United States: Arbitration Of ERISA Claims: Courts Grapple With Competing Considerations

Among the many purposes underlying Congress' enactment of the Employee Retirement Income Security Act ("ERISA") was giving employers flexibility in plan design.¹ This discretion should encourage employers to offer benefits by giving them the ability to decide which benefits to offer and, relatedly, the ability to control the costs and administrative burdens they are willing to assume.²

In a related vein, the Federal Arbitration Act's³ "liberal federal policy favoring arbitration agreements" can provide employees and employers "quicker, more informal, and often cheaper resolutions" of workplace-related disputes.⁴

These two statutes appear to present complementary frameworks. Therefore, one might think the ability of employers to require arbitration of disputes arising under ERISA would be a straightforward proposition. However, as with so many other legal principles, there may be competing considerations that call into question even a seemingly simple premise.

This column will review two decisions, one from the U.S. Court of Appeals for the Ninth Circuit and one pending before the U.S. Court of Appeals for the Seventh Circuit, that have reached opposite conclusions regarding whether ERISA claims may be subject to arbitration where the arbitration clause is contained in the governing plan document. This column also will review the respective arguments that may determine whether or not arbitration of ERISA disputes remains a viable avenue for plans sponsors.

Footnotes

The plaintiff in Dorman v. Charles Schwab Corp.⁵ worked at Schwab from February 2009 until October 2015.⁶ During his employment, he participated in Schwab's 401(k) plan.⁷ In December 2014, the plan was amended to include an arbitration provision, effective January 2015.⁸ The provision required binding arbitration of any "claim, dispute or breach arising out of or in any way related" to the plan.⁹ The amendment further included a class or collective action waiver, even if a party could have otherwise represented other plan participants' interests.¹⁰ During 2014, the plaintiff also enrolled in a compensation plan that required arbitration of any "controversy, dispute or claim arising out of or relating to [his] employment. . . ."¹¹

Several years after leaving Schwab, the plaintiff filed an ERISA class action alleging various claims for breach of fiduciary duty and violations of ERISA's prohibited transactions rules.¹² In response, the defendants moved to compel arbitration, pointing to the arbitration provisions described above.¹³ The lower court denied defendants' motion, ruling, inter alia, that even if plaintiff's claims were covered by the arbitration clauses, prior Ninth Circuit precedent precluded arbitration because class action waivers were deemed unenforceable.¹⁴

The Ninth Circuit in Dorman I addressed the threshold question of whether ERISA claims could be subject to mandatory arbitration.¹⁵ The Ninth Circuit acknowledged that it had previously held in Amaro v. Continental Can Co.¹⁶ that "ERISA mandated 'minimum standards [for] assuring the equitable character of [ERISA] plans' that could not be satisfied by arbitral proceedings."¹⁷ According to Amaro, this was the case because "[a]rbitrators, many of whom are not lawyers, lack the competence of courts to interpret and apply statutes as Congress intended."¹⁸

Despite this holding, the Ninth Circuit in Dorman I recognized that its prior skepticism had been addressed by subsequent Supreme Court decisions that held "arbitrators are competent to interpret and apply federal statutes."¹⁹ Accordingly, the Ninth Circuit held Amaro was no longer binding precedent.²⁰

Having resolved that threshold question in Dorman I, the Ninth Circuit in Dorman v. Charles Schwab Corp. ("Dorman II")²¹ turned to the question of whether arbitration should be compelled. The Ninth Circuit held the district court erred in denying defendants' motion to compel arbitration for several reasons.

First, the Ninth Circuit held the district court incorrectly concluded that the plaintiff was not bound by the Plan's arbitration provision.²² Contrary to the district court's findings, the Ninth Circuit noted that the plaintiff participated in the plan for almost a year after the arbitration provision was enacted.²³ And "[a] plan participant agrees to be bound by a provision in the plan document when he participates in the plan while the provision is in effect."²⁴

Footnotes

1 Heimeshoff v. Hartford Life & Accident Ins. Co., 571 U.S. 99, 108 (2013).

2 Varity Corp. v. Howe, 516 U.S. 489, 497 (1996); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990).

3 9 U.S.C. §§1-16.

4 Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1621 (2018).

5 Dorman v. Charles Schwab Corp., 934 F.3d 1107 (9th Cir. 2019).

6 Id. at 1109.

7 Id.

8 Id.

9 Id.

10 Id. at 1009-10.

11 Id. at 1010.

12 Id.

13 Id.

14 The Ninth Circuit found the lower court erroneously held the arbitration provision was unenforceable because it had been enacted after the plaintiffs ceased participating in the plan, and/or that the provision had been added after the plaintiff filed suit. Id. at 1110, 1111 (citing Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), reversed by Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018)).

15 Id. at 1109.

16 Amaro v. Continental Can Co., 724 F.3d 747 (9th Cir. 1984).

17 Dorman I at 1111 (quoting Amaro, 724 F.2d at 752).

18 Amaro at 750.

19 Dorman I at 1111 (citing American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 233 (2013)).

20 Id. at 1112.

21 Dorman v. Charles Schwab Corp., 780 Fed. Appx. 510 (9th Cir. 2019).

22 Id. at 512-13.

23 Id.

24 Id. at 513 (citing Chappel v. Lab. Corp. of Am., 232 F.3d 719, 723-24 (9th Cir. 2000)). The cited portion of Chappel does not expressly address whether consent arises from a participant's continued participation in the plan. Rather, the case proceeds from the premise that a participant must comply with all applicable plan provisions, including, in that case, the requirement that any disputes be arbitrated. Chappel, at 734 (citing Graphic Communications Union v. GCIU-Employer Retirement Benefit Plan, 917 F.2d 1184, 1187- 88 (9th Cir. 1990)).

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