Courts Grapple with Duty to Maintain Retiree Health Benefits

Second Circuit finds Honeywell's obligations did not end with expired contract

By Sarah Bryan Fask and Danielle Herring © Littler August 14, 2019
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On Aug. 7, in Kelly v. Honeywell International, the Second Circuit handed down the latest decision in a series of cases across the country on a company's obligation to provide lifetime health care to retirees.

Second Circuit Finds Retiree Benefits Vested

In Kelly, the Second Circuit determined that an effects bargaining agreement (EBA) between Honeywell's predecessor and the United Automobile, Aerospace and Agricultural Implement Workers of America contained "unambiguous language vesting welfare benefits." Specifically, the EBA provided:

All past and future retired employees and surviving spouses shall continue to receive . . . full medical coverage as provided in the . . . Group Insurance Agreement, as now in effect or as hereafter modified by the parties for the life of the retiree or surviving spouse.

The EBA was incorporated into the broader collective bargaining agreement (CBA) between the parties. Both the EBA and the more general CBA had a durational clause. A separate supplemental group insurance agreement was also incorporated into the CBA and described medical benefits and plan options available to eligible employees and retirees. This group insurance agreement contained a provision that "[i]f the Collective Bargaining Agreement is canceled in whole or in part benefits hereunder will immediately cease."

The Second Circuit, using principles of general contract interpretation, emphasized that the EBA provided lifetime medical covered "as now in effect or as hereafter modified by the parties." 

Furthermore, because the EBA contained affirmative language stating that retiree medical benefits will continue "for the life of the retiree or surviving spouse," this language trumped any durational limitation of the CBA more generally. The language in the supplemental group insurance agreement did not change the analysis, because, among other reasons, this clause just articulates that if the CBA were cancelled, the supplemental group insurance agreement would not continue either. It did not permit the company to unilaterally amend the retirees' benefits.

Accordingly, the Second Circuit permanently enjoyed Honeywell from terminating medical coverage for union retirees who retired before the CBA expired. It also temporarily enjoined the company from terminating medical coverage for union retirees who retired after the CBA expired and remanded the case to the district court for further proceedings on that issue.

The Sixth and Eighth Circuits Held Retiree Health Benefits Did Not Vest

The Kelly decision stands in stark contrast to three other federal appellate court decisions decided in 2018 and 2019 regarding Honeywell's alleged obligations to provide retiree health benefits.

In Pacheco v. Honeywell International Inc. (8th Cir. 2019), the Eighth Circuit determined that early retiree health care benefits did not vest when an employee retired.

Unlike in Kelly, the retiree health care benefit provisions at issue in the Pacheco CBAs provided:

The following insurance and benefit plans . . . shall be implemented and maintained as specified by the time periods outlined before for the duration of this agreement.

But, compounding the clarity of this language, the CBAs also specified under what circumstances the company would make contributions towards the annual retiree medical premium. That provision did not indicate that such contributions would cease if the CBA terminated. Finally, the CBAs also contained a general durational provision, similar to the one in Kelly.

Ultimately, the Eighth Circuit determined that the promise of benefits "for the duration of this agreement" and the general durational clause were not trumped by the fact that the CBAs did not include a time limit on when the company would make contributions towards the annual retiree medical premiums. The plaintiffs were not entitled to ongoing retiree health benefits after the expiration of the CBAs at issue.

Considering slightly different language, the Sixth Circuit came to a similar conclusion one year earlier in Cooper v. Honeywell Int'l, Inc. (6th Cir. 2018). There, it held that employees who retired at a Honeywell plant in Michigan under a CBA providing that "[r]etirees under age 65 ... will continue to be covered under the [applicable Medical] Plan, until age 65" did not receive vested benefits. 

The court held that "that general durational clauses should dictate when benefits expire, unless an alternative end date is provided." This language did not unambiguously provide vested retiree healthcare benefits:

A promise to continue providing benefits in a CBA—whether that promise is left open-ended, or whether, as here, it has a specific terminus—does not by itself vest those benefits in retirees beyond the CBA's expiration. All it does is (1) provide a guarantee of those benefits while the CBA is in effect and (2) provide for the expiration of those benefits even before the CBA itself expires. ... That language also protects retirees by ensuring Honeywell cannot prematurely terminate benefits for eligible, under-age-65 retirees.

Bottom Line for Employers

When negotiating language in a CBA, employers should aim to ensure the language unambiguously demonstrates that retiree health benefits do not continue past the expiration of the contract (assuming that is the desired outcome). As exemplified by the different outcomes different courts reached involving the same employer, small tweaks to the language of the CBA can have a massive financial impact on a company.

Furthermore, employers should remember that retirees are not limited to bringing claims under the terms of the CBA or ERISA plan itself. Employees may also try to bring claims of estoppel or breach of fiduciary duty if a plan sponsor or fiduciary makes a representation that retiree benefits would continue beyond the expiration of the CBA. Thus, plan sponsors and those acting in fiduciary capacities should take care to avoid actions that could create a basis to argue that a plan participant's rights could not be changed in the future.

Sarah Bryan Fask and Danielle Herring are attorneys with Littler in Philadelphia and Houston, respectively. This article is abridged from a longer version posted on the firm's website. © Littler. All rights reserved. Reposted with permission.


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