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As Chicago class-action attorneys, we were pleased to see that the Seventh Circuit upheld a decision in favor of retired UPS employees protesting a change in their employee contributions to health benefits. In Green v. UPS Health & Welfare Package for Retired Employees, No. 09-2445 (7th Cir. Feb. 10, 2010), a class of participants in the UPS retiree health plan (the Plan) belonging to the International Brotherhood of Teamsters Local 705 challenged a decision by UPS to raise the amount of health insurance contributions required of them, but not of other plan participants.

UPS employs Teamsters and negotiates its collective bargaining agreements with the international office of the IBT as well as with a few locals, including Local 705. Local 705’s agreement at issue here was negotiated in 2002 and expired on July 31, 2008. That agreement said UPS would provide the same health plan to Local 705 retirees that it provides to all retirees. The Plan said UPS may raise participants’ contributions once a certain threshold average annual cost per participant is reached, but that each employee shall share equally in the cost. If an additional contribution is retired, the Plan said additional contributions would not be required until after the collective bargaining agreement ended.

The average annual cost of health care rose above the threshold in 2006. In October of 2007, UPS sent out a notice that retirees’ monthly contributions would increase from $50 to $114 as of January 1, 2008. The international union complained that the increase was being implemented too early, before the July 31 end of the original collective bargaining agreement. However, it was also negotiating a new collective bargaining agreement with UPS at the time and eventually won an agreement from UPS not to implement the new fee until after the new agreement expired. This was not the case for Local 705, which complained that it wouldn’t even start a new bargaining process until July 31. UPS responded by delaying the extra payment until after the agreement expired.

After the July 31, 2008 expiration date, Local 705 negotiated a new collective bargaining agreement incorporating the Plan with no changes. In January of 2009, UPS sent out another letter saying that effective in February, it would increase retirees’ monthly contributions from $50 to $157.58 to $472.75, depending on how many family members were covered. This was not applied to the international Teamsters, who were under a separate agreement. The Local 705 retirees filed this lawsuit, arguing that their monthly contribution, higher than the international union’s, violated the Plan’s provision that all retirees would share equally in a rate hike. They also argued that the Plan barred UPS from making the rate hike effective before the end of their collective bargaining agreement. They asked for an injunction against the rate hike and agreed to a bench trial. The court found for the retirees on the “shared equally” issue and for UPS on the timing of the rate hike. Both appealed.

On appeal, the Seventh Circuit agreed with the trial court that the “shared equally” language applied to payments. UPS had argued that this language applies to how it calculates contributions, but the Seventh and the district court both found this was contradicted by the plain language of the Plan and thus “arbitrary and capricious” under Hess v. Hartford Life & Accident Ins. Co., 274 F.3d 456, 461 (7th Cir. 2001).

However, the appeals court also upheld the district court’s ruling that UPS could collect the additional contributions before the end of the current collective bargaining agreement. UPS interpreted “current” to refer to the 2002 agreement, when the Plan’s language was written; Local 705 interpreted it to refer to the 2008 agreement. The Seventh found that the interpretation by UPS was reasonable, in part because it had incorporated the Plan into the collective bargaining agreement without changes. It also said the December 2007 notice that rates would go up was further evidence that UPS was using the 2002 agreement as “current.” Thus, its interpretation was not arbitrary and capricious. The judgment of the district court was affirmed on both counts.

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