October 25, 2018 Practice Points

Supreme Court Again Addresses Sixth Circuit’s Yard-Man Inferences

For the third time in three years, SCOTUS addresses the Sixth Circuit’s inferences for determining the duration of benefits under collective-bargaining agreements.

By Beau D. Hollowell

On February 20, 2018, in CNH Industries N.V. v. Reese, the U.S. Supreme Court in a per curiam decision reversed a Sixth Circuit decision, setting forth once and for all the continued vitality of “Yard-Man” inferences, under which courts presumed, in a variety of circumstances, that collective-bargaining agreements vested retiree benefits for life.

In its 2015 M&G Polymers USA, LLC v. Tackett decision, the Supreme Court held that the Yard-Man inferences “violated ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” The Supreme Court found the inferences in favor of vesting healthcare benefits for life were “too speculative,” and criticized the Sixth Circuit’s refusal to apply general durational clauses to provisions governing retiree benefits. The Supreme Court also admonished the Sixth Circuit to apply the ordinary principle that contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.

On remand, the Sixth Circuit in Tackett applied the Supreme Court’s instructions and identified a “non-exhaustive list of the ‘ordinary principles’” that should guide the analysis of the duration of benefits set forth in collective bargaining agreements: (1) the written agreement is presumed to encompass the whole agreement of the parties; (2) courts must avoid constructions of contracts that would render promises illusory; (3) courts should not construe ambiguous writings to create lifetime promises; (4) contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement; (5) the intention of the parties, to be gathered from the whole instrument, must prevail; and (6) a clear manifestation of intent must exist before an agreement is found to confer a benefit or obligation.

After Tackett, the Sixth Circuit decided several Yard-Man cases. In the first two (Gallo v. Moen, Inc. and Cole v. Meritor), it held that when the CBA provision lacks an end date, the general durational clause in the CBA applies. In the next two decisions (Reese and Kelsey-Hayes Co. v. Int’l Union, UAW), the Sixth Circuit found that “‘a general durational clause does not say ‘everything’ about the intent to vest,’ and held that certain features of the CBAs at issue in those cases made the duration of the benefits ambiguous, which warranted a turn to extrinsic evidence.” In the final two (Serafino v. City of Hamtramck and Watkins v. Honeywell Int’l, Inc.), it found that one agreement required the company to provide benefits for the earlier date between the retiree reaching age 65 or the agreement expiring, and that the second containing language “for the duration of this Agreement” limited the company’s promise to provide healthcare for only as long as the agreements lasts.

The Supreme Court reversed Reese, reiterating that its “decision in Tackett ‘rejected the Yard-Man inferences as inconsistent with ordinary principles of contract.’” The Supreme Court provided the following instructions for interpreting the duration of CBA benefits:

  1. When a collective-bargaining agreement is merely silent on the question of vesting, other courts would conclude that it does not vest benefits for life.
  2. Similarly, when an agreement does not specify a duration for health care benefits in particular, other courts would simply apply the general durational clauses.
  3. And other courts would not find ambiguity from the tying of retiree benefits to pensioner status.

The Court explained that “[i]f the parties meant to vest health care benefits for life, they easily could have said so in the text.” Six days after Reese, the Supreme Court vacated and remanded Kelsey-Hayes with instructions to follow Reese.

Since Reese and Kelsey-Hayes, the Sixth Circuit has decided three cases, in which the court describes its law since the Supreme Court overturned Yard-Man as consistent with “‘a growing linel of cases that refuses to put much legal weight on oral and written promises, employer custom and practice and even arguments about reliance in light of the enormous (and sometimes unexpected burden) retiree healthcare costs present for employers.’”

Beau D. Hollowell is a principal with Karon LLC in Cleveland, Ohio.