would be left to “the contingencies of future negotiations.” Retiree benefits are “status” benefits. They carry the inference that they are to last as long as the prerequisite status—retirement—i.e., for life. Retiree healthcare benefits are not “interminable” by nature. “Rather, as part of the context from which the collective bargaining agreement arose, the nature of such benefits simply provides another inference of intent.” This “inference” alone is insufficient to prove interminable benefits, but this “contextual factor buttresses the already sufficient evidence of such intent in the language” of the CBA. The 30-Year War Over Yard-Man Employers have fierce battles seeking to overturn Yard-Man or, at least, to shrink it to a size where, to borrow from Grover Norquist, they “can drown it in the bathtub.” For 30 years, however, the Sixth Circuit has held the line. And, rightly so, by applying “the traditional rules for contractual interpretation.” Employers complain that Yard-Man improperly creates a presumption of vesting. The Sixth Circuit has repeatedly instructed that this is not so, emphasizing that Yard-Man merely supports, in some circumstances, an inference, helping to resolve ambiguities or confirm intent, entirely consistent with traditional contract interpretation rules. The Sixth Circuit has characterized the Yard-Man inference as a “nudge in favor of vesting in close cases.” Employers point to other Circuits that reject any contextual inference favoring vesting, and ask the Sixth Circuit to reverse Yard-Man. The Sixth Circuit has declined the invitation. Especially since Sprague v. General Motors Corp., a 1998 salaried retiree healthcare case, employers argue that healthcare can vest only when there is “clear and express” language indicating lifetime intent. The Sixth Circuit has rejected this argument and differentiates between bargained promises and unilateral commitments. CBA promises of vested retirement
existing indemnity plan with the managed care plan. He wrote that the court “could not ignore the reality that there was something different about this case—something that implicated the distinct question of what ‘vesting’ means in this context.” He wrote that “it blinked reality to say that the ‘vested’ benefits were forever unchangeable, given that the parties had allowed them to change, even in some ways that did not favor prior retirees.” Reese II again referred to this particularized “context,” the “parties’ practice under the 1998 CBA of altering healthcare benefits” and the 1998 creation of the managed care plan. This “context” led to the Reese I conclusion, the Reese II majority explained, that although retiree healthcare benefits were vested, still “CNH could make ‘reasonable’ changes to the healthcare plan covering eligible retirees.” Is Reese limited to its distinct “facts” and “context”? Or does Reese signal a new era of contract jurisprudence, in which judges become chancellors-in-equity who “reform” CBAs based on “evolving” social and economic policies? Because the Sixth Circuit denied en banc rehearing of Reese II, confusion about its meaning and scope will engender continuing litigation. Employers that Reese establishes a universal rule, permitting them to unilaterally change vested healthcare as long as the changes are “reasonable.” Since Reese I, and after Reese II, however, without directly addressing the broader implications, if any, of Reese, the Sixth Circuit has reaffirmed traditional contract principles and that vested benefits are “unalterable.” If Reese has broad implications--if Reese is read to permit unilaterally-imposed employer reductions in promised retiree healthcare based on “evolving” events—bad things will happen. Retiree healthcare lawsuits will be never-ending battles waged by lawyers and, worse, by “experts”: healthcare specialists, actuaries, demographers, labor economists, and financial prognosticators. Each “expert” will vie to convince judges that his or her “expertise” provides the true measure of what healthcare retirees ought to get in the “reality” of any given year. This
carefully circumscribed circumstances—to accommodate impossibility, to allow for the exigencies of war, to correct mistakes in reducing an agreement to writing, and to remedy fraud or duress, for example—but promisor’s remorse has never been a defense to breach. If you promise to pay on your mortgage, or on your car loan, or on your student loan, or on your obligations to compensate retirees for a lifetime of labor, you are supposed to keep your promise, even in hard times. This is so even if the housing market tanks, your rear bumper falls off, your Spanish literature degree equips you only to work at Taco Bell, and healthcare inflation exceeds the CPI. The Reese result—permitting CNH to litigate over the “reasonableness” of unilateral reductions based on standards that have nothing to do with the bargain made by the be derived from any plausible CBA construction. If the Reese result were to be given universal application independent of “facts” and “context,” the intent of the contracting parties in every case will be subservient to the “evolving” will of the judiciary, contrary to “the traditional rules for contractual interpretation.” Legal Principles, Not Social and Economic Policies, Govern Contract Enforcement The Reese II majority disregards what the CBA says and what the evidence proves about the parties’ intent—as Judge Donald’s dissent points out—in an effort “to resolve the case equitably.” But, as Judge Donald points out, the court “is one of law and not equity.” She observes that the majority offers “thoughtful analysis of the policy issues” when “it is the law that should determine the outcome of this case.” As a matter of law, one contracting party cannot escape its obligations because those obligations unexpectedly become more onerous due to “evolving” events. As the Sixth Circuit stated over a hundred years ago: The reasonableness of a contract, its fairness and justice, are to be determined as of the time when the parties entered into it, and so of the intentions involved in the
