On January 26, 2015, the U.S. Supreme Court decided M & G Polymers USA, LLC v. Tackett, No. 13-1010, holding that ordinary principles of contract law govern the interpretation of pension and insurance provisions of collective-bargaining agreements between unions and employers. The opinion rejects Sixth Circuit law that effectively established a presumption that certain retiree health insurance benefits are perpetual.
In 2000, M & G Polymers entered into a pension and insurance agreement with the union representing employees at its plant in Apple Grove, West Virginia. The agreement stated that employees who retired after a certain date and were eligible for a pension based on number of years of service would “receive a full Company contribution towards the cost of [health care] benefits” described in the agreement, including hospital, medical, surgical, and prescription drug benefits for retirees and their dependents. This language provided health benefits to qualified retirees and their dependents at no cost. The agreement contained a three-year term. In 2006, M & G Polymers announced that retirees would be required to contribute toward the cost of their health care. Retirees then sued in federal court, alleging that the 2000 agreement promised to provide lifetime, contribution-free health care benefits to them and their dependents.
The district court dismissed the complaint for failure to state a claim, but the Sixth Circuit reversed. Based in part on Int’l Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), the Sixth Circuit concluded that language such as that in the 2000 agreement vested retiree health benefits for life. On remand, the district court ruled for the retirees, and the Sixth Circuit affirmed.
The Supreme Court reversed, holding that ordinary contract interpretation principles did not support the Sixth Circuit’s judgment. It noted that ERISA, which governs pension and insurance plans such as the one at issue in this case, permits employers to adopt, modify, or terminate plans at any time. The court also criticized Yard-Man’s approach, which “plac[es] a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements. That rule has no basis in ordinary principles of contract law. And it distorts the attempt to ascertain the intention of the parties.” Yard-Man, the Supreme Court wrote, depended not on record evidence, but on the Sixth Circuit’s “own suppositions about the intentions of employees, unions, and employers negotiating retiree benefits.” The Sixth Circuit’s approach failed to apply general durational clauses in collective-bargaining agreements, misapplied the illusory promises doctrine, and “failed to even consider the traditional principle that courts should not construe ambiguous writings to create lifetime promises.”
The Supreme Court reversed the Sixth Circuit’s judgment and remanded for further proceedings.
Justice Thomas delivered the opinion of the unanimous Court. Justice Ginsburg delivered a concurring opinion, joined by Justices Breyer, Sotomayor, and Kagan.