Augustine Pacheco v. Honeywell International, Inc.

This is a class action filed in November 2017 by former Minnesota employees

of Honeywell International Inc. who retired before age 65 during the terms of

Honeywell’s 2007 and 2010 collective bargaining agreements (CBAs) with Local

1145 of the International Brotherhood of Teamsters. Plaintiffs alleged that

Honeywell’s announced plan to terminate early retiree healthcare benefits at the end

of 2017 breached the CBAs and violated the Employee Retirement Income Security

Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et. seq, because those healthcare benefits

vested when each class member retired. 1 On December 29, 2017, and January 31,

2018, the district court granted Plaintiffs a provisional and then a final preliminary

injunction, concluding they had a “fair chance of prevailing” on their claims of vested

healthcare benefits. Honeywell appeals these orders. On February 20, 2018, the

Supreme Court issued its decision in CNH Indus. N.V. v. Reese, 138 S. Ct. 761

(2018). We agree with the Sixth Circuit that Reese is controlling and conclude that,

under Reese, Plaintiffs’ retiree healthcare benefits are not vested as a matter of law.

Therefore, we reverse.

I.

“When collective-bargaining agreements create pension or welfare benefits

plans, those plans are subject to rules established in ERISA.” M & G Polymers USA,

LLC v. Tackett, 135 S. Ct. 926, 933 (2015). ERISA treats pension plans and welfare

benefit plans differently. The statute “imposes elaborate minimum funding and

vesting standards for pension plans,” but it “explicitly exempts welfare benefits plans

from those rules,” leaving employers generally free “to adopt, modify, or terminate

welfare plans” “for any reason at any time.” Id. (citation omitted). However, though

welfare benefits “do not automatically vest as a matter of law” under ERISA,

employers and unions may contractually agree to extend welfare benefits beyond the

expiration of a CBA. Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1516

(8th Cir. 1988). Whether the parties to a CBA intended that the employer would

provide vested welfare benefits is a question of contract interpretation. Id.

1“A ‘vested right’ is a right that so completely and definitely belongs to a

person that it cannot be impaired or taken away without the person’s consent.”

Maytag Corp. v. UAW, 687 F.3d 1076, 1084 n.5 (8th Cir. 2012) (cleaned up).

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In UAW v. Yard-Man, Inc., the Sixth Circuit held that, when an employer and

union “contract for benefits which accrue upon achievement of retiree status, there

is an inference that the parties likely intended those benefits to continue as long as the

beneficiary remains a retiree.” 716 F.2d 1476, 1482 (6th Cir. 1983), cert. denied, 465

U.S. 1007 (1984). Like most other circuits, we never adopted the Yard-Man

inference; indeed, we explicitly rejected it as contrary to the statutory exemption of

welfare benefits from ERISA’s vesting requirements. See Anderson, 836 F.2d at

1517. Rather, we have consistently held that “[t]he absence of any explicit vesting

language in [a CBA] is strong evidence of the parties’ intent to limit retiree benefits

to the term of the [CBA].” John Morrell & Co. v. UFCW, 37 F.3d 1302, 1307 (8th

Cir. 1994); see Crown Cork & Seal Co. v. AFL-CIO, 501 F.3d 912, 917-18 (8th Cir.

2007); Anderson, 836 F.2d at 1517-18.

In Tackett, the Supreme Court expressly rejected the Yard-Man inference “as

inconsistent with ordinary principles of contract law.” 135 S. Ct. at 937. Yard-Man

and later Sixth Circuit decisions erred in “refus[ing] to apply general durational

clauses to provisions governing retiree benefits,” the Court explained, “requiring a

contract to include a specific durational clause for retiree health care benefits to

prevent vesting.” Id. at 936. “Similarly, the Court of Appeals failed to consider the

traditional principle that contractual obligations will cease, in the ordinary course,

upon termination of the bargaining agreement.” Id. at 937 (quotation omitted).

Applying this traditional principle, “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.” Id. The Court reiterated these principles in Reese, 138 S. Ct. at 766. Thus,

our task in resolving this appeal is to interpret the retiree healthcare benefit provisions

of Honeywell’s 2007 and 2010 CBAs, applying the ordinary contract principles

articulated in Tackett and Reese.

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II.

