ERISA neither expressly nor impliedly prohibits mandatory arbitration of claims. Numerous courts that have analyzed the purpose of both ERISA and the Federal Arbitration Act (“FAA”) have held that ERISA claims are arbitrable. And while the Supreme Court has not spoken directly to the issue, the Court’s pro-arbitration jurisprudence under the FAA – culminating with several decisions approving the inclusion of class action waivers in arbitration agreements – strongly suggests that it would approve of the inclusion of ERISA claims in an arbitration agreement. Moreover, courts applying the recent Supreme Court decisions involving mandatory arbitration agreements have affirmed the use of class waivers in a variety of federal statutory contexts, including ERISA. As a result, more and more employers are implementing broad arbitration clauses with class action waivers.
The endorsement of arbitration of ERISA claims means that employers may want to consider implementing a mandatory arbitration policy that covers all workplace-related causes of action, including ERISA claims. Before deciding to implement a mandatory arbitration policy prohibiting class-based litigation of all potential claims (including claims that could be brought under ERISA), employers should consider whether the program is appropriate for their organization and should determine whether the benefits of such program outweigh any potential costs associated with its drafting, corporate rollout, and enforcement.
In brief, there are advantages for employers who adopt a mandatory arbitration program that prohibits class litigation. When deciding whether to implement an “all claims” arbitration agreement, perhaps the biggest consideration is the ability to require that any future ERISA class claims could be included within the scope of the arbitration agreement. In today’s litigious environment, most sizable companies are at risk for class actions, including ERISA class actions. When ERISA fiduciary breach claims are involved, damages are often alleged to be tens or hundreds of millions.
At the same time, arbitration is not without its risks and drawbacks. Rarely is an arbitration award vacated, as the FAA provides for appellate review in very limited circumstances (e.g., fraud, partiality, arbitrator exceeds scope of authority), and those appeals are largely confined to challenges regarding the general fairness of the arbitration process itself (unless, as discussed below, the agreement provides otherwise). Moreover, the arbitrator’s interpretation of the arbitration agreement, even if erroneous, is afforded great deference by federal courts. Mandatory arbitration of benefits claims under ERISA also presents unique challenges. For instance, the notice and disclosure process required by ERISA, and the management of workforce perceptions, may present employers with complications during the rollout and implementation of the mandatory arbitration program which includes benefits claims.
If an employer does decide to include ERISA claims within its arbitration program, there are drafting suggestions and other communicative strategies that can be used to maximize the full benefit and utility of the program, minimize any negative potentialities, and safeguard against challenges to enforcement after the policy has been implemented. These considerations are all designed to maximize the benefit of the program and fend off any challenges to it. However, the culture, business considerations, and plans for each employer are unique. Therefore, we suggest employers consult with counsel when deciding whether to arbitrate ERISA claims.
For more information about how to include ERISA claims in an arbitration program, click here.