Duty to Arbitrate Extended to Retiree Healthcare Benefits

On December 22, 2011, the United States District Court for the Eastern District of Michigan upheld a mandatory arbitration provision of a plant closing agreement (“PCA”) providing lifetime healthcare benefits to retired workers who had formerly worked at a closed plant.

In 1998, certain employees of the Kelsey Hayes Company (“Kelsey-Hayes”) negotiated through their union that Kelsey-Hayes would provide healthcare benefits to current and retired employees. Following a series of complicated transactions regarding ownership of the Detroit plant, in 2001, the union and the company entered into a Plant Closing Agreement (“PCA”). The PCA provided that the obligation of Kelsey-Hayes (and its parent company, which would become TRW Automotive (“TRW”)) to fund retiree health care would remain intact. The PCA further included a provision which required all disputes relating to the application and interpretation of the PCA to be resolved through arbitration.

In September 2011, TRW notified the relevant retirees that it would discontinue its current healthcare plan for Medicare-eligible retirees and surviving spouses, and that it would replace such coverage with a Health Retirement Account. TRW pledged only to make a $15,000 contribution to each account for 2012 and a $4,800 contribution for 2013. TRW reserved the right to review and to terminate its future contributions.

The plaintiffs, all former employees of the Detroit plant of Kelsey-Hayes, brought suit. The ymoved for summary judgment, seeking a declaration that they were entitled to a lifetime of fully-funded retirement healthcare benefits and a permanent injunction to preclude Kelsey-Hayes and TRW from terminating the existing group health plan. The defendants cross-moved to compel arbitration. In opposing the defendants’ motion for arbitration, the plaintiffs raised four arguments: (1) Sixth Circuit precedent provided that retirees could not be forced to arbitrate; (2) the PCA excluded retiree benefits from its arbitration provision; (3) plaintiffs’ claims were based upon the underlying collective bargaining agreements (“CBA”), rather than the PCA; and (4) certain of the retirees were excluded from the application of the PCA.

First, the court first rejected plaintiffs’ contention that retirees could not be forced to arbitrate. The court held that the Sixth Circuit precedent relied upon by plaintiffs for this proposition only held that, in the absence of an arbitration provision specifically applicable to them, retirees could not be required to have a union arbitrate on their consent. Finding that there was a valid agreement through which arbitration was exempted, the court held that the Sixth Circuit’s precedent did not go so far as to preclude arbitration for retirees that is specifically required by contract.

Second, the court also rejected plaintiffs’ position that the PCA did not mandate arbitration with respect to disputes over retiree benefits. While the PCA provided that retiree benefits were to be governed by the CBA, the court held that the PCA terminated the CBA, which included an anti-arbitration provision. Therefore, the court held that there was no active contractual provision exempting retiree benefits from arbitration. Accordingly, based upon the principle favoring arbitration provisions in the absence of “the most forceful evidence of a purpose to exclude the claim from arbitration,” the court held that there was no exclusion.

Third, the court rejected the plaintiffs’ argument that they relied upon the CBA rather than the PCA to provide the benefits at issue. Based upon the fact that it was the PCA that assigned responsibility for providing retiree benefits to Kelsey-Hayes and TRW, the court held that the plaintiffs could not seek to require the defendants to adhere to the terms of the PCA while seeking to avoid the arbitration mandate of that same agreement. Finally, for similar reasons, the court rejected the plaintiffs’ position that certain retirees were exempt from the arbitration provision, because the plaintiffs based their position that those retirees were entitled to benefits in the first instance upon the PCA. Thus, the court held that the plaintiffs could not rely upon the PCA to establish an entitlement to benefits while ignoring the PCA’s arbitration provision.

This case is important for employers because it provides further evidence of the favor looked upon arbitration provisions by federal courts in the context of ERISA plans, even as applicable to retirees. The case is International Union, United Automobile, Aerospace, and Agricultural Implement Works of America (UAW), et al. v. Kelsey-Hayes Company, et al., Case No. 11-14434 (E.D. Mich. Dec. 22, 2011).