Wyatt Employment Law Report

SIXTH CIRCUIT REJECTS RETIREES’ CLAIMS TO FIXED LIFETIME HEALTHCARE BENEFITS

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by Leila G. O’Carra

The Sixth Circuit recently issued two opinions addressing retired employees’ claims to lifetime, unchangeable healthcare benefits. In both cases, the Sixth Circuit rejected the retirees’ claims.  In Reese v. CNH America LLC, Nos. 11-1359/1969, the parties’ collective bargaining agreement (CBA) promised healthcare benefits to eligible retirees and their spouses for life.  The lawsuit arose when the employer, CNH, attempted to modify the scope of the retirees’ healthcare plan.  The retirees claimed that CNH could not alter their vested benefits without union approval. 

In rejecting the retirees’ claims, the Sixth Circuit held that healthcare benefits, unlike other kinds of benefits, cannot be “fixed” because of the constant evolution of medical advances and the fluctuation of healthcare costs attendant to such improvements.  Accordingly, the court reasoned, the employer necessarily retains the right to make unilateral “reasonable” changes to the retirees’ healthcare plan.  Furthermore, the court noted, the retirees had not complained about prior to changes to the plan.

The Sixth Circuit remanded the case to the district court to determine whether the changes proposed by CNH were reasonable considering the following:

  • Does the modified plan provide benefits “reasonably commensurate” with the old plan?
  • Are the proposed changes “reasonable in light of changes in health care?”
  • Are the benefits “roughly consistent with the kind of benefits provided to current employees?”

Judge Bernice B. Donald dissented from the majority opinion, writing that the retirees’ vested right to receive health care benefits for life precluded CNH from making unilateral changes to the level of benefits provided.  Judge Donald agreed with the district court’s holding that any changes to the plan “must be reached though negotiation and agreement between the union and the employer.”

Four days after deciding Reese, the Sixth Circuit, in Wittmer v. Acument Global Technologies, Inc., No. 11-1793, permitted the employer, Acument, to eliminate retirees’ health benefits based on reservation-of-rights language found in the parties’ CBA.  The AcumentCBA promises “continuous health insurance” to retirees and their spouses “during the life of the retiree.”  However, the document also specifies that the employer “reserves the right to amend, modify, suspend, or terminate the Plan.”  Relying on this language, Acument terminated plan benefits in 2008.  A class of 64 retirees sued, claiming that Acument violated the Labor Management Relations Act and the Employee Retirement Income Security Act.  The Sixth Circuit viewed the matter as purely contractual, and determined that pursuant to the terms of the contract, Acument reserved the right to terminate benefits at any time. 

In so holding, the Court rejected the plaintiffs’ argument that the grant of “continuous” benefits “during the life of the retiree” created “vested, unchangeable benefits.”  The Court reasoned that, in context, the term “continuous” meant simply that benefits would not terminate automatically when the CBA expired.  The Court also rejected plaintiffs’ assertion that the reservation-of-rights clause applied only to pension benefits, finding that the CBA dealt with healthcare and pension benefits together, and used the term “pension plan” and “plan” interchangeably to cover all benefits.      

Dissenting Judge David Dowd, Jr., (United States District Judge for the Northern District of Ohio, sitting by designation) found ambiguities in the benefits provision of the CBA and would have remanded the case to the district court and allowed extrinsic evidence to prove the intent of the parties with respect to vesting of benefits. 

Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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