On Monday, a unanimous United States Supreme Court issued its decision in M & G Polymers USA, LLC v. Tackett, Supreme Court Case No. 13-101, vacating and remanding the Sixth Circuit’s holding that a group of retirees was entitled to lifetime healthcare benefits per the terms of various collective bargaining agreements.  In doing so, the Supreme Court rejected UAW v. Yard-Man Inc., 716 F.2d 1476 (6th Cir. 1983), and its progeny, and directed lower courts to determine whether retiree health benefits vest based on ordinary contract principles without any presumption or inference in favor of vesting.

For employers located in the 46 states outside the Sixth Circuit, it may be unclear why this case is a big deal.  For the lucky majority, a brief history lesson is in order.  Outside the Sixth Circuit, a collective bargaining agreement, and the obligations it contains, expires on its expiration date.  Thus, the parties must come to agreement as to the new terms at relatively regular intervals, taking into account market forces, changes in their relative bargaining positions, and their respective interests.   However, in 1983, the United States Court of Appeals for the Sixth Circuit rendered its decision in Yard-Man, in which it manufactured an “inference” that retiree welfare benefits, primarily paid health insurance, would “vest” and would survive the clear expiration of the agreement.

In the 32 years following Yard-Man, employers have been subject to numerous class actions brought by unions and retired bargaining unit employees seeking fully paid health insurance benefits.  The Sixth Circuit continued to apply the Yard-Man inference in addition to creating new rules of contract construction to promote the vesting of retiree health insurance benefits in the collective bargaining context.  No other circuit court of appeals agreed with Yard-Man, and every other federal appellate court to consider it rejected it.  In the meantime, in the four states lying within the Sixth Circuit, manufacturing employers have paid billions of dollars in legacy retiree medical benefits for which they would not have been liable anywhere else.  Numerous employers tried getting the Supreme Court to weigh in on the issue, only to be repeatedly denied.  Many of these matters have ended with the employer’s bankruptcy.

After years of pleading, the Supreme Court finally accepted certiorari in Tackett and examined Yard-Man and the vesting “inferences” it spawned.  The Court then proceeded to methodically take it apart.  The Court found that although the Sixth Circuit has long insisted that its Yard-Man inferences are drawn from ordinary contract law, its decisions did not support this.  Rather, the Court found that the Sixth Circuit had repeatedly erred by, among other things, refusing to apply general durational clauses to provisions governing retiree benefits, creating a presumption that retiree benefits vested for life.  The Sixth Circuit applied this presumption indiscriminately across industries and construed ambiguous writings to create lifetime benefits where none otherwise existed.

The Court concluded that because Yard-Man and its progeny affected the Sixth Circuit’s decision that the at-issue retiree healthcare benefits were vested, it vacated the judgment in Tackett and remanded back to the Sixth Circuit to apply ordinary principles of contract law.

The potential impact of this decision is staggering.  For employers in the Sixth Circuit faced with claims over alleged collectively bargained lifetime retiree healthcare benefits, both currently and in the future, Tackett is an obvious game changer.  Perhaps just as significant, numerous employers have already been saddled with permanent injunctions – both in federal courts and through arbitration – requiring them to pay lifetime, unalterable “vested” retiree benefits based on Yard-Man and its progeny.  With Tackett in hand, employers may now attempt to reopen the issue and argue that any such injunctions must be lifted, be it through a Rule 60(b)(5) motion or otherwise.  See, e.g., Agostini v. Felton, 521 U.S. 203 (1997).

The bottom line: Because of Yard-Man, employers within the Sixth Circuit have spent billions on “vested” retiree healthcare over the past 30+ years.  Now that Tackett has been decided, employers should have a fair chance at defending against such claims.