The retiree healthcare benefit provisions at issue are found in Article 24 of the

2007 and 2010 CBAs. Section 1 provided, “The following insurance and benefit

plans . . . shall be implemented and maintained as specified by the time periods

outlined below for the duration of this agreement.” (Emphasis added.) Section 2

provided that healthcare benefits for those who retired under age 65 prior to May 1,

2007 “will be provided . . . as negotiated under the previous [CBA].” Sections 3 to

6 specified healthcare benefit and benefit contribution levels. Section 8 specified

Pension Benefit levels. Sections 9 to 12 provided savings plan and insurance

benefits. Section 7, which set forth the new “Retiree Health Care (Pre 65 only)”

benefits at issue on appeal, provided:

The subject of health care benefits for existing and future retirees,

their dependents and surviving spouses . . . will be a mandatory subject

of bargaining for all future collective bargaining agreement negotiations.

For all retirees prior to May 1, 2007, the Company will provide

healthcare benefits as per the prior collective bargaining agreement,

without regard to the limit described below.

[F]or all retirees after April 30, 2007 the limit upon the

Company’s contribution for post retirement health benefits shall be 2.0

times the 2007 cost of Local 1145 retiree medical.

The maximum annual dollar amount contributed by Honeywell for

post April 30, 2007 retirees, their dependants, and surviving spouses

will be limited to $20,304 for single coverage and $40,608 for family

coverage.

The above limit on Company retiree health care contributions will

not apply to any year prior to calendar year 2011.

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The Company does not provide healthcare benefits for Local 1145

retirees after age 65.

Article 24, Section 7, of the 2010 CBA contained the same retiree healthcare

benefit provisions except that the first paragraph was omitted and a “Special

Retirement Program” was added:

Effective February 1, 2010, for each employee who terminates

and retires on or after February 1, 2010 -- Honeywell will not contribute

any amount towards the annual retiree medical premium except under

the following “Special Retirement Program” provision:

Employees who provide the Company with at least four (4)

months advance written notice of his or her irrevocable decision to retire

on a date certain between August 1, 2010 and February 1, 2013 and are

not terminated for cause will be eligible for retiree medical coverage

under the 1145 retiree medical plan with respect to which Honeywell

will contribute towards the annual retiree medical premium.

The plan design for retiree medical for any employee retiring after

February 1, 2010, will be the same as the 1145 active medical plan

design as such plan changes from time to time.

The 2007 and 2010 CBAs also contained substantially identical general

duration provisions. We set forth the 2010 CBA provision:

Section 1. This Agreement shall become effective February 1,

2010 and shall remain in full force and effect up to midnight January 31,

2013. This Agreement shall remain in full force and effect from year to

year thereafter unless notice of intention to terminate or modify this

Agreement is given at least sixty (60) days prior to February 1, 2013 or

any anniversary date thereafter. Notice to modify shall reopen the

Agreement only with respect to the terms designated in such notice. . . .

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Section 2. The parties agree that during the term of this

Agreement, economic issues including fringe benefits shall not be

subject for collective bargaining negotiations between the parties.

The summary plan descriptions (SPDs) required by ERISA stated that Honeywell

reserved the right to eliminate or modify healthcare benefits at any time.

The 2013 CBA continued healthcare benefits for past retirees but stated that

employees who retired after the 2013 CBA took effect would “pay the full

unsubsidized cost of retiree healthcare.” On February 1, 2017, Honeywell and the

union signed a Memorandum of Agreement allowing Honeywell to “terminate retiree

healthcare benefits for current retirees no sooner than December 31, 2017 with at

least 6 months notice to retirees prior to termination.” 2 Honeywell gave retirees that

notice in March 2017. This class action lawsuit was then filed on behalf of retirees

who retired while the 2007 and 2010 CBAs were in effect.

The district court granted Plaintiffs a preliminary injunction enjoining

Honeywell from terminating retiree healthcare benefits prior to adjudication of

Plaintiffs’ claims on the merits. In granting relief, the court properly analyzed the

four factors set out in Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 114 (8th

Cir. 1981) (en banc) -- irreparable injury, likelihood of success on the merits, balance

of harms, and the public interest in granting or denying a preliminary injunction.

However, as we conclude the 2007 and 2010 CBAs did not grant Plaintiffs vested

early retiree healthcare benefits, an issue of contract interpretation we review de novo,

that is the only Dataphase factor we need address. See Mid-Am. Real Estate Co. v.

Iowa Realty Co., 406 F.3d 969, 972 (8th Cir. 2005) (“[A]n injunction cannot issue if

there is no chance of success on the merits.”).

