The Supreme Court Holds That Federal Courts Must Interpret Collective Bargaining Agreements in Accordance with “Ordinary Contract Principles;” Rejects So-Called “Yard-Man” Inferences

Resolving a split between circuits, this week the United States Supreme Court, in CNH Industrial v. Reese rejected what has come to be known as the Yard-Man standard, and reaffirmed that collective bargaining agreements must be interpreted according ordinary contract principles.  Although the Supreme Court has long held ordinary cannons of contract construction apply to collective bargaining agreements, some federal courts developed a specialized set of inferences, known as the Yard-Man inferences, which allowed them to read beyond the actual contract terms, to reach what in some cases have been more employee-friendly results when ordinary interpretation principles would not.

The Supreme Court’s first attempt rein this concept was in 2015,  in M&G Polymers USA, LLC v. Tackett.  There, the Sixth Circuit had applied the Yard-Man inferences to read into collective bargaining agreement language an intention on the part of the employer and union that retiree medical benefits vest for life because the contract did not expressly hold that the retiree benefits were not ongoing beyond the contract term.   The Supreme Court disagreed with the Sixth Circuit, holding that the collective bargaining agreement’s silence on the question could not be construed as  evidencing  a presumptive intent.   Rather, it opined that ordinary construction rules supported a finding that the obligation to provide retiree medical benefits would not continue beyond the term of the agreement unless the contract expressly states otherwise.    

In Reese, the Sixth Circuit in essence repackaged and repurposed the Yard-Man inferences to again hold that the obligation continued beyond the term of the contract notwithstanding the absence of express language.  Here, the Sixth Circuit pointed to the collective bargaining agreement’s silence to find “ambiguity” rather than “intent.”   After concluding that there was such an ambiguity, the Sixth Circuit concluded that it was appropriate to consider extrinsic evidence to resolve the ambiguity.  The extrinsic evidence, according to the Sixth Circuit, supported lifetime vesting of retiree medical benefits.

In Reese, in a Per Curiam opinion, the Supreme Court resoundingly rejected this approach and remanded the case to the Sixth Circuit.  It admonished the Yard-Men inferences “are not a valid way to read a contract” and “cannot be used to create a reasonable interpretation any more than they can be used to create a presumptive one.”  Rather, pursuant to ordinary interpretation rules, the contract’s silence on vesting meant that retiree benefits, like other benefits, do not survive the contract.      

On a micro level, this decision ensures that, at least in the case of contracts that do not expressly establish a lifetime retiree medical benefit for covered employees, employers will not be saddled with  substantial financial burdens they neither bargained for nor anticipated, and preserves the flexibility needed to bargain over such benefits going forward. On a macro level, though, this decision has far more reaching implications – it ensures uniformity across the judicial landscape and stands a bulwark against interpretist judges attempting to rewrite non-ambiguous collective bargaining agreements, substituting their own judgment for those of the contracting parties, because they may think it is “fair” to employees to do so.