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Lifetime health benefits had vested so successor employer must restore them

By Lisa Milam, J.D.

As a matter of contract interpretation, the retirees’ lifetime benefits had vested and survived the CBA’s expiration. The appeals court affirmed a permanent injunction ordering the employer to reinstate the benefits.

A successor employer could not terminate retirees’ healthcare benefits because the benefits had vested and so survived the expiration of the operative collective bargaining agreement, which provided for lifetime benefits. In an appeal brought by the employer seeking to vacate a district court injunction ordering it to reinstate the benefits, the sole question before the Seventh Circuit was whether the benefits survived the contract’s termination. Because the answer to that question was “yes,” the appeals court affirmed the grant of injunctive relief (Stone v. Signode Industrial Group, LLC, November 20, 2019, Hamilton, D.).

The employees worked for Acme Packaging before retiring after 46 and 37 years of employment, respectively. They continued to receive healthcare benefits under a CBA negotiated by the Steelworkers in 1994. After Acme went into bankruptcy, it reached new CBAs with the union in 2001 and again in 2002, which the bankruptcy court approved. After emerging from bankruptcy in 2003, Acme was acquired by Illinois Tool Works. Although Illinois Tool Works closed the plant where the employees had worked, and the CBA expired in 2004, Illinois Tool Works continued to provide benefits under the agreement.

CBA terminated. In 2014, Illinois Tool Works spun off part of its business and transferred its obligations under the relevant CBA (along with other assets and liabilities) to defendant Signode Industrial Group. In 2015, Signode announced it was terminating the CBA. When it terminated the agreement, Signode also stopped providing the promised benefits to the retired steelworkers and their families, despite the contract language in the CBA’s “pensioners’ agreement,” which provided that benefits continue “so long as the individual remains retired from the Company or receives a Surviving Spouse’s benefit, notwithstanding the expiration of this Agreement.”

Lower court proceedings. Two union retirees filed a putative class action suit against Signode and Illinois Tool Works, seeking to enforce the healthcare benefits under the CBA. The district court found that the CBA provided for unilateral termination of the agreement, but did not provide the right to unilaterally terminate vested benefits, which survived the expiration of the agreement. Therefore, the district court issued a permanent injunction ordering the employer to reinstate the benefits. This appeal ensued.

Yard-Man presumption. The Sixth Circuit’s “Yard-Man” presumption that retiree benefits have vested did not survive the Supreme Court’s 2015 decision in M & G Polymers USA, LLC v. Tackett. However, the appeals court noted, employers are free to enter into union contracts which provide for the vesting of lifetime benefits. Post-Yard-Man, whether an employer has in fact done so is a matter of standard contract interpretation. In this case, the 2002 pensioners’ agreement “unambiguously provided retirees with vested lifetime health-care benefits,” the appeals court observed.

No right to terminate benefits. The contract’s coverage provision states “as plainly as possible” that retiree coverage would survive expiration of the CBA. The employer cited a term provision in the CBA, but that clause gave the employer the right to terminate the CBA itself, not the benefits, the court explained, refusing to treat the term clause as “a loophole that nullified the plain promise that benefits would survive expiration of the Agreement.” To interpret the term provision in this manner would conflict with the coverage provision, and the “notwithstanding termination.” language. The employer sought to argue that the contrary interpretation would render the term provision “practically superfluous,” but the appeals court did not agree. At worst, the employer’s reasoning was “tortured,” at best, the superfluous line of attack “cuts both ways.”

“The Term Provision here was nothing more than a durational limit,” the appeals court concluded, a unilateral termination right to give the parties to a CBA the flexibility to extend it beyond a soft termination date. The employer’s “superfluity” theory—”which by its reasoning would apply to all durational limits on benefits agreements—would lead to the impractical conclusion that no health-care benefits program could create vested benefits if it even contemplated the expiration of the agreement.”

Finally, the appeals court pointed out, even if the vesting provision in question here were ambiguous (which it is not), extrinsic evidence supported the court’s finding here that the benefits had vested—including similar language in other Steelworkers’ contracts providing for vested benefits—and the actions of company officials who told employees that their retiree benefits would last a lifetime, but only if they retired under the 2002 agreement in question.

Therefore, the appeals court upheld the district court’s finding that the CBA provided for vested lifetime benefits and affirmed the district court’s permanent injunction ordering those benefits to be restored.