ERIC Urges Sixth Circuit to Apply “Ordinary Principles of Contract Interpretation” Concerning Vestin

For Immediate Release

Washington, DC – The ERISA Industry Committee (ERIC), the leading trade association dedicated exclusively to the employee benefit and compensation interests of America’s largest companies, today filed an amicus brief with the U.S. Court of Appeals for the Sixth Circuit urging the court to apply “ordinary principles of contract interpretation” involving vesting of retiree health benefits following the U.S. Supreme Court’s ruling in M&G Polymers USA, LLC v. Tackett. 

The case before the Sixth Circuit is United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union; Ronald Strait; Danny O. Stevens v. Kelsey-Hayes Company; TRW Automotive Inc.; TRW Automotive Holdings Corp. The brief was prepared by Kirkland & Ellis LLP.   

ERIC members provide benefits to millions of active workers, retired persons, and their families nationwide and, therefore, have a strong interest in the issues presented by this case, which involves the circumstances under which retiree health care benefits extend beyond the life of a collective bargaining agreement.  ERIC had also filed an amicus brief with the Supreme Court in the Tackett case. 

ERIC’s Sixth Circuit brief explains that the Supreme Court’s recent decision in Tackett expressly overruled UAW v. Yard-Man, Inc. and its progeny, which over the past three decades had established a series of “inferences” to determine whether retiree health benefits had vested as a matter of law, and thereby survived the expiration of a collective bargaining agreement.  The brief notes that the Tackett decision swept away that judge-made web of “inferences” and emphasizes that the vesting issue must now be analyzed by reference to “ordinary principles of contract law.” 

“The Sixth Circuit potentially rehearing the Kelsey-Hayes case is an important opportunity to ensure a proper reading of the Supreme Court’s Tackett ruling.  For the first time in over 30 years, the Sixth Circuit is now writing on a blank slate when it comes to retiree health care benefits,” said ERIC President and CEO Annette Guarisco Fildes.  “ERIC believes very strongly that courts should not infer an intent to vest health care benefits for life when a contract is silent or ambiguous as to the duration of those benefits.  No reasonable employer should be deemed by implication to have unalterably committed itself to provide such uncertain and costly benefits for life,” Guarisco Fildes added.

Tackett directs lower courts to apply “ordinary principles of contract law” in determining whether collective bargaining agreements create a right to lifetime health care benefits for retirees.  ERIC’s brief explains that the Supreme Court’s opinion in Tackett establishes the twin principles that 1) “courts should not construe ambiguous writings to create lifetime promises,” and 2) that if 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.” 

ERIC contends that in applying these two principles, it is impossible to say that a collective bargaining agreement vests retiree health care benefits for life—or is even “ambiguous” about whether such benefits are vested for life—without affirmative evidence of intent to vest within the four corners of the contract encompassing the whole agreement of the parties.

The brief also points out that, in addition to announcing these “traditional principles” of contract law, the Supreme Court also specifically rejected a number of “inferences” on which the Sixth Circuit had historically relied to find health care benefits legally vested.  

ERIC’s brief references the Supreme Court’s characterization of the Yard-Man inferences in the Tackett decision as violating “ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements.” The brief contends that after Tackett, no argument can be made that courts should apply any kind of “inference,” “presumption,” or “nudge” in favor of vesting.  The brief further contends that collective bargaining agreements instead must be construed pursuant to their plain terms in light of “ordinary principles of contract law.”

The brief points out that, prior to Tackett, the Sixth Circuit had held that general durational clauses in collective bargaining agreements (i.e., provisions stating that the contract will expire on a date certain) were not sufficient to terminate retiree health care benefits at the conclusion of a contract.  ERIC emphasizes that the Supreme Court expressly rejected that logic, holding that “general durational clauses” must be applied “to provisions governing retiree benefits,” just as they are applied to other terms of a collective bargaining agreement. 

ERIC further points to the Supreme Court rejecting the Sixth Circuit’s “tying” logic that it often used to infer an intent to vest benefits from the tying of eligibility for health care benefits to pension benefits.  That logic, ERIC explains, is “inconsistent with ordinary principles of contract law.”

Finally, ERIC argues that a company’s promise to pay the “full premium” of retiree healthcare benefits during the term of a contract should not be construed to suggest that the company agreed to pay that amount for retirees after the contract has expired, and thus, does not suggest intent to vest retirees with lifetime health care benefits.

ERIC’s brief can be accessed by clicking on the link below.

ERIC Amicus Brief

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All media inquiries to The ERISA Industry Committee should be directed to:

Kelly Broadway, 202.627.1918, kbroadway@eric.org

About the ERISA Industry Committee
ERIC helps America’s largest employers stay ahead of employee benefit policy. ERIC member companies are leaders in every sector of the economy, and we represent them in their capacity as sponsors of employee benefit plans for their own workforce. Only ERIC provides the combination of intel, expertise, collaboration, and lobbying that exclusively serves the interests of large employers who provide health, retirement, and compensation benefits to their nationwide workforce.