All Too Common Solution to Unaffordable Union Health and Welfare Clauses

Hydro Automotive is a typical auto parts manufacturer: it has a union and its collective bargaining agreement provides benefits to retirees. As health and welfare costs continue to increase, the company announced in late 2010 that, beginning in 2011 it would no longer provide retiree health benefits to all employees who retired on or after November 8, 1990. According to Hydro, none of its collective bargaining agreements signed after that date obligated the company to provide retirees with health benefits. Hydro also denied that employees who retired before that date had a vested interest in their health benefits, but did not try to cancel those benefits.

The union claimed that all retirees had a vested right in the health benefits and filed two class actions against Hydro. The first challenged the expiration of retiree health benefits for all workers who retired after November 8, 1990. The second suit alleged that the health benefits included a vested prescription drug benefit to be provided at no cost to the retirees. These two lawsuits ultimately settled.

According to the settlement, employees who retired before November 8, 1990 would receive lifetime health benefits, including no-cost prescription drug coverage and 50% of the costs for their medical and hospitalization coverage.

Employees who retired after November 8, 1990 and who were receiving retiree benefits until Hydro’s unilateral cancellation, hit a modified version of the lottery; they could take a lump sum pay out or monthly draws. Retirees choosing a monthly draw would receive $110 per month for life if they were Medicare eligible or $160 per month until they became Medicare eligible and then $110 per month for life. Or, they could receive a lump-sum payment of either $11,500 or $13,000 respectively in lieu of monthly payments.

There were some additional settlement provisions, but the take away from this case is that companies must be absolutely clear that they do not have express or implied lifetime benefits clauses for retirees in their collective bargaining agreements. As health care costs and the number of retirees continue to rise sharply, and companies seek non-traditional ways of curbing costs, these lawsuits will, unfortunately, become commonplace.