Is Arbitration the Future for ERISA Claims?


In light of the Supreme Court’s ruling upholding class-action waivers in workplace arbitration programs, ERISA plan sponsors are increasingly grappling with whether to introduce such a program for plan participants and beneficiaries.

In the weeks since the Supreme Court issued its decision in Epic Systems Corp. v Lewis, employers have been considering whether to implement arbitration programs with class waivers makes sense for their workplace.  Among the issues employers are weighing is what workplace laws and issues should be subject to mandatory individual arbitration.  

In Lewis, the Supreme Court ruled in a 5-4 decision authored by Justice Neil Gorsuch, that requiring employees to agree to arbitration agreements with class waivers does not violate the National Labor Relations Act (“NLRA”) and that such agreements are fully enforceable. With this ruling, the Court removed the last potential legal barrier to the enforcement of class waivers in the employment sphere.

Absent further legislation by Congress amending the Federal Arbitration Act (“FAA”) or state legislation permitting private attorney general actions such as California’s Private Attorneys General Act (“PAGA”), the enforceability of mandatory arbitration programs with class waivers can be assured.  Employers and plan sponsors who do not have such arbitration programs need to be aware of this significant development and at least consider whether an arbitration program with a class waiver is appropriate for them

An arbitration program with a class waiver isn’t necessarily for every employer.  But this ruling certainly will cause more employers and plan sponsors to adopt arbitration programs with class waivers, and likely will reduce the number of class and collective actions employers face.  Arbitration is often viewed as more advantageous to employers than traditional litigation, as arbitration decisions can be kept confidential and as arbitration is more informal than litigation. 

In the ERISA context, these benefits also exist.  However, in ERISA litigation there are specific risks associated with an arbitration program.

While many ERISA cases are brought as class actions, many plaintiffs attorneys have argued (and a handful of courts have agreed) that class certification is not needed to seek plan-wide relief.  This is because the ERISA remedial provision that allows for the greatest financial recovery permits a single participant to sue for losses to the plan.  Losses may include losses suffered within individual participant accounts in a plan.  Thus, in theory, a single plaintiff can seek class wide relief, meaning a class waiver could be ineffective as to many big-ticket ERISA cases.

In addition, similar to the employment discrimination arena, the government can seek plan-wide relief without a class action.  As the EEOC does in enforcing Title VII and other workplace laws, the DOL routinely sues on behalf of participants in ERISA plans to recover losses they suffered individually.

Besides these practical limitations on the effectiveness of a class waiver as to ERISA claims, employers considering arbitration/class waiver agreements need to consider whether they are willing to forgo meaningful appellate review of ERISA decisions. The appeals courts routinely reverse lower courts on technical legal issues that arise in ERISA cases.  The Supreme Court has considered dozens of ERISA cases, often changing the law in its rulings.  Review of arbitration rulings is extremely limited and errors of law do not warrant vacating an arbitrator’s award.

Another practical consideration is that a plan fiduciary may be required to follow an arbitrator’ s ruling on a matter of plan interpretation or a breach of fiduciary duty claim in other situations.  Thus, if an arbitrator rules that the plan should be interpreted in a particular way for one participants, other participants could argue that ruling requires fiduciaries to do the same for all other participants.

While there are many factors to consider, the Supreme Court’s decision assures plan sponsors that arbitration agreements with class waivers remain a valuable option for reducing potential class and collective action exposure.


Cassie Peterson