But wait—there wasn’t any reservation-of-rights clause in the SPD that GM gave this group of retirees. Score one for the retirees? You’d think so. But with the elastic logic so common in ERISA decisions, the court of appeals concluded that this was a summary plan description; “as such, it was a summary, so wouldn’t include everything, including such things as reservation of rights clauses.”
Further, the court concluded that an employer didn’t even need to write down a reservation-of-rights clause. So, even if the documents didn’t include such a clause, the court must infer that the company intended to reserve the right to cut benefits.
As for the retirees, just because the company promised orally and in writing that their benefits were to be paid by GM, the court could not infer that GM intended to pay the benefits. “GM never told the early retirees that their health care benefits would be fully paid up or vested upon retirement. What GM told many of them, rather, was that their coverage was to be paid by GM for their lifetimes.” In other words, because GM didn’t use the word “vested,” the benefits weren’t.
“Interpretive gymnastics,” scoffed one of the dissenting judges. The three dissenting judges said the majority’s ruling gave employers a green light to lie to employees by luring them into early retirement with promises of health coverage, then canceling the benefits once the people had made an irrevocable decision to retire. “When General Motors was flush with cash and health care costs were low, it was easy to promise employees and retirees lifetime health care…. Rather than pay off those perhaps ill-considered promises, it is easier for the current regime to say those promises were never made. There is the tricky little matter of the paper trail of written assurances of lifetime health care, but General Motors, with the
For years, union retirees generally had greater security because their benefits were protected by negotiated contracts, which fall under the federal Labor–Management Relations Act, as well as ERISA. When employers tried to cut health benefits for union retirees—pointing to reservation-of-rights clauses—the courts generally concluded that the contracts, not the companies’ unilaterally created plan descriptions were what mattered.
But after the GM ruling, employers began to argue that the benefits for union retirees should be governed by the same pro-employer inference that was applied in that ruling. To enhance their chances of success, some companies started to use a strategy outlined by the Varity managers: creeping take-aways. This involves taking small steps—increase premiums a small amount, or perhaps start charging premiums in the future. The retirees and unions ignore them. Then, a few years later, the company cuts benefits in a big way, saying that the retirees’ prior lack of legal action signaled tacit agreement that the company could change the plan.
Another ploy companies have used in an effort to increase the chances of appearing before a sympathetic judge is to sue retirees preemptively as they cut the benefits.
Chuck Yarter, a retired miner living in the Sonoran Desert outside Marana, Arizona, learned that he was being sued in 2003 when he got a phone call from a process server who was lost. Yarter gave the guy directions to his stucco home, which sits at the end of an unnamed dirt road, with a distant view of the open-pit Silver Bell copper mine, where Yarter had been a mechanic on ore crushers.
Yarter waited in his yard, curious. He’d never been sued in his life. The approaching trail of dust told him the car was arriving. When the process server pulled up, Yarter’s dog wouldn’t let him out of the car, so after exchanging a few pleasantries, he handed the papers through the car window before trundling away through the saguaro and mesquite.
The papers told Yarter that his former employer, Asarco, was suing him and other retirees in federal court in Phoenix. Asarco, an integrated copper producer that was once known as American Smelting and Refining Co., said it was asking the court to agree that it had the right to cut the union retirees’ benefits.
Asarco, a unit of Grupo Mexico SA, didn’t dispute that it had a contract with the retirees to provide health care until they were eligible for Medicare. But it said the agreements had expired when the labor contracts had, sometime back in the 1990s. The company then sent a letter to its 901 union retirees and dependents, explaining that falling copper prices and rising health care costs left it no choice but to reduce their health coverage. “The continuing low copper price has caused Asarco severe financial distress…. As a result, Asarco is no longer in a position to continue to provide health plan benefits at the current levels.”
The retirees were in a slightly better position than the GenCorp retirees: Some could pile into a van and drive to Mexico for their prescription drugs; others, however, dropped out of the plan as prices spiraled and went on public programs. Yarter appreciated the irony: Not only did his health care costs rise but, as a taxpayer, he would ultimately be picking up the tab for others.
Gonzalo Frias, a retiree-defendant who was a shovel operator at the Ray Mine in Kearny, Arizona, had been president of the local United Steelworkers union when the contracts were negotiated, and said it was ludicrous to think the workers would have agreed to lower wages in exchange for health coverage until sixty-five if the agreement meant the company could pull the plug at any time. The Steelworkers supported the retirees in the lawsuit. “ ‘Unforeseen circumstances’ do not justify a breach of contractual obligations… to persons living on fixed income who can ill afford to pay the costs the company has shifted upon them,” they told the court. It added that the “alleged ‘severe financial distress’ has not prevented the company from paying its top management quite handsomely.”
Like the GenCorp retirees, the Asarco retirees ultimately settled, in 2007, agreeing to pay some of the benefits, with the amounts remaining unchanged for six years. It was a reprieve of sorts. They felt lucky to get that: The company, facing a number of environmental lawsuits, filed for bankruptcy in 2005 and emerged in 2010.
CIRCUIT BREAKER
In early 2002, Rexam, a maker of cans for beverages, including Diet Coke, made a tiny increase in retirees’ share of the cost of prescription drugs. For more than a year, retirees complained to the company that it had no right to change the negotiated agreements, which stated that “Company-paid major medical coverage will be provided for all retirees.” Successive contracts noted that the parties had agreed that “the Company will continue to pay the entire cost.” But the changes weren’t a big enough deal for the retirees to take legal action.
The company was also planning to make more major cuts in benefits. But rather than wait for the retirees to sue, it sued the retirees. Under legal rules, the first party to file generally gets to have its case heard in the location where it files the suit. So, suing the retirees first enhances a company’s chances to get the case heard in a circuit with pro-business judges.
In “declaratory judgment” suits, such as Rexam’s, the company asks a judge to rule that the company has the right to change the retiree health plans. Rexam pointed to a line in a booklet it gave retirees. It stated that the company “reserves the right to amend, modify or discontinue the plan in the future in conformity with applicable legislation.”
The retirees said the clause meant that if government legislation or regulations changed, then the plan might have to be modified accordingly. It didn’t give the company a right to unilaterally change the agreement. They pointed to another sentence stating that the right to modify the benefits “was subject to any applicable collective bargaining agreement.” In any case, the union wouldn’t go to the trouble of negotiating benefits for retirees if they assumed the employer could subsequently cancel the benefits at will. This was an inference in favor of union retirees.
Rexam filed in Minneapolis, within a conservative circuit. There was little logic to this from a geographic standpoint. Minnesota was home to only 100 of the 3,600 retirees, and the company—known as American National Can before Rexam bought it in 2000—is based in Chicago and has offices in Charlotte, North Carolina. It’s a subsidiary of Britain’s Rexam PLC.
The retirees, supported by the United Steelworkers of America, countersued in Toledo, Ohio, asking that the case be dismissed or transferred there. They said that Rexam had made a preemptive legal strike in order to
