Supreme Court Holds that Employers Must Interpret Collective Bargaining Agreements in Accordance with “Ordinary Contract Principles”

Recently, the Supreme Court reversed a Sixth Circuit Court of Appeals decision involving the vesting of retiree medical benefits in employee collective bargaining agreements. In CNH Industrial v. Reese, 583 U. S. ____ (2018), the Court found that the lower court had misconstrued a collective bargaining agreement between the retirees and their employer. 

In CNH Industrial, employees entered into a collective bargaining agreement which provided group health plan benefits to employees who were eligible to receive a pension benefit. The collective bargaining agreement contained a clause which provided that all terms and conditions expire when the collective bargaining agreement expires. In 2004, at the expiration of the contract, the company terminated the retirees’ medical benefits. The retirees brought suit claiming that their retiree medical benefits were vested. The position of the retirees was upheld by the District Court and the Sixth Circuit Court of Appeals.

However, the Supreme Court, in resolving a split among the circuit courts, reversed the lower court’s decision and reaffirmed that collective bargaining agreements must be interpreted according to ordinary contract principles. The Court held that the lower court erred when it presumed the agreement created a lifetime promise of health care and found that the agreement clearly called for the retirees’ benefits to end in 2004, noting that “a contract is not ambiguous unless it is subject to more than one reasonable interpretation, and the inferences made by the U.S. Court of Appeals for the 6th Circuit under its own precedent . . . cannot generate a reasonable interpretation because they are not “ordinary principles of contract law.”