In a new decision, the United States Supreme Court has demanded that lower federal courts adhere to basic principles of contract interpretation when deciding the meaning of the language in a union collective bargaining agreement (CBA). In a case involving the longevity of union retiree health benefits, the Court took express issue with — and effectively overruled — lower court decisions that relied on interpretive inferences over traditional principles of contract interpretation. The decision, M&G Polymers USA, LLC v. Tackett, requires courts to place significantly more emphasis on the actual language — or lack thereof — of the collective bargaining agreement when deciding what the agreement means. As a result, the case is likely to cause parties negotiating collective bargaining agreements to be more careful about the drafting of, and the language used in, those agreements.
In Tackett, the Supreme Court was faced with a class action lawsuit brought by a group of retired employees of M&G Polymers USA. The retirees commenced the lawsuit when M&G announced that it would begin requiring retiree contributions to the cost of their health care benefits even though the retirees alleged “that M&G had promised to provide lifetime contribution-free health care benefits for them, their surviving spouses, and their dependents.” In making their argument, the retirees relied upon language in a collective bargaining agreement that had a three-year term. M&G took the position that the retiree benefits at issue were a promise only for the term of the CBA.
In deciding the case, the Supreme Court made plain that collective bargaining agreements are to be interpreted no differently than any other contract:
“We interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy.”
The Court went on to enunciate common interpretive mistakes that lower federal courts were making when analyzing the language of CBAs. As it did so, among others, the Court reminded lower courts of the following concepts:
- A court may not violate ordinary principles of contract interpretation by “placing a thumb on the scale” in favor of vested retiree benefits in all collective bargaining agreements.
- Though courts are allowed to look to “known customs or usages in a particular industry” to interpret a contract, “the parties must prove those customs or usages using affirmative evidentiary support in a given case.” In other words, courts may not rely on interpretive inferences that are not supported by case-specific evidence.
- Courts must adhere to the contract law principle that the written agreement is presumed to encompass the entire agreement of the parties.
- Courts should not find a promise in a CBA to be illusory merely because it does not equally benefit all union members or, in this case, all retirees.
- Courts should not construe ambiguous writings to create lifetime promises.
- Courts should recognize the traditional contract law principle that “contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.”
On this last point, the Court went on to say that the parties to a CBA are not precluded from intending to vest lifetime benefits in retirees, but, if the parties intend to do so, they must be explicit in the CBA about their intent. The Court stated:
But when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.”
After enunciating these basic contract law principles, the Court vacated the judgment of the Court of Appeals that had found in favor of the class of retirees and remanded the case to that court “to apply ordinary principles of contract law in the first instance” to the case.
Presumably, the principles articulated by the Supreme Court would apply to most cases involving the interpretation of a CBA, not just those involving the issue of retiree health insurance. The case is a reminder to those negotiating and drafting union collective bargaining agreements that both the plain language used — and the silence remaining — in a CBA have import and should be carefully considered. All contracts — whether CBAs or otherwise — contain ambiguities. This case lets drafters know that, in areas of importance, they should draft language as plainly and directly as possible.