26 January 2015

Law in Plain English: M&G Polymers USA, LLC v. Tackett

This is one in a series of posts designed to describe court decisions in plain English. For more detail and background on the legal issues, see the link to the case below. For similar posts, click here.

SCOTUSblogM&G Polymers USA, LLC v. Tackett

Argument: Nov 10 2014 (Aud.)

Background: Retirees and dependents of retirees from an M&G plant brought a class action lawsuit against M&G after the company announced that retirees would be required to make contributions to their health care costs. The retirees and their union sought an injunction ordering M&G to reinstate the retirees to the current versions of the benefits plans they were enrolled in to receive health care for life without contributions. The labor agreements were originally negotiated between the union as a whole and the employer, and provided for retiree health care benefits (among other things). Individual (local) plants would either adopt the master agreement as a whole or adopt the master agreement with certain exceptions or differences. Some local agreements included "side" letters or "cap" letters that capped the company's contribution toward the cost of retiree health care benefits, although these letters were not reproduced in booklets distributed to retirees and (allegedly) not ratified as part of the agreement between the employer and the local plant. The district court found that, in the absence of extrinsic evidence to the contrary, the master agreements indicated an intent to vest lifetime contribution-free health care benefits, even if the agreement itself was silent as to the duration of retiree health care benefits. The district court also concluded. then, that the cap letters did not apply to the master agreement because those benefits could not be bargained away without retiree permission. The Sixth Circuit affirmed.

Issue: The question before the Court is whether, when construing collective bargaining agreements in Labor Management Relations Act (LMRA) cases, courts should presume that silence concerning the duration of retiree health-care benefits means the parties intended those benefits to vest (and therefore continue indefinitely), as the Sixth Circuit holds; or should require a clear statement that health-care benefits are intended to survive the termination of the collective bargaining agreement, as the Third Circuit holds; or should require at least some language in the agreement that can reasonably support an interpretation that health-care benefits should continue indefinitely, as the Second and Seventh Circuits hold.

Holding: In a unanimous decision, the Supreme Court ruled that the Sixth Circuit’s decision rested on principles that are incompatible with ordinary principles of contract law. ERISA governs pension and welfare benefits plans, including those established by collective-bargaining agreements. ERISA establishes minimum funding and vesting standards for pension plans, but exempts welfare benefits plans—which provide the types of benefits at issue here—from those rules. The Court interprets 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. As a result, the Court vacated the judgment of the Sixth Circuit and remanded it for the appeals court to apply ordinary principles of contract law in the first instance.
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