United States: Supreme Court Rejects Sixth Circuit’s Yard-Man Inferences In M&G Polymers USA, LLC v. Tackett

In M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 935 (2015), the Supreme Court of the United States addressed the interpretation of collective bargaining agreements (CBAs) that include post-retirement welfare benefits, such as retiree health or life insurance benefits.  The Supreme Court ruled that the U.S. Court of Appeals for the Sixth Circuit's long-standing inference of vested retiree welfare benefits, termed the Yard-Man inference, is inconsistent with ordinary principles of contract law governing CBAs.  The Yard-Man inference arose in a 1983 Sixth Circuit case, UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), which held that courts should presume that retiree welfare benefits provided in CBAs were vested or guaranteed for the life of any employee who retired under a CBA.  The Supreme Court struck down the Yard-Man inference, holding that the inference was inconsistent with ordinary principles under contract law, the Employee Retirement Income Security Act of 1974 (ERISA), and the Labor Management Relations Act of 1947 (LMRA).

Background

Prior to Tackett, a circuit split existed regarding the interpretation of CBAs that provide retiree welfare benefits.  Federal courts generally interpret these agreements pursuant to ERISA (which governs employee benefit plans) and the LMRA (which governs labor agreements).  Under ERISA, benefits provided to retired employees under a pension plan vest upon receipt of the benefit.  In contrast, while employers may agree to provide retired employees with vested or unalterable health or life insurance benefits, neither ERISA nor the LMRA require such vesting.  The federal circuits have disagreed over how to interpret CBAs that are silent as to the duration of retiree welfare benefits or that contain only general durational clauses.

Under the Yard-Man inference and its progeny, courts in the Sixth Circuit held that, absent specific language to the contrary, the parties to a CBA intended union retiree benefits to vest upon an employee's retirement.  Most other circuits, however, rejected the Yard-Man inference and instead required some affirmative contract language to vest union retiree welfare benefits.

The facts in Tackett are similar to those in many other cases that address union retiree welfare benefits.  M&G Polymers and a union entered into a series of CBAs, and each CBA included language that retirees "will receive a full Company contribution towards the cost of" health benefits.  Each CBA also included a general durational clause stating that the employer would provide the "program" of welfare benefits "for the duration of this Agreement."  After the expiration of the most recent CBA, M&G Polymers sought to require retirees to contribute to their health benefits in the face of rising health costs.  The union retirees initiated a lawsuit, alleging that the term "will receive" in the CBA established a right to vested lifetime health benefits for the retirees.

District Court and Sixth Circuit Decisions

In Tackett, the district court initially dismissed the union retirees' lawsuit for failure to state a claim, but the Sixth Circuit reversed and found that, in light of the Yard-Man inference, the retirees stated a plausible claim.  The Sixth Circuit ruled that the "will receive" language created a right to vested health benefits despite the general durational clause in the CBA.  On remand, the district court conducted a bench trial and ruled in the retirees' favor based on the Sixth Circuit's decision.  The Sixth Circuit affirmed and held that the district court correctly "presumed" that "in the absence of extrinsic evidence to the contrary, the agreements indicated an intent to vest lifetime contribution-free benefits."  M&G Polymers subsequently sought review with the Supreme Court.

Supreme Court Opinion

In Tackett, a unanimous Supreme Court held that the Yard-Man inference and its progeny conflicted with ordinary principles of contract law.  The Supreme Court first carefully summarized the development of the Sixth Circuit's law in this area, which started with Yard-Man's holding that a CBA was ambiguous on the issue of vesting and reasoning that union "retiree benefits are in a sense 'status' benefits which, as such, carry with them an inference that they continue so long as the prerequisite status is maintained."  Two years later, in Policy v. Powell Pressed Steel Co., 770 F.2d 609 (6th Cir. 1985), the Sixth Circuit reversed a lower court ruling for the employer, and held that a CBA unambiguously provided for lifetime benefits.  Over the next two decades, the Sixth Circuit continued to create inferences and rules of contract constriction that effectively predetermined the vesting question in favor of union retirees.

