Supreme Court Sides With Employer in ERISA Dispute

Author: David B. Weisenfeld, XpertHR Legal Editor

January 27, 2015

The Supreme Court has ruled unanimously that a group of retired employees are not necessarily entitled to permanent, contribution-free health care benefits. In M&G Polymers USA v. Tackett, about 500 retirees claimed they were entitled to lifetime benefits based on the terms of a collective bargaining agreement. But in rejecting those claims, the Court said, "An employer's commitment to vest such benefits is not to be inferred lightly."

The employer, M&G Polymers, had entered into a 2000 agreement with the United Steelworkers to provide full contributions toward health benefits for certain retirees. When the CBA expired in 2006, the company announced it would require the retirees to make contributions.

The retirees and the United Steelworkers then filed a class action under the Employee Retirement Income Security Act (ERISA) and the Labor Management Relations Act (LMRA) claiming the CBA had created a vesting right to lifetime benefits for the retirees, their surviving spouses and their dependents. M&G countered that any such rights terminated when the CBA expired.

In siding with the company, the Supreme Court expressed concern that other employers would be discouraged from offering these benefits plans if it read free lifetime benefits into the agreement.

Writing for the Court, Justice Clarence Thomas explained, "Employers or other plan sponsors are generally free under ERISA at any time to adopt, modify or terminate welfare plans." He also said any inference that these benefits could not be removed after the CBA's expiration would be inconsistent with ordinary contract law principles.

While a federal district court in Ohio dismissed the retirees' class action, the 6th Circuit Court of Appeals reinstated the lawsuit and barred the company from requiring any retiree contributions, leading to Supreme Court review.

Several employer groups, including the Society for Human Resource Management (SHRM) and the US Chamber of Commerce, had filed briefs in the case backing the employer's position.

With the Supreme Court's ruling, the case now heads back to the 6th Circuit for the appellate court to apply ordinary contract law principles to the collective bargaining agreement.