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Federal Court Recognizes Employer’s Right to Modify Retiree Insurance Benefits

Labor & Employment Law Alert David B. Kern, Gary R. Clark

The Federal District Court for the Eastern District of Wisconsin recently dismissed a challenge to an employer's right to modify its hourly retiree health insurance plans. The Court rejected the claim that the benefits "vested" at retirement and reaffirmed employers' rights with respect changing to these benefits.

In Merrill, et al. v. Briggs & Stratton Corporation, (E. D. WI, Case No. 10-C-0700), a class of Briggs & Stratton retirees, together with the United Steelworkers, brought a putative class action against the Company and its insurance plans under the Labor Management Relations Act ("LMRA") and the Employee Retirement Income Security Act ("ERISA"). The complaint alleged that the Company's unilateral changes to retiree health insurance benefits, which became effective August 1, 2010, violated the parties' collective bargaining agreement and ERISA. The plaintiffs asserted that their right to receive health insurance benefits "vested" as of their retirement, so that the Company could not make unilateral changes with respect to those benefits.

Quarles & Brady and its co-counsel filed a motion to dismiss the plaintiffs' federal court action. In seeking dismissal, the Company focused on a provision of the collective bargaining agreement stating that:

The benefits provided for in the existing Group Insurance Plans, as amended by this agreement, will be maintained during the term of this agreement.

The Company presented a series of decisions from the Court of Appeals for the Seventh Circuit to argue that in the face of this clear and unambiguous language, the plaintiffs' benefits were not vested and could, therefore, be changed. The Company also asserted that the collective bargaining agreement's description of employee and retiree health benefits was subject to the specific terms of the health insurance plans and summary plan descriptions ("SPDs"). Those SPDs made clear that Briggs & Stratton had the right to modify or amend the plans in its sole discretion, and to terminate the plans at any time.

On April 21, 2011, Judge Lynn Adelman granted the Company's motion to dismiss. He found that there was no ambiguity in the labor agreement with respect to the Company's right to amend or terminate the group insurance plans, including the retiree insurance plans, following the expiration of the collective bargaining agreement. The complaint was therefore dismissed.

Many employers have grappled with the issue of increasing retiree health insurance costs, and have modified retiree health insurance benefits in response to those concerns. The Federal Courts of Appeal throughout the country have addressed these issues in a variety of ways. However, the law in the Seventh Circuit has remained relatively consistent. Courts in this Circuit continue to apply the presumption that, absent clear and express language demonstrating an intent to vest retiree health insurance benefits, they are subject to unilateral modification by an employer following the expiration of a collective bargaining agreement.

If you have any questions regarding this important issue, please contact David B. Kern at david.kern@quarles.com / (414) 277-5653, Gary Clark (312) 715-5040 / gary.clark@quarles.com or your Quarles & Brady attorney.