Recent Supreme Court decisions permitting class action waivers in arbitration agreements opened the door to the question of whether such an agreement would be enforceable under the Employee Retirement Income Security Act of 1974 (ERISA). (See American Express Co. v. Italian Colors Restaurant and AT&T Mobility LLC v. Concepcion.) The wave of class action litigation over 401(k) and 403(b) fees has created a forum for addressing this question, and courts are beginning to provide an answer.
The U.S. Court of Appeals for the Fifth Circuit is the only appellate court to address class action waivers in ERISA documents. Hendricks v. UBS Fin. Servs., Inc., 546 F. App’x 514 (5th Cir. 2013). Although the circuit court enforced the arbitration agreement, it determined that the arbitration panel should decide “whether the class waiver requires the Plaintiffs to arbitrate on an individual basis.”
More recently, the Central District of California denied the University of Southern California’s motion to compel arbitration of a lawsuit challenging the fees charged in its 403(b) and retirement savings plans. Munro v. University of Southern California, No. 16-6191, 2017 WL 1654075 (C.D. Ca. March 23, 2017). The plaintiffs signed arbitration agreements at the start of their employment, but they argued that their ERISA claims were not subject to arbitration because it is contrary to ERISA’s policies. The court first found that ERISA claims were subject to arbitration. However, the court then found that there was not a valid arbitration agreement because the ERISA plans had not consented to the agreement. Although the participants could waive their individual right to file ERISA lawsuits, they could not waive the right to sue on behalf of the plans.
Charles Schwab Corporation filed a similar motion to compel individual arbitration of a purported ERISA class action lawsuit. Severson v. Charles Schwab Corp., No. 4:17-cv-00285 (N.D. Cal. motion filed April 7, 2017). However, Charles Schwab’s plan contains an arbitration provision, suggesting Charles Schwab may have a more favorable outcome. DST Systems, Inc. also has a similar motion pending. Ducharme v. DST Systems, Inc., No 4:17-cv-00022, Dkt. 27 (W.D. Mo. motion filed Feb. 22, 2017). These cases will lay the groundwork for future decisions on the issue.
The Supreme Court recently agreed to address a similar issue of whether arbitration agreements with class action waivers are permissible under the National Labor Relations Act. NLRB v. Murphy Oil USA, Inc., No. 16-307. The court will hear arguments in the case next term. If the court follows its recent trend of endorsing class action waivers, it could inspire more district courts to compel individual arbitration of ERISA class actions when the participant and plan have consented to arbitration.