February 4, 2015

ERISA Update: Supreme Court Strikes Down Inference Favoring Vested, Life-Time Retiree Health Benefits Under Ambiguous Collective Bargaining Agreements

Arnold & Porter Advisory

On January 26, 2015, the Supreme Court in M&G Polymers USA, LLC v. Tackett1 resolved a long-standing circuit split over whether retiree medical benefits promised in a collective bargaining agreement ("CBA") are "vested" lifetime benefits where the CBA is ambiguous as to the duration of the promise.  In disagreement with most other circuits, the Sixth Circuit has long applied an employee-favorable inference, known as the "Yard-Man inference," that the parties to a CBA intend for the retiree health benefits to be vested, lifetime benefits where the CBA is ambiguous as to the duration of the benefits, absent extrinsic evidence to the contrary.  The Supreme Court unanimously rejected the Sixth Circuit's inference and instead held that courts should interpret ambiguous collective bargaining agreements using "ordinary principles of contract law," noting that the Yard-Man inference violates ordinary contract principles by "placing a thumb on the scale in favor of vested retiree benefits."  Following this employer-favorable decision, employers with unionized workforces are likely to face less exposure to claims for lifetime retiree medical under collective bargaining agreements that are silent or ambiguous as to the duration of the retiree medical benefits. 

  1. 574 U.S. _____ (2015).


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