On January 26, 2015, the United States Supreme Court in M & G Polymers USA, LLC v. Tackett, No 13-1010 (Jan. 26, 2015) held that collective bargaining agreement (“CBA”) language providing for the employer to pay the full cost of health care benefits for retirees for the duration of the CBA did not create a vested right to lifetime contribution-free health care benefits. The Court stated that CBAs, even those establishing plans under the Employee Retirement Income Security Act of 1974 (“ERISA”), are interpreted according to ordinary contract law principles, as long as such an interpretation is not inconsistent with ERISA.

The lower court in Tackett had found that the language in the CBA created a vested benefit that could not be changed. That court reasoned that the parties probably did not intend to leave retiree health care benefits to be renegotiated in future negotiations. It further held that, unless the benefit was vested and unchangeable, it was illusory, at least as to those retirees who would not qualify to receive it within the three-year time of the CBA.

The Supreme Court rejected both of these arguments, and sent the case back to the lower court to review in light of general contract interpretation principles, including that clear, unambiguous language should be interpreted in accordance with its plain meaning. It noted that “the rule that contractual provisions ordinarily should be enforced as written is especially appropriate when enforcing an ERISA welfare benefits plan.” Id. at 6 (internal citation omitted). The Supreme Court held that the analysis that had been used by the lower court “plac[ed] a thumb on the scale in favor of vested retiree benefits in all collective bargaining agreements,” which it found to be inconsistent with ordinary principles of contract law.

What Does This Mean For You?   Employers that negotiate benefits for their retirees in CBAs no longer have to worry that the provision of such benefits will automatically confer a lifetime benefit for the retirees and their dependents. Employers should be careful to word such provisions so that they clearly and unambiguously provide for the renegotiation of the benefit at the end of the CBA’s contract term.

If you have questions about this case or any other employment or labor law issues, please contact Whitney Rahman at (717) 509-7237 or at swr@blakingerthomas.com

 This update is for informational purposes only and should not be construed as legal advice or as creating an attorney-client relationship where one does not already exist.