ERISA Plan Arbitration Clauses Likely Headed to U.S. Supreme Court

Various federal appellate courts have considered cases in which employers attempt to prevent ERISA class action lawsuits by including mandatory arbitration requirements into their plan documents. Due to the varying outcomes of these cases, this issue is likely headed to the U.S. Supreme Court for resolution. 

In September 2021, the U.S. Court of Appeals for the Seventh Circuit upheld the order of the U.S. District Court for the Northern District of Illinois, finding that arbitration agreements barring class actions claims were unenforceable as they limited rights to relief under ERISA. That case was Smith v. Board of Directors of Triad Manufacturing Inc. et al.

In Dejesus Cedeno v. Argent Trust Co., the U.S. District Court for the Southern District of New York denied Argent’s motion to compel arbitration. This ERISA case is currently on appeal to the U.S. Court of Appeals for the Second Circuit. The case of Harrison v. Envision Management Holding Inc. Board et al. is also on appeal to the U.S. Court of Appeals for the Tenth Circuit after a Colorado District Court denied Envision’s motion to compel arbitration in an ERISA claim. 

The U.S. Court of Appeals for the Third Circuit also is considering an appeal of a similar issue from a U.S. District Court in Delaware, which denied a motion to compel arbitration in the ERISA case of Marlow Henry v. Wilmington Trust NA et al. 

On the other hand, in Michael Dorman v. The Charles Schwab Corp. et al., a 2019 decision, the U.S. Court of Appeals for the Ninth Circuit reversed the District Court’s denial of the motion to compel arbitration. This case suggests that some individual arbitration clauses may survive court scrutiny and highlights the emerging split between the circuits.

Employers who wish to include arbitration agreements in their ERISA plans may very well find that the current conservative supermajority of the U.S. Supreme Court is leaning in their direction. The high court in recent years has favored the enforcement of arbitration agreements, as shown by its 2013 decision in American Express Co. v. Italian Colors Restaurant. In that case, the Supreme Court upheld an arbitration agreement that prevented card merchants from filing class actions against American Express. 

The Supreme Court ruled in 2018  Epic Systems Corp. v. Lewis that employment contracts could legally bar collective wage arbitration. Epic may support the proposition that employers can add legally valid mandatory arbitration agreements to ERISA plan documents.

Regardless of how the Supreme Court rules on the issue, the stakes are high. Any ruling by the high court will significantly impact federal benefits litigation and require consideration by plan sponsors.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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