On February 20, 2018, the US Supreme Court, in a per curiam decision, concluded that ordinary principles of contract law must be applied in determining whether health benefits were vested under a collective bargaining agreement (CBA) (CNH Indus. N.V. v. Reese, (Feb. 20, 2018)). The Court held that the health benefits at issue had expired with the CBA itself. In doing so, the Court applied its 2015 Tackett ruling, in which it rejected the Sixth Circuit's Yard-Man inferences regarding the vesting of retiree health benefits (see Legal Update, Supreme Court Rejects Yard-Man Inference about Vesting of Lifetime Non-Pension Retiree Benefits through CBAs and Expert Q&A on Retiree Medical Benefits After the US Supreme Court’s Tackett Decision).

As in Tackett, the retirees in this case disagreed with their former employer regarding whether an expired CBA established a vested right to lifetime health benefits. The CBA at issue provided health benefits under a group benefit plan to certain employees who retired under the employer's pension plan. The group benefit plan was made part of the CBA and ran concurrently with it. The CBA also included a general duration clause under which the agreement terminated in 2004. After the CBA expired in 2004, a group of retirees and their surviving spouses sought both a court declaration that their health benefits vested for life and an injunction preventing the employer from changing the benefits.

While the retirees' lawsuit was pending, the Supreme Court decided Tackett, which:

As background, in Yard-Man and its progeny, the Sixth Circuit inferred that parties to a CBA intended to contractually vest ERISA health benefits where the CBA did not:

Though the district court in this case initially ruled in favor of the employer – in light of Tackett – it later reconsidered and ruled for the retirees. The Sixth Circuit affirmed in relevant part, reasoning that the CBA was silent concerning whether health benefits vested for life. The Sixth Circuit also concluded that the CBA's general durational clause was inconclusive because it:

From here, the Sixth Circuit concluded that the CBA was ambiguous, which meant the court could consult extrinsic evidence in support of lifetime vesting. A dissenting judge maintained that the majority was relying on the same inferences that the Supreme Court had prohibited in Tackett.

The Supreme Court reversed the Sixth Circuit and remanded the case for proceedings consistent with its decision. Under Tackett, the Court stated that ordinary contract principles must be applied in resolving the dispute. Applying ordinary contract principles, the Court reasoned, the CBA was not ambiguous unless it could reasonably be read as vesting health benefits for life. However, the Sixth Circuit determined that the CBA was ambiguous only by employing the Yard-Man inferences that the Supreme Court rejected in Tackett. Specifically, the Sixth Circuit:

Citing Williston on Contracts, the Supreme Court stated that "Tackett rejected these inferences precisely because they are not 'established rules of interpretation.'" Reiterating its conclusions from Tackett, the Court reasoned that the Yard-Man inferences were not a valid way to read a contract because they:

The Supreme Court also observed that no other circuit court of appeals would find contract ambiguity in the circumstances at issue in this case. For example, the Court noted that all the other courts would simply apply a CBA's general durational clause for a CBA that did not specify the duration for health benefits in particular.

Setting aside the Yard-Man inferences, the Court applied a straightforward contracts analysis to the case, as follows:

The Court therefore concluded that the only reasonable interpretation of the CBA was that health benefits had expired when the CBA itself expired in 2004.

To the extent there was any doubt concerning the status of the Sixth Circuit's Yard-Man inferences after Tackett, the Court's latest ruling on the vesting of retiree health benefits should put those doubts to rest. The Court makes clear that the Yard-Man inferences cannot be used to support a finding that a CBA is ambiguous (that is, because it could reasonably be read as vesting health benefits for life). As a result, employers and purchasers of former employers in the Sixth Circuit should face fewer claims for lifetime retiree health benefits attempting to invoke the Yard-Man inferences or a re-purposed version of them. However, employers are still best served by negotiating CBA provisions that include express provisions: