Employee Benefits Committee Spring 2015 Newsletter | ABA Section of Labor & Employment Law

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Employee Benefits Committee Newsletter

Issue: Spring 2015

Response to Collectively Bargained Retiree Health and the Demise of Yard-Man--Perspectives from Counsel for Retirees

Unsurprisingly, counsel representing retirees view the import of Tackett somewhat differently from counsel for employers. Tackett is significant for more than its expected rejection of the Sixth Circuit's Yard-Man inference. Tackett establishes that collectively bargained agreements addressing retiree health benefits must be interpreted under ordinary principles of contract law and in accordance with the bargaining parties' intentions, and that any interpretation must be based on "affirmative evidentiary support,"1 not presumptions, inferences, or suppositions.

The Supreme Court held in Tackett that collective bargaining agreements, including those establishing ERISA plans, are to be interpreted according to ordinary principles of contract law, at least insofar as those principles are not inconsistent with federal labor policy.2 In its seven-page opinion, the unanimous Court used the phrase "ordinary principles of contract law" or close variants 16 times. In interpreting CBAs, the Supreme Court held, "as with any other contract, the parties' intentions control."3 The Court rejected the Yard-Man inference because it "violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements,"4 and because the inference "distorts the attempt 'to ascertain the intention of the parties."'5 The Court criticized the Sixth Circuit for drawing inferences about intent without record evidence, and affirmatively authorized reliance on "known customs or usages in a particular industry to determine the meaning of a contract," so long as they are supported by evidence.6

The Third Circuit's Clear and Express Language Requirement Does Not Survive Tackett

By emphasizing the parties' intentions and hard evidence, and forbidding "a thumb on the scales" favoring retirees, Tackett rejected not only the Yard-Man inference but any test that weights the scales, particularly where that test is not supported by evidence. The Third Circuit's clear and express language test is just such a test, and unlikely to survive Tackett.

M&G and certain of its supporting amici had specifically urged the Supreme Court to adopt the Third Circuit standard, first addressed in UAW v. Skinner Engine.7 Indeed this was M&G's primary argument.8 Despite this advocacy, Justice Thomas's decision for the Court did not explicitly discuss the clear and express language standard. Justice Ginsburg's concurrence, joined by three other Justices, did expressly address the standard urged by M&G. "Contrary to M&G's assertion," she wrote, "no rule requires 'clear and express' language in order to show that parties intended health-care benefits to vest."9 Justice Ginsburg reasoned that such a rule would be contrary to Litton,10 which held that "constraints upon the employer after the expiration date of a collective-bargaining agreement . . . may be derived from the agreement's 'explicit terms,' but they 'may arise as well from implied terms of the expired agreement.'"11

The Third Circuit's clear and express standard fails under Tackett for several additional reasons. First, as the Third Circuit itself has concluded, this standard is a "presumption" against vesting.12 Tackett establishes that weighting the scales with presumptions violates ordinary contract principles,13 as Judge Easterbrook also has concluded in construing Tackett.14

It also is significant that the Supreme Court criticized the Sixth Circuit for drawing inferences about intent without record evidence, and affirmatively authorized reliance on "known customs or usages in a particular industry to determine the meaning of a contract," as long as they are supported by evidence.15 No such evidence would be needed if Tackett held that retiree claims must fail unless the contract contains clear and express language for vesting.

Skinner's "clear and express language" requirement also fails to survive Tackett because it was based on the Third Circuit's own "speculative" "assessment of likely behavior in collective bargaining," rather than on evidence--a key basis for the Supreme Court's criticism of the Sixth Circuit.16 The Third Circuit premised its Skinner standard on the following: "Because vesting of welfare plan benefits constitutes an extra-ERISA commitment, an employer's commitment to vest such benefits is not to be inferred lightly and must be stated in clear and express language."17 The Third Circuit thus apparently assumed, without evidence, that employers will not choose to give benefits unless those benefits are mandated by law. However, employers regularly pay more than the minimum wage in order to attract and keep qualified employees, and many employers have chosen to provide retiree healthcare benefits. And even if employers might prefer to provide their employees with nothing beyond legally-required benefits, unions may and do bargain for more. The assumption that an agreement to grant such bargained benefits would necessarily be stated in "clear and express" language was "speculative," and without any evidentiary support.

