Supreme Court: Lifetime Retiree Benefits Not Inferred by CBA

On Feb. 20, 2018 the Supreme Court of the United States (the Court) reversed an opinion by the U.S. Court of Appeals for the Sixth Circuit, which held that the health care benefits for a class of retirees vested for life. The case involved CNH Industrial N.V., CNH Industrial America LLC and their corporate predecessors (collectively, CNH), which manufacture construction and agricultural equipment. In 1998, CNH and the United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) entered into a new collective bargaining agreement (CBA). The CBA provided health care benefits under a group benefit plan to certain retiring employees. The agreement also contained a clause stating that it would terminate in May 2004.

When it did expire in 2004, a class of CNH retirees and surviving spouses filed a lawsuit seeking a declaratory judgment that their health care benefits had vested for life and asked the district court to enjoin CNH from changing them. While that lawsuit was pending, the U.S. Supreme Court issued a decision in M&G Polymers USA, LLC v. Tackett, holding that CBAs must be interpreted according to ordinary principles of contract law.

The District Court initially granted summary judgment to CNH. After the retirees moved for reconsideration, the District Court reversed itself and entered summary judgment for the retirees. On appeal, the Sixth Circuit ruled that the CBAs were ambiguous and thus susceptible to interpretation based on extrinsic evidence about lifetime vesting. Ultimately, the Sixth Circuit concluded that the benefits were vested. CNH petitioned the Court on Oct. 3, 2017.

The question before the Court was whether the Sixth Circuit erred in using a series of inferences to conclude that a CBA was ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about whether retiree benefits were vested for life. The Court held that CBAs generally must be interpreted according to ordinary principles of contract law, which generally hold that a contract isn’t ambiguous unless it’s subject to more than one reasonable interpretation.

The Supreme Court held that the only reasonable interpretation of the 1998 agreement between retirees and their former employer is that the health care benefits expired when the CBA expired in May 2004. Thus, the Court reversed the Sixth Circuit and remanded the case for further proceedings.

This case serves as an important reminder that employers should work with outside counsel to draft plan documents and CBAs, where applicable, to carefully and specifically address terms of the plan.