The Supreme Court’s Decision Overturning Yard-Man

On January 26, 2015, the Supreme Court of the United States rejected the rule established by the Sixth Circuit in International Union, United Auto., Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., 716 F.2d 1476 (1983). 

In M & G Polymers USA, LLC v. Tackett, the Court rejected the Sixth Circuit’s inferences concluding that (i) if a benefit plan’s provisions were silent as to termination, then those benefits were to vest for life and (ii) provisions were “illusory” if they benefit one class while not benefiting another.  135 S. Ct. 926 (2015). The Court stated that the inferences applied in Yard-Man do not represent the ordinary principles of contract law and that, indeed, those inferences distort any attempt to ascertain the true intentions of the parties “by placing a thumb on the scale in favor of vested retiree benefits” in all collective bargaining agreements.  Id. at 935.  The Court found that a promise that is “partly” illusory is by definition not illusory and that the 6th Circuit’s use of the illusory promises doctrine was particularly inappropriate in the context of collective-bargaining agreements, which often include provisions inapplicable to some classes of employees.

Yard-Man held that where an employee health care benefits plan contains no express termination provision applicable to certain benefits under a plan, then it is presumed that such benefits were to continue for the life of the participant.

Citing Yard-Man, the court in Policy v. Powell Pressed Steel Co. took the analysis even further.  The court in Policy stated that “retiree benefits normally . . . are interminable” in the absence of an express termination provision.  770 F.2d 609, 616 (6th Cir. 1985).  Since then, the Sixth Circuit continued to expand the holding by stating that “[a]bsent specific durational language referring to retiree benefits themselves, a general durational clause says nothing about the vesting of retiree benefits.”   Noe v. PolyOne Corp., 520 F.3d 548, 555 (6th Cir. 2008).

The Supreme Court squarely rejected the analysis and de facto presumptions created by Yard-Man and its progeny.  The Court stated that the Sixth Circuit’s presumption that a perpetual duration is implied where such duration is ambiguous is contrary to “traditional principle that courts should not construe ambiguous writings to create lifetime promises.” M & G Polymers USA, 135 S. Ct. at 936 (2015).  The Court also noted that the Sixth Circuit had not imposed such a presumption in cases not involving collectively bargained contracts.  Id. at 937.

The Court ultimately held that the Yard-Man inferences were inconsistent with ordinary principles of contract law and vacated the 6th Circuit’s decision in M & G Polymers USA and remanded the case for further consideration in light of the Court’s decision.

This decision echoes the Supreme Court of Tennessee’s holding in Davis v. Wilson County, 70 S.W.3d 724 (Tenn. 2002).  In Davis, the Court found that the vesting of lifetime welfare benefits, such as retiree medical benefits, does not occur in the absence of express provisions and, as a result, the health care benefits at issue in that case did not vest automatically.

If you have questions or for more information on this topic, please contact Zack Gardner at 865-546-7311 or zgardner@kmfpc.com.

Zack Gardner practices in the areas of corporate and other business entity law. Mr. Gardner assists businesses and corporate clients in a range of business planning and operations services, including establishing, organizing, reorganizing, and maintaining their business entities. Mr. Gardner assists nonprofit and tax-exempt entities with forming their organizations, and obtaining and maintaining their non-profit and tax-exempt statuses.