Finally, Tackett did not adopt the clear and express rule applied by the Sixth Circuit solely in the ERISA context in Sprague v. General Motors.18 After mandating application of ordinary principles of contract law, the Supreme Court observed that the differing approaches taken by the Sixth Circuit in Yard-Man and Sprague "underscored" that the Sixth Circuit had departed from those principles.19 The main article argues that by noting the contrast between Yard-Man's thumb-on-the-scales in favor of retirees and Sprague's thumb-on-the-scales in favor of employers, Tackett held that the Sprague clear and express rule must be applied even in the context of collective bargaining. The fact that the Supreme Court noted the Sixth Circuit's inconsistency does not demonstrate that the Supreme Court endorsed a pre-employer presumption.

What Tackett Did Not Alter, And Other Responses To Employer Article

While Tackett did away with presumptions and inferences not based in evidence, Tackett did not alter several fundamental principles. First, Tackett did not take issue with the Supreme Court's long line of labor law precedent. Rather, the Court reiterated that "[w]e interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy."20 The Supreme Court has long instructed that in order to interpret a CBA, "it is necessary to consider the scope of other related bargaining agreements, as well as the practice, usage and custom pertaining to all such agreements."21 Similarly, and as the Tackett concurrence points out, Litton recognized the same point: "[C]onstraints upon the employer after the expiration date of a collective-bargaining agreement," may be derived from the agreement's "explicit terms," but they "may arise as well from . . . implied terms of the expired agreement."22

Nor did Tackett change the rule followed in several Circuits that apply contract and labor principles to consider extrinsic evidence even where a collectively bargained agreement might appear unambiguous on its face.23 Again, Litton, cited in both the Justice Thomas's decision for the Court and in Justice Ginsburg's concurrence, makes just this point,24 and ordinary contract principles are to the same effect.25

Tackett's impact likely will be greatest where courts applying Yard-Man might have been inclined to enter summary judgment in favor of retirees on the ground that certain contractual provisions unambiguously demonstrated vesting. Most of the Supreme Court's criticisms of Tackett, Yard-Man, and broader Sixth Circuit principles in Yard-Man's "progeny" were directed at rules providing that particular contractual features unambiguously established vesting or had some other absolute significance.26

The Supreme Court thus rejected rigid mandates. As construed by the Supreme Court, the lower courts in Tackett had concluded that (1) a contract reference to "full Company contribution" rendered the employer's position that benefits were not vested "unlikely";27 and (2) a presumption favoring vesting arose from the contract's linkage of health care and pension benefits.28 The Supreme Court's criticism of this perceived reductionist approach will not apply where lower courts carefully consider competing contract provisions and conclude that the contract language is ambiguous.

In rejecting rigid rules, the Supreme Court also undermined the argument that the presence of a "general duration clause" voids any other contractual language that shows an intent to vest benefits. If a general duration clause could trump all else, specific references to retiree healthcare such as a promise to "continue" those benefits would automatically be nullified by a general duration clause that includes no reference to healthcare or retiree benefits. This would be inconsistent with the Supreme Court's remand to the Sixth Circuit with a mandate to apply ordinary contract principles.29

Finally, the Supreme Court in Tackett did not alter the ordinary principles of contract law that it applied in earlier cases. These include:

  • A court should consider the entire series of CBAs between the parties as evidence of the parties' intent in the later agreements. There is no need to make a threshold finding of ambiguity before looking at how the relevant contract language has evolved over the years.30
  • Courts should always consider related CBAs, plus "practice, usage, and custom pertaining to all such agreements."31 This is consistent with Tackett's emphasis on industry custom, where supported by evidence.32
  • The context of collective bargaining should be given "special heed" in interpreting CBAs.33
  • It is a "cardinal principle of contract construction that a document should be read to give effect to all its provisions and to render them consistent with each other."34
  • "Practical construction" (i.e., the parties' conduct under their agreement) is "highly significant" evidence of parties' intent.35

Contrary to the employer article, Tackett did not "confirm[] that a contract that is silent regarding the duration of benefits cannot be construed to provide vested benefits."36 The Supreme Court did not state that a silent contract cannot be "construed" to provide vesting--the Court stated that "when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life."37 There is a big difference between "construe" and "infer"--the Court is saying only that courts cannot use unsupported inferences to supply the missing term. Rather, courts need extrinsic evidence to support any inference that the parties to a "silent" contract intended to create a benefit that would continue after termination of the agreement.

