Sixth Circuit Rules Derivative ERISA Claims Not Arbitrable Without Plan Consent

On April 22, 2022, the U.S. Court of Appeals for the Sixth Circuit issued its decision in Hawkins v. Cintas Corporation, No. 21-3156, holding that ERISA claims for breach of fiduciary duty belong to the plan. As a result, plan members alleging harm to their individual retirement accounts in defined contribution plans, cannot be forced to arbitrate their claims without the plan’s consent. 

Former employees filed suit in the U.S. District Court for the Southern District of Ohio, against Cintas Corporation under ERISA § 502(a)(2), claiming that Cintas breached its fiduciary duties in administering their defined-contribution retirement plan. In addition, they alleged suffering losses to their retirement accounts due to the poor plan administration in violation of ERISA. 

Each former employee had signed an employment agreement with Cintas that contained an arbitration provision. Under this provision, the employees agreed to arbitrate any employment-related claims under ERISA and forego any class action or representative claims against Cintas. The plan was not a party to the employment agreement, and the plan documents did not contain an arbitration provision. 

Cintas filed motions to stay the suit and compel arbitration based on the arbitration provision. The District Court denied both motions, and Cintas appealed. On appeal, the Sixth Circuit affirmed the decision of the District Court. 

Based on precedent, the Sixth Circuit ruled that since ERISA § 502(a)(2) claims address losses to ERISA plans due to breaches in fiduciary duty, the claims are derivative and thus belong to the plan. Under this provision of ERISA, plan participants have the right to file claims for alleged harms to their individual retirement accounts, as long the relief that they seek benefits the plan. 

The court further held that the employment agreements that the plan participants signed only related to the individuals and could not affect the litigation rights of the plan. The individuals do not have the power to consent to arbitration on behalf of the plan. Likewise, Cintas, acting as the plan sponsor, could not consent to arbitration on behalf of the plan simply by filing a motion to compel arbitration. Therefore, the participants were not required to participate in arbitration as Cintas demanded absent the plan’s consent. 

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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