2Consistent with this Memorandum, Article 24 of the 2017 CBA eliminated the

prior Retiree Health Care (Pre 65 only) provisions.

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In concluding that Plaintiffs have a sufficient likelihood of success on the

merits, the district court ruled in the alternative (i) that the plain language of the

CBAs unambiguously demonstrates that Honeywell and the union intended to confer

vested pre-65 retiree healthcare benefits from an employee’s early retirement until age

65, and (ii) even if the CBA language is ambiguous, plaintiffs submitted extrinsic

evidence that sufficiently supports finding intent to vest those benefits. But if we

conclude, as we do in this case, that an ERISA-governed document is unambiguous,

“we examine no extrinsic evidence.” Hughes v. 3M Retiree Med. Plan, 281 F.3d 786,

793 (8th Cir. 2002). Thus, we do not reach the court’s alternative ground because the

CBAs cannot “reasonably be read as vesting health care benefits” until Plaintiffs

reach age 65. Reese, 138 S. Ct. at 765.

In Reese, the Supreme Court considered an expired CBA that “contained a

general durational clause that applied to all benefits,” and “[n]o provision specifying

that the health care benefits were subject to a different durational clause.” 138 S. Ct.

at 766. The Court held that the retirement health care benefits were not vested as a

matter of law because “the only reasonable interpretation of the [CBA] is that the

health care benefits expired when the [CBA] expired.” Id. Plaintiffs properly note

that lifetime retirement healthcare benefits were at issue in Reese, whereas they seek

vested benefits of a lesser duration, to age 65. However, two weeks after the decision

in Reese, the Sixth Circuit took up this issue in Cooper v. Honeywell Int’l, Inc., and

held that employees who retired at a Honeywell plant in Michigan under a CBA

providing that “[r]etirees under age 65 . . . will continue to be covered under the

[applicable Medical] Plan, until age 65” did not receive vested benefits. 884 F.3d

612, 614 (6th Cir. 2018). The court applied Reese’s command “that general

durational clauses should dictate when benefits expire, unless an alternative end date

is provided,” id. at 618, and held that this CBA unambiguously did not provide vested

retiree healthcare benefits:

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A promise to continue providing benefits in a CBA -- whether that

promise is left open-ended, or whether, as here, it has a specific terminus

-- does not by itself vest those benefits in retirees beyond the CBA’s

expiration. All it does is (1) provide a guarantee of those benefits while

the CBA is in effect and (2) provide for the expiration of those benefits

even before the CBA itself expires. . . . That language also protects

retirees by ensuring Honeywell cannot prematurely terminate benefits

for eligible, under-age-65 retirees.

Id. at 619-20.

We agree with the Sixth Circuit’s analysis in Cooper. However, that does not

end the inquiry in this case because the district court properly focused on specific

language in the 2007 and 2010 CBAs. The court concluded that Article 24, Section

7, of the 2007 CBA was “sufficiently specific in duration” to overcome the CBA’s

general durational clause because it limited Honeywell’s “retiree health care

contributions” beginning in calendar year 2011, after the three-year contract expired

in 2010. Likewise, the court concluded that the Special Retirement Program in

Section 7 of the 2010 CBA “constituted an express promise of specific duration”

because it provided that employees who retired “between August 1, 2010 and

February 1, 2013” were eligible for retiree medical coverage, and January 31, 2013

was “technically, the last day of the term of the agreement.”

We cannot agree that these specific provisions are a sufficient basis to

disregard the Supreme Court’s analysis of durational clauses in Tackett and Reese.

First, the district court considered only the general durational clauses in both CBAs.

It disregarded the specific durational clause in Article 24, Section 1, that specifically

applied to the retiree healthcare benefits in Section 7. In Tackett, the Supreme Court

criticized Sixth Circuit decisions for “requiring a contract to include a specific

durational clause for retiree health care benefits to prevent vesting.” 135 S. Ct. at

936. Here, we are interpreting CBAs that included both a general and a specific

durational clause. “Read in tandem, these two [durational] clauses unambiguously

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promise healthcare benefits [for] the ‘duration’ of the agreement.” Watkins v.

Honeywell Int’l Inc., 875 F.3d 321, 326 (6th Cir. 2017).

