left for decision.
It probably should surprise no one that the Court’s opinion, by Justice Clarence Thomas, provides somewhat less guidance than the affected parties might have hoped for. The decision is well summarized by a brief quotation from the second paragraph of the Court’s analysis:
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.
[I suppose that contracts instructors will be horrified that the Court supported the last sentence with a citation to Williston as its preferred authority on contract law!]
The remainder of the opinion offers five or six (depending on how you count them) separate examples of interpretation errors – places where the Sixth Circuit, the Court says, failed to follow traditional principles of contract law. The Court then concludes by saying that “[t]here is no doubt that Yard-Man and its progeny affected the outcome here,” and it sends the case back for review under “ordinary principles of contract law.”
Because the Court explicitly declines to apply ordinary principles of contract law to the contract before it, it is not so clear how the case will end up. The parties both argued strenuously that ordinary principles of contract law compelled a ruling in their favor, and nothing in the Court’s opinion directly addresses what the court of appeals should do with that argument. But it is fair to expect the courts of appeals – reading the “tea leaves” of the Court’s opinion – to look carefully at the examples of misunderstood contract doctrine that the Court identifies. As it happens, all of those examples reflect incorrect interpretations that favored the employees.
That pattern could lead lower courts to read the opinion as a general, though implicit, signal that the employers should win most or all of these cases. But I’m not at all sure that is correct. The examples were selected, after all, to prove that Yard-Man puts a “thumb on the scales” for the employees, so it should be no surprise that the Court selected examples that support that proposition.
Perhaps concerned about that possibility, Justice Ruth Bader Ginsburg, joined by Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan, offered a brief concurrence. Although she joined all of the Court’s opinion (including its examples of contract misreading), she emphasized a few examples of her own – principles of contract interpretation that often could support a ruling in favor of the employees. It remains to be seen how effective that opinion will be, but it certainly will give the courts of appeals something to think about as they struggle to resolve the question the Court declined to answer.
IN PLAIN LANGUAGE: When employers provide health-care benefits to their employees, the benefits sometimes last until the employee dies. Employers of course don’t like this, because it is costly to keep paying for health care for employees who retired years ago. The issue in M&G Polymers is how courts should decide whether the benefits last until the employee dies. The Court didn’t actually answer that question, though. All it did is tell the court of appeals that it should read the contract just the way it would read a normal contract; it didn’t like the lower court’s practice of assuming that the benefits last until death. So now the parties will go back to the court of appeals and wait for it to read this contract and decide whether the employees get the benefits or not.
