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Tackett Redux: Ordinary Principles of Contract Interpretation Mean No Inference of Vesting

In an opinion released yesterday, the Supreme Court reaffirmed that collective bargaining agreements (CBAs) must be interpreted according to “ordinary principles of contract law.” CNH Industrial N.V. v. Reese, No. 17-515, 2018 WL 942419 (U.S. Feb. 20, 2018).  In so ruling, the Court again rejected the Sixth Circuit’s inference from silence that CBAs vested retiree benefits for life.

Three years ago, the Supreme Court decided M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015).  In that decision, the Court unanimously held that CBAs must be interpreted according to ordinary principles of contract law, and the Court rejected the Sixth Circuit’s so-called “Yard-Man” inference that if a CBA did not specify that retiree medical and other welfare benefits had a limited duration, the benefits were presumed to be vested.  The Court held that the Yard-Man inference was inconsistent with the application of ordinary principles of contract law and that the inference improperly placed a thumb on the scale in favor of vested retiree rights.

The present dispute arose between retirees and their former employer about whether an expired CBA created a vested right to lifetime health care benefits. In 1998, the Company agreed in a CBA to provide health care benefits to certain “[e]mployees who retire under the . . . Pension Plan.”  Under the CBA, “[a]ll other coverages,” such as life insurance, ceased upon retirement.  The health care benefit was “made part of” the CBA and “r[an] concurrently” with it.  The CBA contained a general durational clause stating that it would terminate in May 2004.  The CBA also stated that it “dispose[d] of any and all bargaining issues, whether or not presented during negotiations.”

After years of litigation, both before and after the Tackett decision, the Sixth Circuit concluded that the CBA’s general durational clause did not apply to retiree health care benefits.  In a split decision, the Sixth Circuit inferred from the CBA’s specific termination provisions for “other coverages” that the parties must have intended to vest health care benefits for life.

The Supreme Court unanimously reversed the Sixth Circuit, holding that the Sixth Circuit’s inference of vesting could not be squared with Tackett because it did not comply with Tackett’s direction to apply ordinary contract principles.  According to the Supreme Court, the CBA’s general durational clause applies to all benefits, unless the CBA provides otherwise.  Here, no provision specified that the health care benefits were subject to a different durational clause. The only reasonable interpretation of the CBA was thus that the health care benefits expired when the CBA expired.

The Supreme Court’s decision reaffirms that a court interpreting a CBA should not infer from silence that a retiree welfare benefit is vested for life. We expect that litigation over reductions to retiree medical benefits will continue (both for union employees and non-union employees), particularly in light of skyrocketing health care costs; but the Court’s decision affirms that retirees will bear the burden of demonstrating an intent to vest based on affirmative documentary evidence.

© 2020 Proskauer Rose LLP.


About this Author

Seth Safra, Proskauer Law Firm, Employee Benefits, Executive Compensation and ERISA Litigation Attorney

Seth Safra is a partner in the Employee Benefits & Executive Compensation Group, where he counsels clients on all aspects of employee benefits and executive compensation.

Seth advises clients on ERISA and other related laws with respect to the design and administration of qualified and non-qualitied retirement plans, including defined contribution (including 401(k) and ESOPs) and cash balance plans. In addition, Seth counsels clients on their health & welfare plans, including advising on issues related to health care reform.

Russell L Hirschhorn ERISA Litigation, employee benefits attorney, Proskauer
Senior Counsel

Russell Hirschhorn is a Senior Counsel in the Labor & Employment Law Department, where he focuses on complex ERISA litigation and advises employers, fiduciaries and trustees on ERISA benefit and fiduciary issues. 

Russell represents employers, plan sponsors, plans, trustees, directed trustees and fiduciaries in all phases of litigation, arbitration and mediation involving employee benefits, including class action and individual claims relating to ERISA’s fiduciary duty and prohibited transaction provisions, denials of claims for benefits, severance plans, ERISA Section 510, retiree benefits, ERISA preemption of state law claims, plan investment losses, cash balance plan conversions, plan amendments or terminations, withdrawal liability, and employer contributions to multiemployer funds

Benjamin Flaxenburg, attorney, Proskauer, Louisiana, Employee benefits, executive compensation, labor and employment law

Benjamin O. Flaxenburg is an associate in the Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group.

Prior to joining Proskauer, Ben served as an extern for the United States Attorney’s Office for the Eastern District of Louisiana and as a judicial extern to the Honorable Nannette Jolivette Brown at the United States District Court for the Eastern District of Louisiana. Ben was also a managing editor of the Tulane Maritime Law Journal, a member of the Tulane’s Moot Court Board and...