On February 20, 2018, the U.S. Supreme Court in CNH Industrial v. Reese rejected the Sixth Circuit’s approach to interpreting collective bargaining agreements (“CBA”), instead affirming that courts must interpret such agreements in accordance with ordinary principles of contract law. The Court held the only reasonable interpretation of the CBA was that post-retirement health care benefits offered under the CBA did not vest for life but rather expired when the CBA expired.
In 1998, CNH agreed to a CBA that provided health care benefits to certain employees who retired under the company’s pension plan. The CBA specified that all other coverages outside of health care benefits, such as life insurance, ceased upon retirement. It also contained a clause stating that the agreement would expire in May 2004 and that the CBA “dispose[d] of any and all bargaining issues, whether or not presented during negotiations.”
When the CBA expired in 2004, a group of CNH retirees and spouses sued CNH, seeking a declaration that their health care benefits vested for life and an injunction to prevent CNH from revoking them. After the district court granted summary judgment to the retirees, CNH appealed. Relying on principles of contract interpretation established in an earlier Sixth Circuit decision, known as Yard-Man inferences, the Sixth Circuit affirmed the district court’s decision. The Sixth Circuit concluded that, since the CBA was silent on whether health care benefits vested for life, and since it tied health care benefits to pension eligibility, the CBA was ambiguous as a matter of law. Because it was ambiguous, the Sixth Circuit held, extrinsic evidence could be considered in interpreting the CBA. Upon considering extrinsic evidence, the Sixth Circuit ruled that the evidence supported lifetime vesting.
In a per curiam opinion, the Supreme Court reversed, holding that the Sixth Circuit’s decision did not comply with the Supreme Court’s earlier holding in M&G Polymers USA, LLC v. Tackett that CBAs must be interpreted according to ordinary principles of contract law. According to the Court, the Sixth Circuit “did not did not point to any explicit terms, implied terms, or industry practice suggesting that the 1998 agreement vested health care benefits for life.” Instead, the Sixth Circuit erred by employing Yard-Man inferences, which were rejected in Tackett, to find ambiguity in the CBA. Because the CBA’s expiration in 2004 applied to all benefits, and because no provision stated that the health care benefits were subject to a different durational clause, the only reasonable interpretation was that the health care benefits expired when the CBA expired. The court reversed the Sixth Circuit’s judgment and remanded the case for further proceedings.
Erin Borissov is a partner in the law firm of Parr Richey Frandsen Patterson Kruse with offices in Indianapolis and Lebanon, Indiana. She advises utilities and business clients in the areas of utility regulatory law, electric cooperative law, easement and right-of-way law, commercial transactions, corporate governance, and corporate compliance.
The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.