Supreme Court: Union Retiree Health Benefits Weren't Vested for Life

​Retiree health care benefits end when a collective bargaining agreement (CBA) between a company and a union expires, unless the CBA provides otherwise, the Supreme Court ruled Feb. 20.

The decision underscores the importance of giving careful thought to all language proposed and agreed to at the bargaining table, said David Pryzbylski, an attorney with Barnes & Thornburg in Indianapolis. Make sure the language in the CBA clearly expresses the parties' intent, he stated. Benefits documents should as well, labor relations attorneys say.

Retiree health care benefits are rare now and expensive, observed Steven Suflas, an attorney with Ballard Spahr in Denver. He noted that the high cost for retiree health benefits for GM in 2004 contributed to the company spending more on health care per vehicle than it did on steel.

Agreement Provided Retiree Health Care Benefits

In this case, CNH Industrial N. V. agreed in 1998 to provide health care benefits to employees who retire under the pension plan. The agreement contained a clause stating that the CBA would end in May 2004.

When the agreement expired, a class of CNH retirees and surviving spouses sued, seeking a declaration that their health care benefits vested for life and trying to block CNH from changing them. CNH argued that the retiree health care benefits ended with the CBA.

The 6th U.S. Circuit Court of Appeals, which covers Kentucky, Michigan, Ohio and Tennessee, agreed with the retirees. It noted that the 1998 agreement was silent on whether health care benefits vested for life and emphasized that the agreement tied health care benefits to pension eligibility. The contract therefore was ambiguous, the court concluded, and so it based its decision on extrinsic evidence outside the language of the contract that suggested there was lifetime vesting.

Unanimous Decision

In a unanimous decision, the Supreme Court reversed, determining that under ordinary contract principles the retiree health care benefits did not vest for life. The 1998 agreement was not ambiguous unless it could reasonably be interpreted as vesting health care benefits for life, the court noted. That was not possible in this case with the clause that ended the agreement in 2004. There also wasn't ambiguity from the tying of retiree benefits to pensioner status, according to the court.

If a CBA is silent on the question of vesting, it does not vest benefits for life, the high court added.

"If the parties meant to vest health care benefits for life, they easily could have said so in the text," the court noted. "When the intent of the parties is unambiguously expressed in the contract, that expression controls and the court's inquiry should proceed no further."

The CBAs that grant retiree health care benefits typically are "legacy contracts" that have been around for years in heavily unionized settings, such as automobile manufacturing, Suflas stated.

For many years, the United Automobile Workers were reluctant to negotiate about retiree health care benefits because, under 6th Circuit case law, the benefits presumptively continued for life, said Bobby Burchfield, an attorney with King & Spalding in Washington, D.C., who represented CNH. "Unless the CBA excludes retiree health benefits from the general duration clause and states a different expiration date for those benefits, the benefits expire with the CBA."

Needed Clauses in Benefits Documents, Communications

CBAs typically refer to benefits documents, like summary plan descriptions (SPDs). Language about retiree medical benefits usually is found in the SPD, noted Hal Coxson, an attorney with Ogletree Deakins in Washington, D.C., and Bud Bobber, an attorney with Ogletree Deakins in Milwaukee, in an e-mail.

The SPD ought to have "reservation of rights" language that confirms that the employer reserves the right to amend, modify or terminate the benefits, they wrote. "This is powerful language that nearly always precludes the conclusion that the employer promised a vested retiree medical benefit."

[SHRM members-only HR Q&A: What are our responsibilities with respect to SPDs?]

They recommended replicating that language in most benefits communications to employees before retirement and to retirees. "Finally, be careful not to state in your labor contracts that retiree medical benefits are granted on a lifetime or 'for life' basis," they cautioned.

This case is CNH Industrial N. V. v. Reese, No. 17-515 (Feb. 20, 2018).

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