To stay competitive in a global market, companies must aggressively manage the skyrocketing cost of providing healthcare benefits to employees. For Auburn Gear, Inc., that meant terminating healthcare benefits provided to retired employees. Not surprisingly, the retirees sued.
In Cherry v. Auburn Gear, Inc., the employees alleged that their collectively bargained insurance agreements provided “lifetime benefits” that could not be terminated. The district court disagreed, holding that the benefits expired when the agreements themselves did. It refused to consider extrinsic evidence suggesting otherwise.
The Seventh Circuit affirmed. The court's opinion is noteworthy for its careful contract analysis. It's well worth reading, particularly by corporate counsel who regularly negotiate contracts.
The court held:
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That benefits provided pursuant to a collective bargaining agreement do not vest automatically;
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That unless the agreement provides for the vesting of benefits, the presumption is that benefits terminate when the agreement ends;
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That this presumption can be rebutted by extrinsic evidence only if the agreement contains a patent or latent ambiguity or if there is a “‘yawning void . . . that cries out for an implied term’”;
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That the collective bargaining agreement contained no patent ambiguities: it unambiguously obligated Auburn Gear to provide benefits “during the period of this agreement” but not beyond;
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That evidence suggesting "alternative interpretations of the contract” does not mean the contract contains latent ambiguities; and
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That the union should have obtained the benefits they promised their members "through explicit contractual language."
You have to use "explicit contractual language" to achieve the desired objectives of the contract? Who would've thought?
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