Supreme Court of the United States

By Ed Mendel
March 16, 2015

A U.S. Supreme Court ruling in January weakens the “vested rights” protection of retiree health care based on a labor contract, potentially making it easier for government employers to cut a growing cost.

The high court overturned an influential federal appeals court ruling that said retiree health care authorized by a short-term labor contract is presumed to be a lifetime benefit, unless the contract has clear language to the contrary.

Bargaining agreements must be evaluated under ordinary contract law, the Supreme Court said in a 9-to-0 decision. Lawyers called the overturned ruling the “Yard-Man inference” after a 1983 appeals court decision in a union suit against Yard-Man, Inc.

“Yard-Man violates ordinary contract principles by placing a thumb on the scale in favor of vested retiree benefits in all collective-bargaining agreements,” said the high court decision (M&G Polymers v. Tackett) written by Justice Clarence Thomas.

The new ruling is expected to have an impact in California, where retiree health care often lacks clear authorization, little money has been set aside to help pay future obligations, health costs are growing, benefits are generous, and retirees are living longer.

“This (new ruling) is important because in California we have a lot of litigation now where the allegation is that MOUs (bargaining agreements) that were entered into, some many years ago, gave rise to vested rights to retiree health care,” Linda Ross, a Meyers Nave lawyer, told clients in an internet briefing last week.

The rise in disputes over cutting retiree health care, as it becomes more of a financial burden for government employers and taxpayers, produced an important California Supreme Court decision in 2011 in an Orange County case.

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