Class action waivers in arbitration agreements have largely been upheld in the federal courts.  Recent litigation over 401(k) and 403(b) fees has given rise to the issue of whether such waivers should be enforceable under the Employee Retirement Income Security Act of 1974 (ERISA). Pending cases will likely lay the foundation for future decision-making.

On March 23, 2017, the Central District of California in Munro v. University of Southern California (No. 16-61961) denied the University’s motion to compel arbitration of a lawsuit challenging the fees charged in its 403(b) and retirement savings plans.  But first, the court noted that “skepticism about the arbitration of ERISA claims seem[s] to have been put to rest by the Supreme Court’s opinions.” It held that recent case law from within the Ninth Circuit affirms that ERISA claims are subject to arbitration when the parties have executed a valid arbitration agreement. This is interesting given that the Ninth Circuit has recently held that class action waivers are invalid in employment contracts.

Plaintiffs in this case had signed arbitration agreements, which the court held to be valid under the above reasoning, but the court found that there was not a valid arbitration agreement governing the claims in question because the ERISA plans themselves had not consented to the arbitration agreement. The court held that plan participants could waive their individual right to class action over ERISA claims, but they could not waive the right to sue on behalf of the plans.

Charles Schwab Corporation recently 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, which may result in a more favorable outcomeSchwab’s filing notes that “the Plan document explicitly waives participant rights to bring class or representative claims in arbitration” and asserts that “the fact that Severson purports to bring his claims ‘on behalf of the Plan’ under ERISA Section 502(a) does not alter the conclusion that his claims are arbitrable….the plaintiff bringing the claim is the plan participant — not the plan.”

Similar pending lawsuits over 401(k) and 403(b) fees will likely lay the groundwork for future decisions on the enforceability of class action waivers in the ERISA context, as will continued litigation over the enforceability of class action waivers generally.  The U.S. Supreme Court recently agreed to address whether arbitration agreements with class action waivers are permissible under the National Labor Relations Act. If the court and other federal circuits continue to uphold class action waivers in a variety of contexts, lower courts may be more likely to compel individual arbitration of ERISA class actions when the participant and plan have consented to arbitration.

This summary was prepared for by Samantha Groark, a third year student at the University of Missouri School of Law.