Who Killed Yard-Man?

It is probably ERISA's greatest "whodunit." Our story begins innocently enough, many years ago when an employer's cost of providing medical benefits was a pittance. Little cost meant little worry, and many employers did not think twice about promising their faithful employees "lifetime" medical benefits. Unfortunately, things changed. Medical care improved and people lived longer. While these developments are wonderful in themselves, they are economically disastrous when played out over many years and thousands of lives. Medical breakthroughs and technological innovations cost a lot of money. While medical premiums for active employees skyrocketed, the premiums for the medical care of retirees (who often live in the shipwreck of old age) went into hyperspace. Things got worse.

General Motors announced on February 1, 1993, that it was taking a $23 billion charge on its financial statement to reflect the current value of its retiree medical obligations. Further compounding these problems was an increasingly competitive global economy. For example, car parts made for generations in the Rust Belt were now being manufactured by low-cost producers located in Taipei or Timbuktu. It is little wonder that employers began to rethink their position on retiree medical benefits. Since these promises were in legal documents like summary plan descriptions or collective bargaining agreements, lawyers were called in to assist with this endeavor. When employers took action to change retiree medical plans, litigation frequently ensued. Enter Yard-Man.

Litigating Collective Bargaining for Retiree Medical-Benefit Disputes

Whether or not an employer has the right to change medical benefits for retired employees turns on what that employer has promised them. Retiree medical-benefit disputes are complicated because an employer's agreement to provide medical benefits is regulated by the Employee Retirement Income Security Act ("ERISA") and (in the case of collectively bargained-for retiree medical arrangements) by the Labor Management Relations Act ("LMRA"), Section 301.

When a collective bargaining agreement expires, the employer is ordinarily free to modify or terminate any retiree medical benefits provided under that collective bargaining agreement. In Litton Financial Printing Div., a Division of Litton Business Systems v. NLRB,1 the Supreme Court explained that the layoff of 10 factory workers after the expiration of a collective bargaining agreement was not subject to the expired contract's grievance and arbitration procedure:

As with the obligation to make pension contributions in Advance Lightweight Concrete Co., other contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement. Exceptions are determined by contract interpretation. Rights which accrued or vested under the agreement will, as a general rule, survive termination of the agreement.2

Further complicating this area is the fact that bargaining for retired employees is a permissive, rather than a mandatory, subject of collective bargaining (because retired employees are no longer members of the bargaining unit).3 The law has developed differently in each circuit. A large part of the Midwest, including Ohio, was retiree-friendly from the start. Cases in the Circuit Courts of Appeal are all over the place about how to deal with retiree medical-benefit disputes. For example, the Seventh Circuit's en banc decision in Bidlack v. Wheelabrator Corp.4 established that an employee's entitlement to retiree medical benefits is presumed not to be vested. The Sixth Circuit has ruled, on the other hand, that retiree medical benefits are presumed to vest.5 Two Circuit Courts insist that express language be used to vest retiree medical benefits.6 Three Circuit Courts make no presumptions.7 Simply put, whether collectively bargained-for retiree medical benefits vest will be determined as a matter of federal common law under the Taft-Hartley Act, Section 301, as interpreted by the federal circuit where the case is litigated.8

One of the earliest Circuit Court of Appeals decisions to consider collectively bargained-for retiree medical benefits was perceived as announcing the following rule:

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. Thus, when the parties contract for benefits which accrue upon achievement of retiree status, there is an inference that the parties likely inferred those benefits to continue as long as the beneficiary remains a retiree.9

The facts in Yard-Man are familiar: The company tells the union it is shutting down a factory and will end the payment of retiree medical benefits on the last day of the collective bargaining agreement. The union sues, claiming the retiree medical benefits were "lifetime" benefits that cannot be terminated.10 The company responds that the contract is clearno retiree benefits outlive the termination of the union contract. In Yard-Man, the key provision of the contract in dispute stated: "[w]hen the former employee has attained the age of 65 years then . . . [t]he [c]ompany will provide insurance benefits equal to the active group benefits . . . for the former employee and his spouse."11

The Sixth Circuit found this language to be ambiguous: "The language 'will provide insurance benefits equal to the active group' could reasonably be construed, if read in isolation, as either solely a reference to the nature of retiree benefits or as an incorporation of some durational limitation as well."12 Due to this ambiguity, the Sixth Circuit said that to determine "whether retiree insurance benefits continue beyond the expiration of the collective bargaining agreement depends upon the intent of the parties."13 It then detailed seven rules courts should use to examine extrinsic evidence to divine the parties' intent:

Traditional rules for interpreting contracts should be applied in a manner consistent with federal labor policies.

The court should first look to the explicit language of the contract for clear manifestations of intent.

Explicit language should be viewed in light of the context that gives rise to its inclusion.

Each contract provision should be interpreted as part of an integrated whole.

The contract's terms should be construed so as to render none nugatory and avoid illusory promises.

Where ambiguities exist, the court may look to other words and phrases in the contract for guidance.

The court should review the interpretation ultimately derived from its examination of the language, context, and other indicia of intent for consistency with federal labor policy.14

The mischief in Yard-Man's reasoning is the way in which it points to the use of extrinsic evidence before examining the actual words of the contract. By pre-supposing and inferring an "intent to vest" retiree medical benefits, Yard-Man made the express words of almost every contract ambiguous. The "inference of vesting" shifted to the employer the burden of disproving that it vested retiree medical benefits.

All of the circuits employ approaches similar to the Yard-Man rules described above when examining the relevant contractual provisions. Whether a collective bargaining agreement vests medical benefits is, of course, a question of contract interpretation.15 The language of the parties' agreements is examined in detail to determine whether the intent to provide unchangeable retiree medical benefits has been unambiguously expressed. In making this determination, the core issue is whether the parties intended to vest retiree medical benefits or whether they intended to tie those benefits to the duration of the collective bargaining agreement.16 The contractual provisions that receive the most attention typically include clauses that define eligibility for retiree medical benefits, the termination of coverage, the reservation of the right to amend or terminate the plan, and durational provisions. The court often finds the agreement between the parties to be comprised of a series of documents, including the collective bargaining agreements, summary plan descriptions, and enrollment forms used by the parties over the course of many years.17 The conduct of the company's representatives may also show an intent to vest retiree medical benefits.18

After considering the evidence, the Yard-Man court ruled that retiree medical benefits were intended to outlive the collective bargaining agreement.19 And after the Sixth Circuit indicated that it favored the vesting of retiree medical benefits, a plague of plaintiffs' cases descended upon the federal district courts within the Circuit. Within a short time, some Sixth Circuit cases began to expand this "rule": "This court has recognized that normally retiree benefits are vested."20 Yet other Sixth Circuit decisions were more circumspect about the alleged "Yard-Man" inference.21 While the vitality of the Yard-Man inference has waxed and waned within the Sixth Circuit over the past 20 years, in its most recent decision, Yolton v. El Paso Tennessee Pipeline Co.,22 the Sixth Circuit appears to have finally killed off the Yard-Man inference:

This [c]ourt has never inferred an intent to vest benefits in the absence of either explicit contractual language or extrinsic evidence indicating such an intent. Rather, the inference functions more to provide a contextual understanding about the nature of labor-management negotiations over retirement benefits. That is, because retirement health care benefits are not mandatory or required to be included in an agreement, and because they are "typically understood as a form of delayed compensation or reward for past services" it is unlikely that they would be "left to the contingencies of future negotiations." Yard-Man, 716 F.2d at 1481-82 (citations omitted). If other contextual factors so indicate, Yard-Man simply provides another...