ERISA-District Court Rules That Retiree Health Benefits Are Not Vested And May Be Altered By The Employer

In Grove, Sr. v. Johnson Controls, Inc., Civil No. 1:12-CV-02622 (M.D. Pa. March 31, 2016), in an action brought under ERISA and the LMRA, the plaintiffs allege that the defendants violated their rights to retiree health benefits. After reviewing the case, the District Court (the “Court”) granted summary judgment for the defendants.

In this case, every few years since 1973, the Union in question has negotiated a collective-bargaining agreement (“CBA”) with Johnson Controls, Inc. (“Johnson Controls” ) or its predecessors relating to, among other things, active and retiree health insurance benefits for both employees and former employees of the York Plant. Each CBA incorporated by reference a separate booklet, the “Group Insurance Program” (“GIP”), that specifically addressed health and welfare benefits. Throughout the years, these health benefits remained fairly consistent from agreement to agreement. However, in 2009, Johnson Controls unilaterally reduced retiree health benefits by instituting a $50,000.00 lifetime cap on benefits payable for each participant sixty-five years of age and older. As a result of the cap, some plaintiffs are no longer eligible for retiree healthcare benefits because they have reached the $50,000 lifetime coverage limit. This suit ensued.

In analyzing the case, the Court noted that, in its unanimous decision in the Tackett case, the U.S. Supreme Court rejected the inferences in favor of vesting set forth in the Sixth Circuit’s Yard-Man case and its progeny, and reaffirmed that collective bargaining agreements are to be interpreted according to ordinary principles of contract law, at least to the extent not inconsistent with Federal labor policy. The Supreme Court emphasized that a court’s objective when interpreting a collective bargaining agreement, as with any contract, is to give effect to the contractual rights and expectations of the parties.
Using this guidance, the Court found that:

— the applicable language in certain of the CBAs was unambiguous and did not express the intent to create unalterable, lifetime benefits.

–the applicable language in other CBAs and the GIPS have explicit durational clauses providing the exact date and time when those documents ceased to be in effect, as well as additional language contemplating the termination of retiree health benefits. In the face of these provisions, the “until death” language appearing in those documents does not constitute clear and express vesting language sufficient to overcome the durational provisions. Since the durational clauses must be given effect, the Court finds that those CBAs and the GIPs did not promise any benefits beyond the expiration of the relevant contract, and the retiree benefits do not vest.

–a reservation of rights in the GIPs is unambiguous, and further forecloses any notion of vesting.

The result is that the retiree health benefits in question are not vested, and may be reduced by Johnson Controls.

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