Second, we disagree with the district court’s conclusion that Section 7

unambiguously reflected an intent to confer vested retiree healthcare benefits. The

provisions noted by the district court must also be read in the context of the CBAs’

general durational clauses, which provided (i) that each CBA “shall remain in full

force and effect from year to year” after its initial expiration date unless one party

gives notice of its intent to terminate or modify the CBA, and (ii) that “issues

including fringe benefits shall not be subject for collective bargaining” during the

term of the CBA. Reading these contractual provisions as a whole, putting a limit on

Honeywell’s retiree benefit contributions beginning in 2011 did not reflect an intent

to provide vested benefits after the 2007 CBA expired. Rather, it put in place a

collectively bargained limit that would apply after the initial three-year term until the

CBA expired because one party gave timely notice of intent to modify. Even then,

the limit would continue in the modified CBA if the notice to modify did not include

that provision, as happened in the 2010 CBA. Likewise, the provision in the Special

Retirement Program in Section 7 of the 2010 CBA making employees who retired

“between August 1, 2010 and February 1, 2013” eligible for retiree healthcare

benefits did not reflect an intent to provide vested benefits beyond the term of the

CBA. It simply specified the benefits that would continue to be paid if the CBA

remained in effect after January 31, 2013, the end of its three-year term, because

neither party gave notice of intent to modify.

In addition to the general and specific durational clauses, properly construed

under Tackett and Reese, there are other provisions in the 2007 and 2010 CBAs that

confirm an unambiguous intent not to confer vested retiree healthcare benefits. First,

the SPDs that accompanied the CBAs reserved for Honeywell “the right to terminate

the Plan, or any portion of the Plan, at any time and for any reason except as limited

by the provisions of any applicable Federal or State law or the provisions of a written

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[CBA].” “We have repeatedly held that an unambiguous reservation-of-rights

provision is sufficient without more to defeat a claim that retirement welfare plan

benefits are vested.” Maytag, 687 F.3d at 1085 (citations omitted). Consistent with

ERISA, the CBAs referred both employees and retirees to the SPDs for details

regarding the Healthcare Plan.

Second, both the 2007 and 2010 CBAs explicitly extended healthcare benefits

for past retirees. As the Sixth Circuit explained in Cooper, “if a promise that retirees

will continue to be covered until age 65 vested those benefits -- notwithstanding a

CBA’s intervening expiration -- then why would each successive CBA need to repeat

the same promise? . . . . The only reasonable inference, of course, is that the parties

did not believe this language created a vested right to lifetime healthcare benefits and

thus had to include it in each new CBA.” 884 F.3d at 620 (citation omitted); see

Morrell, 37 F.3d at 1307 (providing “continued health benefits for past retirees is

evidence that prior benefits were not vested”).

Third, Article 24 of the 2007 CBA explicitly made early retiree healthcare

benefits a mandatory subject of collective bargaining, suggesting that these benefits

were subject to negotiation, not inalterably fixed. Cf. Tackett, 135 S. Ct. at 936.

Thereafter, Honeywell and the union negotiated modifications to those benefits in the

2010 and 2013 CBAs, with no objection that such changes violated vested rights.

“[T]he fact that modifications were routinely negotiated is fundamentally inconsistent

with the notion that any retirement health benefits were ever vested.” Morrell, 37

F.3d at 1307.

Finally, the lack of explicit vesting language in the CBAs and their

accompanying SPDs is even stronger evidence of the parties’ intent not to provide

vested healthcare benefits when viewed together with specific references in the

pension plan SPDs to “vested pension benefits” and “vested terminated employees.”

Morrell, 37 F.3d at 1307; accord Cooper, 884 F.3d at 620-21. As the Supreme Court

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noted in Reese, “[i]f the parties meant to vest health care benefits for life [or until age

65], they easily could have said so.” 138 S. Ct. at 766.

For these reasons, we conclude that the 2007 and 2010 CBAs unambiguously

reflected the parties’ intent to adopt non-vested “Retiree Health Care (Pre 65 only)”

healthcare benefits. In these circumstances, though Plaintiffs submitted declarations

and other evidence that Honeywell and its staff made representations that earlyretiring

employees would be “guaranteed healthcare until 65” if they retired before

February 2013, “extrinsic evidence may not be considered.” Maytag, 687 F.3d at

1086 (emphasis in original). Thus, Plaintiffs have no likelihood of success on their

claims that Honeywell’s termination of early retiree healthcare benefits breached

either the CBAs or the ERISA plans, and the grant of a preliminary injunction must

be reversed.

The Orders of the district court dated December 29, 2017, and January 31,

2018 are reversed, and the case is remanded for further proceedings not inconsistent with this opinion.