Next, the Supreme Court held that the Sixth Circuit's approach was inconsistent with "ordinary principles of contract law" and cited six specific examples of inconsistency:

  • Thumb on the Scale.  The Supreme Court found that the Yard-Man inference "violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements."  Such a broad inference has no connection to the parties' intent in specific circumstances.  As the Supreme Court noted, "Yard-Man's assessment of likely behavior in collective bargaining is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties' intention."
  • Industry Custom and Usage.  The Supreme Court also criticized Yard-Man's "assessment of the likely behavior" of parties in the collective bargaining context because this assessment came "not from record evidence, but instead from [the court's] own suppositions about the intentions of employees, unions, and employers negotiating retiree benefits," and had been applied "indiscriminately across industries."
  • General Durational Clauses.  The Supreme Court held that the Sixth Circuit ignored the text of the parties' written agreement and "the principle of contract law that the written agreement is presumed to encompass the whole agreement of the parties" by finding that general durational clauses "say nothing" about vesting.
  • Purportedly Illusory PromisesYard-Man and its progeny relied on CBA language that would apply to only some retirees during the term of the CBA to find vesting.  The Sixth Circuit's reasoning was that the term was—in the absence of vesting—illusory because some retirees would never receive the benefit of the term.  The Supreme Court correctly observed that the Sixth Circuit had turned the illusory-term analysis on its head and explained that "a promise that is 'partly' illusory is by definition not illusory."  The Supreme Court held further that as long as a contractual provision "benefits some class of retirees, then it may serve as consideration for the union's promises."
  • Construction of Ambiguous Writings.  The Supreme Court found that by applying the Yard-Man inference, the Sixth Circuit "failed to even consider the traditional principle that courts should not construe ambiguous writings to create lifetime promises."
  • Effect of Contractual Obligations After Termination.  The Supreme Court also found that by applying the Yard-Man inference, the Sixth Circuit "failed to consider the traditional principle that 'contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.'"
  • Linking Health-Benefit Eligibility to Eligibility for a Pension.  The Sixth Circuit has long inferred from the tying of retiree health benefits to receipt of a pension that the parties intended the health benefits to last as long as the pension benefits, i.e., for life.  According to the Supreme Court, this inference was one of several that "affected the outcome" in Tackett.  And as the unanimous Supreme Court concluded, such "inferences [are] inconsistent with ordinary principles of contract law."

In summary, Tackett's rejection of the Yard-Man inference means that "when 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."  Given the ubiquity of Yard-Man and its progeny in the Sixth Circuit, the Supreme Court held that there was "no doubt" that the Yard-Man inference affected the outcome in Tackett, and, without deciding the ultimate issue of whether the CBAs at issue provided for vested retiree health care benefits, remanded the case to the appellate court with instructions to "apply ordinary principles of contract law in the first instance."

Practical Impact

By eliminating the circuit split caused by the Yard-Man inference, the Supreme Court provided some long-awaited certainty on how courts across the United States should interpret CBAs and the retiree medical benefits in those agreements.  The arbitrary location of a plant or employer, or a race to the courthouse between the employer and the union, no longer will determine whether such retiree medical benefits are vested or terminable at the end of a CBA.  In particular, courts now have a set of consistent rules for interpretation:

  • The Yard-Man Inference No Longer Applies.  The Supreme Court was unambiguous and undivided in its rejection of the Yard-Man inference as "inconsistent with ordinary principles of contract law."  As a practical matter, this raises the question whether a significant portion (if not all) of Sixth Circuit case law from the past three decades addressing collectively bargained retiree welfare benefits is no longer binding precedent.
  • Courts Must Consider General Durational Clauses.  The Supreme Court rejected the Sixth Circuit's rule that general durational clauses "say nothing about the vesting of retiree benefits."  Such clauses are now relevant to a vesting determination.
  • Contractual Provisions that Apply to a Subset of Retirees Are Not Illusory.  Contrary to rulings by the Sixth Circuit, an employer's promise of benefits to some retirees, but not others, is not illusory and "may serve as consideration for the union's promises."
  • Courts Must "Consider" Ordinary Principles of Contract Interpretation.  The Sixth Circuit must "consider" all ordinary contractual principles when interpreting CBAs, including the principles described above regarding the construction of ambiguous writings and the effect of contractual obligations after termination.

In sum, the Supreme Court squarely addressed whether lower courts may infer retiree welfare benefit vesting from silence in a CBA.  They cannot.

Supreme Court Rejects Sixth Circuit's Yard-Man Inferences in M&G Polymers USA, LLC v. Tackett

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions