Tuesday, December 23, 2008

Enforcing Promises of Lifetime Health Benefits

Rockwell_2 Mitchell Rubinstein over at Adjunct Law Prof Blog posts today on the huge Sixth Circuit decision last week of Cole v. ArvinMeritor, Inc., No. 06-2224 (Dec. 16, 2008). 

Rockwell Automation and its successor companies promised, in a collective bargaining agreement signed with the United Auto Workers, that

The Health Care . . . Coverages an employee has under this Article at the time of retirement or termination of employment at age 65 or older . . . shall be continued thereafter provided that suitable arrangements can be made with the Carrier(s).  Contributions for coverages so continued shall be in accordance with [another provision of the CBA].

This contract language, the district court concluded "unambiguously promises lifetime benefits."  The defendants appealed, arguing that the following provision of the CBA limits retiree insurance coverage to the duration of the CBA:

This [Insurance] Agreement and [Insurance] Program as modified and supplemented by the [Insurance] Agreement shall continue in effect until the termination of the Collective Bargaining Agreement of which this is a part.

Not so, concluded the Sixth Circuit.  General durational clauses such as this refer only "to the length of the CBAs and not the period of time contemplated for retiree benefits."  They therefore "cannot trump contractual promises of lifetime retiree healthcare benefits."

As Mitch points out, this is a major case.  The Big Three and their myriad suppliers (a large proportion of which are in the Sixth Circuit) are looking to retiree health benefits as one way of cutting legacy costs.  Cole takes many of these retirement benefits plans off the table -- at least those plans with contractual language similar to that at issue in Cole

But retirees shouldn't be popping any corks -- the bottles may be filled with vinegar, for two reasons.  First, Cole itself distinguishes an earlier case which had held that a company may not have to pay for retiree benefits if the facility covered by the CBA closes.  Second, companies can file for Chapter 11 bankruptcy and walk away from their CBAs as part of the reorganization, as the Northwest Flight attendants case demonstrated a couple of years ago.  Cole thus may make plant closings and bankruptcy look more attractive to automakers and their suppliers looking to slash legacy costs.

For more on how companies can use bankruptcy to reject collective bargaining agreements, see my article (with Donald Smith) Reconciling Labor and Bankruptcy Law: The Application of 11 U.S.C. Section 1113, 2001 MSU L. Rev. 1145 (2001).




Labor Law, Pension and Benefits | Permalink

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