By Mark Casciari and Alexius O’Malley
Synopsis: Supreme Court has agreed to decide the fate of class waiver provisions in mandatory arbitration agreements, which may spark a new trend in ERISA benefits litigation.
On January 13, 2017, the United States Supreme Court agreed to decide whether employment agreements mandating individual arbitration of employment disputes, and prohibiting class actions, are enforceable under the Federal Arbitration Act. The issue presented in the three cases consolidated for review, as stated in NLRB v. Murphy Oil USA, Inc., No. 16-307, is:
Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. § 158(a)(1), because they limit the employees’ right under the National Labor Relations Act [NLRA] to engage in “concerted activities” in pursuit of their “mutual aid or protection,” 29 U.S.C. § 157, and are therefore unenforceable under the savings clause of the Federal Arbitration Act, 9 U.S.C. § 2.
The consolidated cases do not involve ERISA-governed plans and employees covered by the NLRA, but the Court’s decision could have broader applications in the ERISA context.
It is no secret that plaintiff’s attorneys view plan participants as prime candidates, as well-defined groups of individuals, to bring ERISA class action lawsuits—where it can be said in many cases that the challenged fiduciary action presents common questions with common answers for similarly situated plan participants.
The stakes are high once an ERISA class is certified. Indeed, tens of millions of dollars are often at stake in class action settlements. See our sister Workplace Class Action blog, as to ERISA class action settlement amounts in recent years, here.
And while defendants have solid arguments against class certification following recent Supreme Court decisions cutting back on certification, it may be appealing for plans to avoid class certification litigation altogether, and the associated high costs in attorney’s fees, by mandating individual arbitration of ERISA claims.
If the Supreme Court endorses arbitration in Murphy Oil, as it has in the recent past, see AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2011); American Express Co. v. Italian Colors Restaurant, 570 U.S. ––, 133 S. Ct. 2304 (2013), ERISA plan sponsors might reconsider mandating individual arbitration of ERISA claims.
Indeed, in Munro v. University of Southern California, No. 16-cv-06191 (C.D. Calif.), plaintiffs seek ERISA class certification to challenge 401(k) plan fees, and the defendant countered by moving to compel individual arbitration, by relying on the mandatory arbitration agreements. The court has yet to rule on the motion.
Even if arbitration is the desired course, there are procedural issues to consider, including whether and how to share the cost of arbitration, how to select the arbitrator, how to define the scope of the authority of the arbitrator, and how to structure discovery.
On the substantive front, there also are several advantages and disadvantages to arbitration of ERISA claims to consider:
- Avoids expensive class action litigation and potentially expensive class action settlements
- Discourages plaintiff class action counsel from pursuing the claim
- Facilitates early resolution of disputes
- Enhances confidentiality
- Nullifies appeal rights, absent fraud or an arbitrator’s exceeding his authority
- Risks decision-making by an individual who less understanding of ERISA nuances than does a typical federal judge
- Creates the possibility of numerous, simultaneous arbitrations, with fiduciaries facing arguably inconsistent decisions
- Does not negate the possibility of litigation by the U.S. Department of Labor
Plan sponsors should pay close attention to the impending Supreme Court decision on class action waivers and mandatory employment arbitration.