Third Circuit Rules Employer Cannot Be Forced To Arbitrate Retiree Health Care Claims

Unfunded retiree health care benefits have been the elephant in the room for decades. Together with unfunded pension liabilities, they threaten the survival of both private companies and municipalities. One need only recall that prior to its bankruptcy, General Motors spent more on health care per vehicle than it did on steel.

Recent court decisions have turned the tide somewhat, allowing employers to avoid financially crippling liability to retirees for health care costs. A new decision by the Third Circuit Court of Appeals, applying to pre-Medicare retiree benefits in a union workforce, continues that trend.

The story begins with the principle that while employers have a duty to negotiate with their unions over health care and other fringe benefits for employees, they have no duty to negotiate over benefits to be provided to retirees. This rule does not prevent employers from agreeing to provide such benefits, and a court will generally enforce a contractual obligation where it exists.

The union contracts that typically grant retiree health care benefits have been around for years in heavily unionized industries. Yet most of these contracts have been silent on whether health care benefits are vested for life at the time an employee retires, or whether the obligation to provide such benefits expires with the contract. Earlier this year the Supreme Court ruled that if a collective bargaining agreement is silent on the question of vesting, the benefits are not vested for life.

That kicked the ball back to unions and retirees to try to show that the parties intended to vest negotiated health care benefits for life, and that the language of the contract was subject to an interpretation that this was the intent. Normally, questions of contract interpretation are decided by arbitration. If the union could find some hook in the contract to get the claim before an arbitrator, therefore, its chances of locking in lifetime retiree health care benefits were greatly improved.

Armed with this incentive, unions have looked to collateral documents such as summary plan descriptions or side letters that are frequently referenced in the union contract. Do those provide the hook to get an...