Second Circuit Renders Important Decision on Vested Retiree Benefits

Quick Hits

• The U.S. Court of Appeals for the Second Circuit found that specific language in a CBA could be reasonably interpreted as promising vested benefits, which would extend beyond the expiration of the agreement.
• Provisions in the CBA related to benefits allowances and life cycle assistance programs were deemed capable of being interpreted as forms of deferred compensation, creating rights that vested during the term of the agreement.
• The court held that a reservation-of-rights clause in the plan documents did not conclusively preclude the interpretation that the CBA promised vested retiree benefits.

Case History and the Second Circuit’s Decision

The case arose when the company modified health benefits for employees who retired before the expiration of the 2018–21 CBA. The union filed a grievance, arguing that these benefits had vested and could not be terminated. The union sought to enforce the expired CBA’s arbitration provision. The company filed a petition in the U.S. District Court for the Western District of New York for injunctive and declaratory relief, and to stay and enjoin arbitration.

The district court ruled in favor of the company, concluding that the retiree benefits had not vested and, thus, were not subject to arbitration. The union appealed this decision to the U.S. Court of Appeals for the Second Circuit, which vacated the district court’s judgment and remanded the case for further proceedings, finding that the language in the CBA could reasonably be interpreted as promising vested benefits, making the grievance arbitrable.

The court’s analysis focused on several key aspects of the agreement:

• Language in the CBA: The court examined the language in the 2018–21 CBA and the incorporated plan documents. Although noting that, in general, an expired CBA is unenforceable, it found that phrases such as “continues participation in the Plan … until” and “shall continue as a Participant in the Plan until his or her death” could reasonably be interpreted as promising vested benefits. This language suggested that benefits would continue beyond the CBA’s expiration, thus making the union’s grievance arbitrable. The court found that on the arbitrability issue, the union did not have to show that unambiguous CBA language supported its position, only that the language could reasonably be interpreted as vesting retirees with benefits.
• Deferred compensation: The court also considered the CBA’s “Benefits Allowance” provision, which varied based on an employee’s length of employment and included a “LifeCycle Assistance Program Component.” This provision was seen as a form of deferred compensation, accruing rights during the term of the CBA. The court likened this to severance pay, which is considered deferred compensation that vests during the term of an agreement.
• Reservation-of-rights clause: The company argued that the reservation-of-rights clause in the plan documents allowed it to amend or terminate the plan at any time, thus precluding any interpretation of vested benefits. However, the court found this clause ambiguous when read in conjunction with the CBA. It noted that such a clause could not unilaterally vitiate bargained-for rights, especially when the CBA itself did not explicitly incorporate the reservation-of-rights clause in a manner that would allow for the termination of vested benefits.

Conclusion

For unionized employers, this decision highlights the importance of clear and unambiguous language in CBAs regarding the vesting of retiree benefits. Employers should consider carefully drafting and reviewing their agreements to ensure that the terms related to retiree benefits and any reservation-of-rights clauses are explicit and consistent. This case also serves as a reminder that courts will closely scrutinize the language of CBAs and plan documents to determine the parties’ intent, and ambiguities may lead to interpretations favoring the vesting of benefits.

Ogletree Deakins’ New York offices and Traditional Labor Relations Practice Group will continue to monitor developments and will publish updates on the New York and Traditional Labor Relations blogs as additional information becomes available.

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