The employer article also argues that there must be an "ambiguity about the duration of the benefits" to support introduction of extrinsic evidence. We disagree. The combination of contract language that reasonably supports an open-ended contract commitment, coupled with a general duration clause, can create ambiguity.38

Joel Hurt and Pamina Ewing

Footnotes

1M&G Polymers USA v. Tackett, 135 S.Ct. 926, 935 (2015).

2Id. at 933 (citation omitted).

3Id.

4Id. at 935.

5Id. (citations omitted and emphasis in the original).

6Id.

7188 F.3d 130 (3d Cir. 1999).

8Brief of M&G Polymers, Inc. as Petitioner, 2014 WL 3587503; Brief of Amicus Curiae Whirlpool Corporation, 2014 WL 3735671.

9135 S.Ct. at 938 (Ginsburg, J., concurring).

10501 U.S. 190, 203 (1991).

11135 S.Ct. at 938 (Ginsburg, J., concurring) (quoting Litton).

12Smathers v. Multi-Tool, Inc./Multi-Plastics, Inc. Employee Health and Welfare Plan, 298 F.3d 191, 196 (3d Cir. 2002); Lewis v. Allegheny Ludlum Corp., 579 Fed.Appx. 116, 119 (3d Cir. Aug. 27, 2014). While the employer article suggests that the clear and express language standard constitutes a presumption solely in the ERISA context and not with respect to collectively bargained contracts, this makes little sense as the Third Circuit applies precisely the same clear and express standard in both contexts.

13135 S.Ct. at 935 (Yard-Man violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits . . .) (emphasis added); id. at 937 (We reject the Yard-Man inferences as inconsistent with ordinary principles of contract law) (emphasis added); 135 S.Ct. at 938 (Ginsburg, concurring) (courts must apply ordinary contract principles, shorn of presumptions, to determine whether retiree health-care benefits survive . . .) (emphasis added).

14Underwood v. City of Chicago, 779 F.3d 461, 462-463 (7th Cir. 2015) (Easterbrook, J.) (under Tackett, "courts should not use a presumption for or against vesting).

15Id.

16See 135 S.Ct. at 935.

17188 F.3d at 139.

18133 F.3d 388, 400 (6th Cir. 1998).

19135 S.Ct. at 937.

20135 S.Ct. at 933 (citing Textile Workers v. Lincoln Mills of Ala., 353 U.S. 448, 456-457 (1957)).

21TCU v. Union Pac. R.R., 385 U.S. 157, 161 (1966)(citations omitted); see also Consol. Rail Corp. v. Ry. Labor Executives' Ass'n, 491 U.S. 299, 311 (1989)(same).

22135 S.Ct. at 938 (Ginsburg, J., concurring) (quoting Litton, 501 U.S. at 203, 207).

23Rossetto v. Pabst Brewing Co., 217 F.3d 539, 542 (7th Cir. 2000)(explaining latent ambiguity exists when a contract clear on its face is nevertheless unclear because of the context created by extrinsic evidence); John Morrell & Co. v. Local Union 304A of the United Food and Commercial Workers, 913 F.2d 544, 551 (8th Cir. 1990)(To determine whether there is an ambiguity, we must examine the relevant extrinsic evidence and decide whether the contractual language is reasonably susceptible of the meaning proposed by the party asserting the ambiguity); Skinner Engine, 182 F.3d at 142 (a court must "'hear the proffer of the parties and determine if there [are] objective indicia that, from the linguistic reference point of the parties, the terms of the contract are susceptible of different meanings,'" and reference must be made to the "'contract language, the meanings suggested by counsel, and the extrinsic evidence offered in support of each interpretation.") (citation omitted).

