June 8, 2018

The Changing Landscape of Employee Benefits

by Curtis G. Moore, Fisher Phillips LLP

Employers today face the ever-increasing challenge of remaining competitive in the global economy. This often requires employers to slash costs – including retiree benefits. In doing so, employers must not only consider the impact on employee morale, but also the significant legal ramifications.

Employers have modified or eliminated retiree benefits since the 1980s, often resulting in litigation by retirees under the Employee Retirement Income Security Act of 1974 (ERISA) or the Labor Management Relations Act of 1947 (LMRA). Both ERISA and LMRA permit employers to unilaterally terminate welfare benefits, which are non-pension benefits like healthcare and life insurance, so long as the benefits are not vested. Thus, in these cases, retirees argue that the employer promised the welfare benefit for the retirees’ lifetime (thereby creating a vested benefit). Employers argue either that the benefit was promised for a limited duration, or that they have no obligation to provide the benefit for a set duration in the future.

For more than three decades, retirees filing employee-benefits lawsuits in the Sixth Circuit often won because of a 1984 Sixth Circuit decision known as UAW v. Yard-Man. In Yard-Man, the Court said that it inferred that the parties intended welfare benefits to vest because retiree benefits are not a mandatory subject of bargaining and employees typically view retirement benefits as a form of deferred compensation.

Recently, however, the U.S. Supreme Court gave employers a big win when in 2015 it rejected Yard-Man’s inferences in its M&G Polymers USA, LLC v. Tackett decision. The Court in Tackett instructed lower courts to look to the plain language of the collective bargaining agreement or plan document creating the welfare benefit to determine whether the parties intended the benefit to vest. Between 2015 and 2017, the Sixth Circuit attempted to distinguish Tackett and continued to apply Yard-Man’s inferences to create ambiguity in retirement benefits contracts. The Sixth Circuit now appears to have totally abandoned Yard-Man based on its recent post-Reese decision, Cooper v. Honeywell International, Inc. in March 2018.

Sixth Circuit employers considering modifying or eliminating retiree benefits are now on better footing to argue that they never intended retiree welfare benefits to vest, and that they may unilaterally choose to terminate such benefits. Still, retirees have not given up, and continue to use several legal theories to persuade courts that the parties intended retiree benefits to vest. For this reason, employers looking to reduce or eliminate retiree benefits should seek assistance from competent legal counsel in navigating this complex area of the law.