The Supreme Court cast doubt Monday on the future of old union contracts that had promised lifetime health benefits for retired workers and their families.
In a case seen as a victory for corporate America, the justices ruled these promises should not be treated as “vested rights” unless they are spelled out in the contract.
“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,” wrote Justice Clarence Thomas.
In the unanimous opinion, Thomas chided lower-court judges who upheld the retiree benefits, citing "traditional principle that courts should not construe ambiguous writings to create lifetime promises."
In decades past, union contracts often included a promise from the employer to pay for healthcare, even after the worker's retirement. But as healthcare costs rose and companies changed hands, new owners objected to paying the benefits far into the future. They argued that the contracts applied only to the term of the agreements and not beyond.
The U.S. Chamber of Commerce and the National Assn. of Manufacturers backed an appeal from the owners of a West Virginia polyester plant who objected to paying benefits to workers who had retired in 1996.
Their contract, negotiated by the United Steelworkers Union, promised a "full company contribution" to their health benefits. But in 2006, M&G Polymers, the new owners of the plant, said the retirees must contribute to the cost of their health benefits.
A group of retirees sued and won before the U.S. 6th Circuit Court of Appeals in Cincinnati. Its judges said the negotiated benefits were a "form of delayed compensation."
The Supreme Court agreed to hear the company's appeal, and on Monday set aside the lower-court ruling that favored the retired workers.
Thomas told the lower court to take another look at the contract and to do so without "placing a thumb on the scale in favor of vested retired benefits." He noted that federal law protects promised pensions, but it does not require employers to provide future benefits for healthcare.
In a concurring opinion, Justice Ruth Bader Ginsburg agreed that "ordinary contract principles" apply in such disputes, but she left open the prospect that the old agreement could be read to promise benefits in the future. Justices Stephen G. Breyer, Sonia Sotomayor and Elena Kagan signed the concurring opinion.