U.S. Supreme Court Holds That Retirees’ Healthcare Benefits Clearly Expire When the Underlying Collective Bargaining Agreement Expires

On February 20th, the United States Supreme Court ruled that in a collective bargaining agreement, no ambiguities should be interpreted by the absence of a provision concerning the duration of retirees’ healthcare benefits. Benefits clearly expire when the collective bargaining agreement itself expires. The Supreme Court’s decision, CNH Indus. N.V. v. Reese, was unanimous.

Background of the Case

A collective bargaining agreement commencing in 1998 (Agreement) provided that the employer would give healthcare benefits to certain employees who retired under its pension plan. The Agreement specified that it would expire in May 2004. It did not specify when retiree healthcare benefits would expire.

In 2004, a group of retirees sought a declaration from a federal district court in Michigan that they had a vested right to lifetime healthcare benefits. Their former employer objected. The district court granted summary judgment to the retirees.

The Sixth Circuit Court of Appeals affirmed the district court, finding it ambiguous whether the clause providing for termination of the Agreement in May 2004 also provided for termination of retiree healthcare benefits. The Court of Appeals based this finding of ambiguity on two reasons: One, under the Agreement, different benefits ceased at different times. Two, the Agreement had tied health care benefits to pension eligibility. Because of this ambiguity, the Court of Appeals considered evidence outside of the Agreement. It concluded this evidence supported lifetime vesting of retiree healthcare benefits. The employer appealed.

The Supreme Court’s Reasoning

The United States Supreme Court unanimously reversed the Court of Appeals’ determination that the retirees were entitled to lifetime healthcare benefits. The Supreme Court cited its 2015 holding, M&G Polymers USA, LLC v. Tacket, that collective bargaining agreements should be interpreted according to ordinary principles of contract law, and that under these principles there is no inference that collective bargaining agreements grant retirees lifetime benefits. The Tacket decision provides that unless stated otherwise, contractual obligations cease when the collective bargaining agreement expires.

The Court stated that the Agreement at issue was not ambiguous unless it could reasonably be read as vesting healthcare benefits for life. It noted that a contract is ambiguous only if it is subject to more than one reasonable but conflicting interpretation. The Court determined that the Sixth Circuit’s interpretation was not based on ordinary principles of contract law and therefore was not reasonable. The Supreme Court found no ambiguity in the Agreement.

In sum, the Supreme Court held that when a collective bargaining agreement does not expressly provide for the expiration of healthcare benefits, there is no ambiguity regarding the duration of these benefits: They expire when the agreement itself expires.

Significance

This decision should be welcome news to employers with collective bargaining agreements that do not specify when retiree healthcare benefits expire. However, we still recommend making collective bargaining agreements and other contracts as specific as possible. After all, the decision in this case was rendered only after 14 years of litigation in three different courts. 

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