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A Better Partnership
October 04, 2015

COA: Parties’ intent determines whether health care benefits survive CBA’s expiration

An employer does not have an absolute right to alter unilaterally a collective bargaining agreement (“CBA”) providing health care benefits to retirees, held the Michigan Court of Appeals in Harper Woods Retirees Association v. City of Harper Woods, No. 318450.  But nor do retirees have an absolute right to continued health care benefits after the CBA’s expiration.  Rather, a trial court must analyze the language of the contract between a retiree and the employer to determine the intent of the parties at the time of agreement.  The Court of Appeals held that the trial court erred in granting summary disposition to defendant and remanded the case for further proceedings.
 
In the early 2000s, plaintiffs, a class of individuals once employed by defendant, and defendant entered into CBAs and personal contracts for health care benefits.  In 2012, defendant made alterations to the health care plans—which plaintiffs opposed—claiming it had the discretion to do so because the CBAs had expired.  Plaintiffs brought a breach of contract action claiming that defendant did not have the right to alter the plans.  The trial court granted plaintiffs’ motion for class certification as well as defendant’s motion for summary disposition, in which it found Reese v. CNH America LLC, 694 F.3d 681 (6th Cir. 2012) controlling.  The trial court decided that, as a matter of law, employers may unilaterally alter retirees’ health care benefits so long as the alterations are reasonable.  
 
The Court of Appeals disagreed, explaining that Reese stands for the proposition that “a retiree’s right to health insurance benefits under a CBA could be unilaterally altered if evidence indicated the parties intended to permit such alterations, not because vested health insurance benefits under a CBA are unilaterally alterable as a matter of law.”  In other words, Reese does not establish an absolute right for employers to alter these plans.   
 
Next, the Court of Appeals turned to the question of whether the plaintiffs in this case had vested rights under their contracts in order to render their contracts inalterable without their consent.  The Court rejected plaintiffs’ argument that their health care benefits continued indefinitely regardless of whether the contract’s terms indicated that the parties intended their continuation after its expiration.  Under traditional principles of contract law interpretation, courts should not construe ambiguous writing to create lifetime promises, and contractual obligations generally cease with the agreement’s termination. 
 
As such, the Court of Appeals remanded the case to the trial court to review each CBA and contract to determine whether the provisions governing health care benefits used language to indicate that the parties intended to have the benefits survive expiration of the agreements.  If not, the trial court must determine whether the health care benefits expired, such that defendant had discretion to alter them in future agreements with retirees.

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