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Supreme Court Deals Another Blow to Sixth Circuit’s “Yard-Man Inferences”

On February 20, 2018, the Supreme Court decided CNH Industrial N.V. v. Reese, 574 U.S. ___ (2018), which raised, for the second time in three years, the question of how courts should interpret collective-bargaining agreements (“CBAs”).  Reese involved a dispute between retirees and their former employer, CNH, about whether an expired 1998 CBA created a vested right to lifetime health benefits.  In aper curiam opinion, the Court found that a straightforward reading of the CBA compelled the conclusion that retiree health benefits expired when the CBA expired in 2004.  The Court’s opinion emphasized the significance of CBA expiration dates for retiree health benefits and forcefully reiterated its decision in M&G Polymers USA, LLC v. Tackett, 574 U.S. ___ (2015), that collective-bargaining agreements must be interpreted according to “ordinary principles of contract law.”

For over thirty years before Tackett, the Sixth Circuit applied a series of “Yard-Maninferences” when a CBA failed to provide a specific durational limit for retiree health benefits.  Absent a specific contractual provision or extrinsic evidence to the contrary, courts in the Sixth Circuit inferred that parties to a CBA intended to vest retirees with lifetime health benefits.  The Tackett Court rejected the Yard-Man inferences as inconsistent with ordinary principles of contract interpretation.  In Tackett, the Court gave only general guidance on how to apply those interpretive principles to CBAs.

After Tackett the Sixth Circuit developed an intra-Circuit split.  Some Sixth Circuit panels concluded that retiree health benefits were limited by a CBA’s general durational clause.  See, e.g., Gallo v. Moen Inc., 813 F.3d 265 (2016).  While other panels, like the ones in Reese and UAW v. Kelsey-Hayes Co., No. 15-2285, 2017 WL 1404189 (6th Cir. 2017), concluded that a CBA is ambiguous if it is silent on the duration of retiree health benefits and contains other conflicting durational provisions.  If a court determines that a CBA is ambiguous, it can consult extrinsic evidence to resolve the ambiguity.  In Reese and Kelsey-Hayes, the Sixth Circuit found that extrinsic evidence supported lifetime vesting.

The employers in Reese and Kelsey-Hayes appealed, arguing that the Sixth Circuit impermissibly employed the Yard-Man inferences in order to create ambiguity in the CBAs that would permit the courts to consider extrinsic evidence in determining the duration of retiree health benefits.  The Court granted review in Reese and reversed the Sixth Circuit, agreeing with the employer’s argument that “the Yard-Maninferences cannot generate a reasonable interpretation because they are not ‘ordinary principles of contract law.’”  The Reese decision makes clear that a CBA’s general durational clause is normally dispositive when determining the duration of retiree health benefits.   On February 26, 2018, the Court also granted certiorari in Kelsey-Hayes, vacated the Sixth Circuit’s opinion, and remanded the case for further consideration in light of the decision in Reese.  The Sixth Circuit’s consideration of Kelsey-Hayes on remand will reveal whether the Court has finally resolved the Six Circuit’s intra-Circuit split .

Nick Pastan contributed to this article. 

© 2018 Covington & Burling LLP

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About this Author

Kendra Roberson, Covington, Employee benefits lawyer
Of Counsel

Ms. Roberson provides strategic advice on a broad spectrum of employee benefits matters including health and welfare plans, qualified retirement plans, executive compensation arrangements, and equity compensation plans. She advises global public companies, tax-exempt organizations, universities, and governments. She represents clients before U.S. federal agencies responsible for regulating employee benefits plans, including the Internal Revenue Service, Department of Labor, and...

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