in Court, Pops
To cut benefits costs, companies are waging war on their
By Michael Crowley
March 2006 Reader's Digest
After his retirement from a
Tucson-based copper company, Chuck Yarter thought he'd
settled into a quiet life in the Arizona desert. Then one
day in July 2003, the 60-year-old was sitting on his porch
when a man showed up to inform Yarter that he was being
sued. Since Yarter's dog, Lady, wouldn't let the man out of
his car, he served Yarter court papers through the car
window. ("She's a smart dog," Yarter says.) And that's how
Yarter learned he was being taken to court by the company
he'd spent 34 years of his life working for: the coper-mining
His crime? Collecting his retirement benefits. Yarter,
like hundreds of others, was standing in the way of Asarco's
cost-cutting plans. So the company used a legal assault
tactic -- a preemptive lawsuit -- that would save it
millions. Here's how it works:
First, a company will clash benefits unilaterally -- in many
cases, with no warning and no effort to negotiate with
representatives of the retirees. Then, assuming legal
challenges will ensue, company lawyers strike first by
filing a "complaint for declaratory judgment" in a
jurisdiction known to be sympathetic to their argument. So
they target a former employee who has the bad luck of living
in a jurisdiction that is likely to favor the company.
"They want to pick where the case is litigated," says John
Stember, an employment lawyer in Pittsburgh.
The Asarco case is still pending, but in the meantime Chuck
Yarter's monthly premiums shot up from $7 to $280, and he's
now stuck with "an expensive and complicated set of
deductibles," he says. Like so many retirees, Yarter is not
yet eligible for Medicare or Social Security and lives on a
fixed income. Watching the new premiums gobble up his
pension was shocking. But what left Yarter feeling
"betrayed and insulted" was the slimy way his former
employer weht about making the switch.
Hand them a gold watch, and then slap them with a lawsuit --
it's a new tactic companies are using to get legal cover for
changing health benefits for retirees. And it's a
fast-growing trend. "We are increasingly defending retirees
in cases brought by their former employers," says lawyer
Stephen Pincus. "Companies have a strong incentive to fire
the first shot in the legal battle"
To be sure, some companies are facing a financial crisis
over benefits negotiated years ago. Asarco itself filed for
bankruptcy protection last August. Even retirees understand
that companies in dire straits need to make changes. So why
not negotiate new terms, or at least give retirees a voice
before their expenses change radically? Why sue then?
Because it's a profitable strategy, so long as things like
loyalty and respect don't mean much.
George Kneifel, retired from the beverage-can maker Rexam,
knows all too well what that's like. Three years ago, while
Kneifel was sitting at home with his wife, a sheriff's
deputy knocked on the door. "He handed me a paper saying I
had to appear in court because the company was suing me."
And not just any court. "It was in Minnesota," Kneifel says
-- 400 miles away from him home in Union Mills, Indiana.
"That's a long haul."
So what case do the companies make? Many contend that a
contract with "lifetime" benefits only means the lifetime of
the contract -- not the lifetime of the employee. While
judges have ruled both for and against the companies,
Stember thinks the original intent of the contract is
clear: "No union in their right mind would negotiate a
benefit that could be changed as soon as someone retired."
Some companies also invoke clauses to contracts, to the
bafflement of retirees. George Kneifel's former employer
added fine print to a health-benefits plan that said the
plan could be changed at any time -- but the company never
put that language into the brochures given to workers,
according to Pincus. "Companies will change the document
that's in their file drawer, then send out materials to
their retirees that don't include the new language," Pincus
So the retirees become pawns in a game that can be worth
millions to a company's bottom line. What's really
ingenious about the strategy is that by slashing benefits
before they sue, companies have nothing to lose, and a lot
to gain. If a company settle or loses in court, it often
doesn't have to pay penalties or repay the benefits retirees
lost during a legal process that can go on for years.
Companies also save big money as retirees age into Medicare,
give up and seek cheaper health coverage elsewhere, or die
off. Winning a lawsuit doesn't help much if you're six feet
And while the retirees are spending long hours with lawyers
and traveling hundreds of miles to court, they are also
dealing with a drastic change in their budgets. Earl
Simpson of Middle River, Maryland, who spent 27 years
working for Crown Cork and Seal, says he watched his
deductible jump from $100 per year to $2,000 per year. If
it hadn't been for veterans' coverage, the 76-year-old
wheelchair-bound diabetic says he "would've lost my home and
been out on the street."
The way companies see it, something has to be done about
escalating health care costs. But suing their retired
employees? "Rexam is looking for confirmation for what it
feels its rights are," say Rexam spokesman Greg Brooke. I
guess dragging retirees to court hundreds of miles away from
home gives companies that confirmation. As Chuck Yarter
learned the hard way, if it's loyalty you're looking for,
get a dog.
Michael Crowley is a
senior editor at The New Republic.
From his website: "Michael Crowley writes about Congress,
national politics, and other topics for
The New Republic.
Before joining TNR in 2000, he worked for
The Boston Globe
and The Boston
Phoenix. Crowley has also written for
The New York Times
Magazine, The New Yorker, Slate, The New York Observer, The
Washington Monthly, New York magazine and other
publications. He is a 1994 graduate of Yale University."