Thursday, March 20, 2008

Split Noted: What Presumption Should Apply When Determining Whether Retiree Health Benefits Have Vested?

Per Noe v. PolyOne Corp., 2008 WL 723769, *16-*17 (6th Cir. Mar. 19, 2008)

The ability of manufacturers to meet their legacy costs is an issue of great importance in the current troubled economy. Unilateral alteration or termination of vested benefits violates § 301 of the Labor Management Relations Act. Pension benefit plans are subject to mandatory vesting, whereas welfare benefit plans (such as the health benefits at issue in this case) do not automatically vest. Thus, courts must evaluate the agreements at issue in determining whether the parties to a welfare plan agreement intended the benefits to vest.

In this case, Plaintiffs (retirees and spouses of deceased retirees) brought suit against PolyOne Corporation (formerly a division of B.F. Goodrich) for unilaterally altering the health benefits to which the allege entitlement. The text of their agreement was unclear as to whether the health benefits were even extended to the employees at issue, much less as to whether they had vested. Relying on the fact that PolyOne treated the employees as if they had had the benefits until 2006, both the trial and appellate court answer the first question in the affirmative. On the vesting issue, the district court granted summary judgment to PolyOne, finding that they had not vested. This panel of the Sixth Circuit reverses, finding as a matter of law that the benefits had vested. Judge Sutton dissents in relevant part, arguing that, because there was evidence cutting both ways, the issue of whether the benefits had vested was not fit for summary judgment and should have been left for a jury to determine.

At the conclusion of his dissent, Judge Sutton notes a circuit split on the issue of what inference or presumption should apply when resolving the issue of whether welfare benefits under collective bargaining agreements have vested. He notes three possible positions, with relevant support:
  1. Presumption against vesting because a company’s unchangeable promise to pay healthcare benefits for life is a significant and unusual one—particularly when it arises from a three-year contract. CAs 3,4,7,8.
  2. Presumption in favor of vesting because retirees who lose benefits often are not in a position either to return to work or to require their union to negotiate new benefits. CA 6 – see the next paragraph.
  3. No presumption because these contracts should be interpreted no differently from other collectively bargained contracts. CA 1.

Judge Sutton did not include the Sixth Circuit in category 2, arguing that Yard-Man was less a presumption and more an inference. Nonetheless, he acknowledges that the Sixth Circuit, in this case and others, appears to apply this precedent in a manner befitting a category 2 presumption.

If your legal realism bone is tingling, it could be because the Sixth Circuit is made up of several states, including Michigan and Ohio, at the core of the rust belt with strong labor union traditions.

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