You gotta fight for your right … to arbitrate
The Ninth Circuit handed Charles Schwab & Co., Inc. a victory this week that could impact plan sponsors by ordering individual arbitration of ERISA claims. A three-judge panel unanimously reversed a California federal judge’s decision denying Schwab’s Motion to Compel individual arbitration of its workers ERISA breach of fiduciary duty claims. The Court overturned Amaro v Continental Can Co. 724 F.2d 747 (9th Cir. 1984), in light of more recent precedent, including the U.S. Supreme Court’s 2013 opinion in American Express v. Italian Colorado Restaurant, 570 U.S. 228, 233 (2013).
A former Schwab employee accused Schwab of a breach of fiduciary duty caused by stacking its 401(k) with Schwab-affiliated funds charging higher fees and performing more poorly than other similar funds. Schwab’s 401(k) included a binding arbitration provision requiring participants to waive their class-action rights and all disputes to be settled on an individual basis. The Ninth Circuit pointed to the Supreme Court’s recent decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), and held that because “arbitration is a matter of contract,” the arbitration agreement’s waiver of class-wide and collective arbitration must be enforced according to its terms, and the arbitration must be conducted on an individualized basis.
Plan sponsors should take note that they may be able to avoid these class-actions by adding binding arbitration clauses to retirement plans, including waiver of class-action rights and that all disputes are to be settled on an individual basis.