Pulling the Plug on Lifetime Benefits
After a court ruled that Honeywell wrongly denied lifetime healthcare benefits to some retirees, experts say employers should think twice before attempting to end similar programs.
By Maura C. Ciccarelli
Last month, a federal judge ruled that approximately 500 Honeywell International retirees from a Greenville, Ohio, plant were entitled to lifetime healthcare benefits, rejecting an attempt by the company to discontinue the coverage.
In the Fletcher v. Honeywell International decision, Judge Walter H. Rice of the U.S. District Court for the Southern District of Ohio wrote, "It is inconceivable that nearly half the union employees at the Greenville plant would agree to voluntarily retire based solely on a promise that they would continue to receive health care benefits until May 22, 2014, when the expired."
The plaintiffs successfully argued that Honeywell had been paying retirees healthcare benefits based on prior CBAs since the early 2000s, a factor that lent credence to the lifetime benefit interpretation. It was only after the Supreme Court's 2015 decision in the M&G Polymers USA v. Tackett case that Honeywell reassessed its obligation to continue lifetime healthcare benefits, Rice wrote.
In a written statement to Human Resource Executive magazine, a Honeywell spokesman said, "Honeywell disagrees with the court's decision and will be filing an appeal with the Sixth Circuit."
In the Tackett case, the Supreme Court seemed to open the door to eliminating lifetime healthcare benefits by ruling that CBA language should be held to the same standards of interpretation as ordinary contract principles. This rejected longstanding CBA-language interpretation established by a 1983 Sixth Circuit ruling in International Union v. Yard-Man, Inc. The resulting "Yard-Man inferences" said that CBAs intend to vest retirees with a lifetime healthcare benefit, when there is no specific contract provision or other evidence to the contrary.
The rub in the 2015 Tackett ruling was noted in the concurring agreement written by Justice Ruth Bader Ginsburg: when faced with ambiguous CBA language, the courts should also consider all external evidence, including documents and testimony about what the parties intended, rather than just the contract language itself.
"I think it was a correct ruling and stands for the proposition that Tackett does not mean that employers don't have to honor contract language in CBAs," says Bill Wertheimer, a private practice attorney based in Bingham Farms, Michigan, who represented some of the plaintiffs who were covered under United Auto Workers contracts with Honeywell dating back to 2003. The judge also found the language to be "ambiguous," Wertheimer says, because the lifetime benefit was promised to surviving spouses and children but didn't address retirees.
"With Honeywell, we have a poorly drafted agreement, which led to a finding of lifetime vested benefit for retirees," says Amanda Wingfield Goldman, of counsel in the labor and employment and litigation sections of Coats Rose in New Orleans. "I wouldn't advise employers to be alarmed, but I would advise them to look at their CBA and talk with their labor lawyers before they freak out."
Goldman says Tackett "won't always be a win for employers. The courts will no longer be able to infer an intent [based on Yard-Man] but they can still use the CBA language and relevant external evidence to find such benefits."
"It's a reminder that courts are going to be looking at what the parties intended and that the [Tackett] Supreme Court decision is not a ticket to strategically discontinuing healthcare coverage to retirees," says Ruairi McDonnell, an attorney with Feinstein Doyle Payne & Kravec, based in Pittsburgh, whose firm represents retiree plaintiffs.
In addition to the Greenville case, retirees from two other Honeywell plants -- one in Boyne City, Mich., and the other in Stratford, Conn. -- won their challenges to the plan to discontinue their healthcare benefits but retirees from a Fostoria, Ohio, did not win their case.
Stewart Schwab, the Jonathan and Ruby Zhu Professor of Law at Cornell Law School, in Ithaca, N.Y., noted that when companies and unions find it difficult to reach a consensus on benefits for retirees, "sometimes the parties almost intentionally don't resolve it in an airtight way, which makes it especially difficult to figure out what the parties originally intended. Often they almost can't reach agreement on this particular issue and just leave it to be resolved by . . . the courts."
David Rosenfeld, lecturer at the University of California-Berkeley, and a partner at Weinberg, Roger & Rosenfeld in Alameda, Calif., says employers without CBAs should be aware that they may be vulnerable to lifetime benefit challenges based on language in their summary plan descriptions.
If companies are considering eliminating lifetime benefit guarantees in future negotiations or employee benefit plans, there are other HR-related implications to consider beside costs, especially in light of recent changes proposed to Medicare and the former Affordable Care Act programs, says Terese Connolly, partner and employment specialist for Culhane Meadow based in the firm's Chicago office.
"We all know it's not just about what the law says but also about how you manage your employee morale," she says.
HR plays a role in talking to company leaders not just about cost impacts of retaining or eliminating lifetime healthcare benefits, but also in reminding leaders about the human side of the issue. Connelly recommends carefully designing CBA and benefit plan summary language to promote flexibility and affordability for both sides. That way, companies can change the programs if needed "in a way that doesn't completely destroy employee morale," she says.
Finally, Connelly warns that companies need to watch what they do about retiree benefits and how they do it because millennial generation employees are watching.
"As we know, millennials are more likely to jump ship if you start doing things that don't sound right to them," she adds. Developing a balanced employee retiree program is "really about trying to attract people who are going to stay with you for the long haul."
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