Employers may be allowed to end lifetime health-care benefits for retirees under a U.S. Supreme Court decision that suggested unclear union contracts should not automatically be interpreted in favor of workers.

Retirees at the M&G Polymers USA plant in Apple Grove, W.Va., were provided health-care benefits as part of their pensions. But the company, a unit of Mossi Ghisolfi Group in Italy, sought in 2006 to make retirees contribute to health-care costs.

The Sixth U.S. Circuit Court of Appeals in Cincinnati ruled the company had reneged on the contract, saying it was “unlikely that [the union] would agree” to such a deal “if the company could unilaterally change the level of contribution.”

But the Supreme Court unanimously disagreed. Justice Clarence Thomas, who wrote the opinion, said that, absent specific federal labor policy, union contracts should be interpreted according to “ordinary principles of contract law.”

Thomas also wrote that “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.”

He noted the Employee Retirement Income Security Act of 1974 treats pensions, which must be funded and vested, more favorably than “welfare benefits,” such as retiree health care, which lack such requirements. The aim was to give employers leeway in designing such benefit plans, he said.

Allyson Ho, the company's lawyer, said the Supreme Court's ruling “sends a strong message that restores a level playing field in benefits litigation nationwide.”

The case will now head back to the Sixth Circuit for it to reconsider the issues “under the correct legal principles.”

The court’s four liberal justices joined Justice Thomas, but they added a separate opinion suggesting the retirees had a solid case and potentially could prevail, even under the tougher standard they endorsed.

Jason Brown, an attorney with Fisher & Phillips LLP, advised employers to check their collective bargaining agreement to determine whether lifetime vesting is explicitly and unambiguously addressed in the agreement.

“While silence or ambiguity as to this term will not create a presumption of lifetime vesting ... a court could still rule that the parties intended lifetime vesting after engaging in a traditional contract interpretation analysis,” Brown said in a blog.

While the court's decision appeared favorable to employers, “in actuality, it is an affirmation of the neutral principles of contract interpretation, which favor neither employee nor employer,” he wrote.

“The entire case should be used as a cautionary tale about using clear language when drafting contracts to make sure that the terms of a contract are those decided by the parties, and not by the courts.”

Instant Insights /

Supreme Court rules against retirees in benefits case

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