A recent decision by the U.S. Court of Appeals for the Ninth Circuit found that arbitration is allowable to handle fiduciary breach claims when they are brought by an individual. In the case at hand, Charles Schwab was sued by a plan participant who claimed that Schwab breached their fiduciary duties and that certain transactions, specifically the holding of proprietary funds in a 401(k) plan, were prohibited by ERISA.
Dorman v. Charles Schwab Corp.
In a published opinion, prior precedent was reversed regarding whether individual ERISA claims are subject to arbitration. This is a reversal of a 1984 ruling, Amaro v. Continental Can Co., which held that these claims were not subject to arbitration. The logic for this reversal focused on a U.S. Supreme Court case that ruled statutory claims such as ERISA claims can be arbitrated subject to contractual agreement and that arbitrators were competent to interpret federal statutes. Arbitrators are often subject-matter experts with deep experience in a particular field of law. Arbitration can also be a less expensive way to resolve disputes. The Ninth Circuit found that reversing Amaro was therefore appropriate.
This decision was also a reversal of the ruling by the district court, which found that the arbitration provision could not be applied to Dorman because he was no longer a participant. However, because the arbitration provision applied for the one year where he was a plan participant and the contract included an arbitration provision that Dorman agreed to when signing onto the plan, he was bound by the contract to arbitrate. The Ninth Circuit also felt that the lower court showed hostility towards the arbitration process, arguments that the U.S. Supreme Court had previously addressed and rejected.
In an unpublished opinion, the court ruled that the arbitration provision in the plan document that prohibited class actions was enforceable against individual ERISA claim actions. The same provision that established arbitration for individual claim dispute resolution also waived class action and collective arbitration. If the arbitration provision is enforceable, the court ruled, then the prohibition on collective action was also enforceable. This decision is a major change and a victory for employers who prefer arbitration for dispute resolution. It is also a win for employers looking to find a way to avoid class actions on individual ERISA claims. Because the second part of the opinion was unpublished, however, there are a number of other considerations employers should take into account in their plan documents when working to avoid class-action lawsuits.
The ERISA attorneys at Hall Benefits Law pay attention to changes in case law so that we can help our clients keep their documents and procedures updated. Your business may be benefit from revising its plan documents in light of this new ruling and other recent regulatory changes. Call our office today at 678-439-6236, or visit the Hall Benefits Law website to learn more about our services.
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