is that an employer can unilaterally modify retiree healthcare to accommodate economic “realities” even when the contracting parties made an agreement which did not insulate the employer from those “realities.” If Reese is read broadly—if it is not limited to its “context” and “facts”—we are witnessing the demise of foundational tenets of American contract law. Vested Contract Rights Cannot Be Altered Without Retiree Consent The Reese II majority departs from Pittsburgh Plate Glass, Yard-Man, and 30 years of Sixth Circuit precedent. Under Pittsburgh Plate Glass, “vested retirement rights may not be altered without the pensioner’s consent.” Under Yard-Man, benefits “once vested upon the employee’s retirement, are interminable.” Maurer says: “If benefits have vested, then retirees must agree before the benefits can be modified, even by a subsequent CBA between the employer and active employees.” As Loral suggests, a CBA may address “future vicissitudes” by allowing the employer to change vested benefits on “mutual agreement” or with union “consent,” but “such an arrangement” must be “agreed to” in the CBA before vesting; changes in vested benefits “cannot be imposed unilaterally by the employer or by the courts.” When post-IPO (Reese) retirees retired under the 1990 and 1995 CBAs, their rights vested in exactly the same manner as the rights of the pre-IPO (Yolton) retirees. Those vested rights, whatever they were, could not be altered without consent of the individual retirees, even by a subsequent agreement of the active employees and CNH, and certainly not by CNH “on its own.” Bilateral Contracts Are Subject Only To Bilateral Modification Once mutually agreed upon by contracting parties, mutual agreement is required to modify a bilateral contract. In Prater, Judge Sutton recited the traditional rule that “an existing contract cannot be unilaterally modified.” He wrote that this rule applies “with equal force to collective-bargaining agreements.” In Prater, Judge Sutton applied this general contract rule in
extreme ‘whittling.’” Still, Tackett approved of the following “whittling”: (1) a 250% increase in drug co-pays, from $4.00 to $10.00 per prescription; (2) a $75 increase in the annual deductible, from $175 to $250; (3) and an 800% increase in the annual out-of-pocket maximum, from $500 to $4,000 per family. According to Tackett, these unilateral changes were “not so large that the district court clearly erred in finding [them] to be ‘reasonable in light of changes in health care.’” Tackett and Yolton By failing to limit Reese I to situations where there was “something different” from the ordinary Yard-Man context, Tackett seemingly authorizes employers to unilaterally “whittle” vested benefits unless the CBA contains “statements to the contrary,” subject only to the application of the “extreme ‘whittling’” standard. Tackett seems unaware that Yolton involved the same CBA language and, in particular, the same 1990 CBA that Reese addressed. Tackett seems unaware that the presence or absence of “mutual consent” restrictions—i.e., CBA “statements to the contrary” restricting unilateral employer action—was not a factor in Yolton and was not the predicate of Reese I. Again, the rationale for Reese I was the “historical feature of this case that, as best we and the parties can tell, has no parallel in Yolton.” That “historical feature” was the 1998 CNH negotiations which, according to Reese I, resulted in a “material alteration” in the benefits of existing retirees. That “feature” was the predicate in Reese for articulating and applying its “reasonableness” standard. There was no remotely similar “historical feature” in Tackett and nothing to distinguish Tackett from Yolton or other decisions—at least nothing that can be discerned from Tackett’s limited discussion of the facts and the law on this point. Yolton was a reaffirmation of the concept of vesting as it has been historically viewed. “If a welfare benefit has vested, the employer’s unilateral modification or reduction of
A Seismic Shift? Before Reese, under Yolton, vested benefits “remain[ed] at the same level for the lifetime of the beneficiary.” Under Tackett, vested benefits may be unilaterally reduced by an employer, subject only to “our reasonableness requirement.” Before Reese, under Loral, even a 1% unilateral reduction in benefits “cannot be reconciled with our prior case law.” In Tackett, the court approved a unilateral 800% increase in a retiree’s annual out-of-pocket medical expenses as falling within the range of “reasonableness” left to district court discretion. This seismic shift in the concept of what vesting means is remarkable; more so given the fact that Judge Martin and Judge Cole were on the panels of both Yolton and Tackett and Judge Martin and Judge Keith were on the panels of both Loral and Tackett. After Tackett, retirees litigating in the Sixth Circuit may have legitimate concern about judicial predictability. Tackett and the Brackets Close review of Tackett may provide particular cause for concern. Tackett rejected the plaintiffs’ argument that the CBA promised specific benefit levels, but omitted operative CBA language. Tackett quoted the following language from the 2000 CBA: “Employees who retire on or after January 1, 1996...will receive a full Company contribution toward the cost of [health care] benefits....” The court inserted the bracketed term “health care” in place of the actual CBA language. The actual CBA language—including what was left out in the Tackett opinion—is (emphasis added): “Employees who retire on or after January 1, 1996...will receive a full Company contribution towards the cost of the benefits described in this Exhibit B-1.” The “benefits described in this Exhibit B-1” include the $4.00 drug co-pay, the $175 annual deductible, and the precise dollar amounts of the individual and family annual out-of-pocket maximums that were unilaterally increased by M&G.
to the contingencies of future negotiations.” More than unlikely, it is impossible to imagine that a union would agree to leave the scope of “such benefits” to employer fiat. It is impossible to imagine, too, that a union would agree to leave the scope of retiree healthcare to judicial assessment of what is “reasonable” and “sensible” years or decades after that healthcare was (1) earned by 30-plus years of labor, (2) promised in CBAs, and (3) vested at retirement. To borrow from Judge McKeague in Noe, courts may be “cognizant” of the “overall climate” affecting healthcare costs, but “in the absence of impossibility of performance, it is not the prerogative of the judiciary to rewrite contracts in order to rescue parties from ‘their improvident commitments.’” To borrow from Judge Clay in Moore, “if an employer chooses to vest benefits, it renders those benefits ‘forever unalterable.’” To reiterate what every judge, every lawyer, every retiree, and every kindergartner knows: a promise is a promise.