24135 S.Ct. at 937; 135 S.Ct. at 938 (Ginsburg, J., concurring)(quoting Litton, 501 U.S. at 203, 207).

25Contract terms are considered in light of parties' "course of performance" because what parties actually do is "highly significant" evidence of their contractual intentions. See Alabama v. North Carolina, 560 U.S. 330, 346 (2010)(citing Restatement (Second) of Contracts §§ 202(4), 203). The "practical interpretation of a contract by the parties to it for any considerable period of time before it becomes the subject of controversy" is of "great, if not controlling, influence." Old Colony Trust Co. v. Omaha, 230 U.S. 100, 118 (1913); see also Williston on Contracts § 32:14 (4th ed. 1999)([T]he parties' own practical interpretation of the contract--how they actually acted, thereby giving meaning to their contract during the course of performing it--can be an important aid to the court); New Jersey v. New York, 523 U.S. 767, 830-31 (1998)(It is hornbook contracts law that the practical construction of an ambiguous agreement revealed by later conduct of the parties is good indication of its meaning)(Scalia, J., dissenting); 11 Williston § 30:6 (unambiguous contract language . . . need not be interpreted in a vacuum; the underlying goal in interpreting a contract is to ascertain the intent of the parties, and the surrounding circumstances when the parties entered the contract, among other relevant considerations, may well shed light on that intent.).

26135 S.Ct. at 926 (criticizing Sixth Circuit for holding that (1) language providing that the employer "will continue to provide. . .benefits" "unambiguously confers life time benefits" (emphasis added by Supreme Court) (2) "a general durational clause says nothing about the vesting of retiree benefits" (emphasis added by Supreme Court); (3) "a provision that 'ties eligibility for retirement-health benefits to eligibility for a pension. . . [leaves] little room for debate that retirees' health benefits ves[t] upon retirement'" (emphasis added)); see also id. at 936 (criticizing Sixth Circuit for "refus[ing] to apply" general duration clauses and "requiring a contract to include a specific durational clause for retiree health care benefits to prevent vesting) (emphasis added).

27Id. at 932 (emphasis added).

28Id. at 935.

29See Restatement (Second) of Contracts § 203 (1981): "Well-founded principles of contract law establish that 'specific terms and exact terms are given greater weight than general language'" and "separately negotiated or added terms are given greater weight than standardized terms); see also Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 63 (1995), a specific promise of retiree healthcare and a general duration clause must be read "to render them consistent with each other."

30Carbon Fuel Co. v. United Mineworkers, 444 U.S. 212 (1979).

31Transportation-Communications Employees Union v. Union Pac. RR, 385 U.S. 157, 161 (1966).

32135 S. Ct. at 935.

33Steelworkers v. American Mfg., 363 U.S. 564, 567 (1960).

34Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 63 (1995).

35Alabama v. North Carolina, 560 U.S. 330, 346 (2010).

36See employer article, above.

37135 S.Ct. at 937 (emphasis added).

38For example, the Seventh Circuit found ambiguity in the face of a general duration clause coupled with a provision stating that retirees "will have the full cost of their Blue Cross-Blue Shield coverage paid by the Company after they attain sixty-five (65) years" and that benefits "shall be continued for the spouse after the death of the retiree." See discussion of Bidlack v. Wheelabrator Corp., 993 F.2d 603 (7th Cir. 1993), in Rossetto v. Pabst Brewing Co., Inc., 217 F.3d 539, 543-545, 547 (2000) (Posner, J.).

CONTENTS: Opening Page | Collectively Bargained Retiree Health and the Demise of Yard-Man--Employer Perspectives | The Multiemployer Pension Reform Act of 2014 | What Is Congress Hiding in its Mousetrap? Musings on King v. Burwell | Report from the Co-Chairs of the Employee Benefits Committee | Employee Benefit Lawyers Hold Law Student Outreach at University of San Diego Law School | Dining with Sarah Johnson | As We Go to E- Press--A Few Items from the Editors of the EBC Newsletter

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