In 46 states within the U.S., 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 UAW v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), 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 29 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 has 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 has agreed with Yard-Man, and every federal appellate court to consider it has 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. 

But during those same 29 years, the world of health insurance has changed dramatically.  Everyone knows that health insurance costs have skyrocketed.  Health insurance plans, too, have changed, with physician networks, managed care, and a host of other cost controls.  The fully paid health insurance once available in the 1970s has all but disappeared for consumers and workers today.  Congress has altered the picture as well, in 2003 adding Medicare Part D providing prescription drug coverage, and, of course, the dramatic changes in health care upheld by the Supreme Court this summer in National Federation of Independent Business v. Sebelius, Case No. 11-393 (June 28, 2012).

The question posed by all of these changes in the Sixth Circuit then is whether, if welfare benefits “vest” as a result of Yard-Man, the employer can make changes to the benefits it provided in the distant pass. Employers received a welcome breath of fresh air last week in the Sixth Circuit’s decision in Reese v. CNH America LLC., Case Nos. 11-1359/1857/1969 (6th Cir. Sept. 13, 2012). 

Reese was a typical Yard-Man case in most respects.  The Reese case involved the employer’s obligation under a 1998 collective bargaining agreement to provide life-time retiree healthcare benefits. Unlike some Yard-Man cases, however, the employer had reduced but not terminated benefits outright.  Both the district court and Sixth Circuit disregarded the contract’s expiration clause under Yard-Man and held that the entitlement to benefits vested.  In 2009, however, the Sixth Circuit held that while the right to benefits had vested, the district court needed to determine whether the reduction in benefits was reasonable and it remanded the case.  Reese v. CNH America LLC., 574 F.3d 315, 318-20 (6th Cir. 2009).

On remand, the district court conducted no review of the reasonableness of the changes, but simply ruled that the employer could not make changes without the union’s consent.  The employer appealed again.

The Sixth Circuit’s opinion begins with the apt observation that “In litigation, as in film, sequels rarely satisfy.  This case is no exception.”  The court then went on to review many of the changes in health care that had taken place even since 1998 and also the district court’s failure to undergo the reasonableness analysis its first opinion had directed.  With reluctance, the court remanded the case again to develop facts relating to the reasonableness of the employer’s changes.  These included the cost of the benefits to the retirees under the old and new plans, changes in costs, quality of care, and the benefits provided to current employees. 

This second Reese decision is of vital importance to employers in the Sixth Circuit with retiree benefit obligations under Yard-Man because it not only recognizes their right to make reasonable changes to benefits, but reverses a district court for failing to do so and also sets standards for making that determination.  While the Reese standard is likely to be fleshed out in future case law, it may provide relief to employers with staggering retiree health care obligations.

The Bottom Line:  The Sixth Circuit now recognizes the right of unionized employers to make reasonable changes in retiree medical benefits under Yard-Man.