On February 5, 2025, in Xerox Corp. v. Loc. 14A, Rochester Reg’l Joint Bd., Xerographic Div. Workers United, No. 23-634, 2025 WL 395729 (2d Cir. Feb. 5, 2025), the United States Court of Appeals for the Second Circuit determined that the terms used to describe the duration of benefits in a health plan could be interpreted to suggest benefits vested immediately, even in the absence of vesting language. The decision in Xerox is a reminder of the importance of careful drafting of language with an eye toward end-of-contract situations, particularly where the benefits are negotiated through collective bargaining.
In the case, the court vacated and remanded a district court’s decision enjoining arbitration of a dispute arising under an expired collective bargaining agreement (“CBA”). The key issue was whether plan clauses that referenced events that could postdate the expiration of the CBA (e.g., benefits continuing until beneficiaries’ deaths) meant that the benefits vested immediately. The court also considered whether a clause reserving the right to terminate the plan at any time and for any reason negated any such vesting. It ultimately determined that “affirmative durational language” meant that it was plausible that benefits had vested, though the court left that determination to the finder of fact (an arbitrator) after an opportunity for fact finding.
Background
In 2018, Xerox Corporation (“Xerox”) and Local 14A, Rochester Regional Joint Board, Xerographic Division Workers United (the “Union”) entered into a CBA, which expired in 2021. After the CBA expired, Xerox terminated retiree health benefits. The Union challenged the termination of benefits.
The dispute focused on four clauses of the health plans, which were incorporated by reference into the CBA. The first two included language stating that retirees continue participation until they cease contributions, and that their dependents continue their participation until their death. The third clause, relating to Health Reimbursement Arrangement (“HRA”) contributions, based the calculation of the HRA benefit, in part, on years of employment. The fourth clause was a general reservation of rights in which Xerox reserved the right to terminate the plan at any time and for any reason.
The district court concluded that the four clauses did not suggest rights had vested prior to the expiration of the CBA and that the reservation of rights allowed Xerox to terminate the plan. The Union appealed the decision to the Second Circuit.
Opinion
The Second Circuit disagreed with the district court. It explained that, when a benefit plan includes language that could be interpreted as a promise to vest a benefit, the contract alone is not determinative, and a court may consider extrinsic evidence to determine the parties’ intent.
The court focused on two words in the CBA health plan clauses: “continues” and “until.” The court said that such “affirmative language” regarding duration “could be reasonably interpreted as vesting benefits beyond the CBA’s expiration.” It contrasted those words with the “negative implications that benefits would terminate upon death,” which the Second Circuit in Joyce v. Curtiss-Wright Corp., 171 F.3d 130 (2d Cir. 1999), found indicated that benefits did not vest (emphasis added).
The court offered that it was not suggesting “that promising to continue benefits until death, or some other future event, is absolute or always vesting language.” However, it held that such language “can be reasonably . . . interpreted to promise vested benefits that extend beyond the CBA’s expiration.”
As to the reservation of rights, the court said that, given the totality of the circumstances, it was ambiguous whether the parties intended to allow Xerox to terminate the plan, despite the language in the reservation of rights clause. The court found it pertinent that the reservation of rights was in the health plans as opposed to in the CBA itself. It suggested that a “more specific CBA or reservation-of-rights clause could have clarified the parties’ intent.”
Key Takeaways
This decision highlights the importance of both the plan and CBA language and the risks created by ambiguities. The Second Circuit provided some guidance by suggesting that rights might not vest if “negative” language, rather than “affirmative” language, is used. So, a plan sponsor could state that benefits “terminate at death” rather than “continue until death.” Though hardly a safe harbor, choosing such language may be beneficial at the margins. Additionally, clear language stating when benefits vest could be useful for avoiding ambiguities.
The opinion also suggests that including a reservation of rights to terminate a plan in a CBA could be more effective than a plan-specific reservation. A broad subordination clause could also work. The court pointed to a Seventh Circuit case, United Mine Workers v. Brushy Creek Coal Co., 505 F.3d 764 (7th Cir. 2007), that involved a clause that provided: “the specific provisions of the plans will govern in the event of any inconsistencies between the general description and the plans.” Had there been such a clause here, the court indicated it may have given the reservation of rights more force.
A side dispute, addressed in a footnote, is where the court should look to find language related to vesting. The Union argued that the court could consider CBAs that predated the 2018-2021 CBA as being a part of the latest-in-time CBA. Ultimately, the court did not reach the issue, but the disagreement highlights the complications created by successive contracts. Bargaining parties may wish to proactively address ambiguities with explicit language addressing the applicability of prior CBAs.
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