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Court of Appeals Holds that Individual Arbitration Agreements do not Apply to ERISA Plans as a Whole


The Court of Appeals for the Sixth Circuit recently held that when a claim is brought under ERISA § 502(a)(2), individual arbitration agreements signed by employees do not apply. The rationale behind this decision is that claims brought under § 502(a)(2) are brought by the Plan, not by the individual employees who had signed the agreements.

The Plan at issue in this case is the “Partner’s Plan” (Plan), a “defined contribution” plan sponsored by one of the Defendants, Cintas. Defined contribution plans offer participants the opportunity to select investment options from a “menu” chosen by the plan’s sponsor (in this case, Cintas). Individual accounts are created for each participant, their value determined by the amount they have contributed, fees associated with management of the plan, and the market performance of the investment options selected.

ERISA requires fiduciaries to fulfill certain duties to plan participants, the two at issue in this case being the duty of loyalty and the duty of prudence. The duty of loyalty requires that plans be managed “for the best interests of its participants and beneficiaries,” while the duty of prudence requires that plans be managed “with the care and skill of a prudent person acting under like circumstances.” The Plaintiffs in this case allege that these duties were breached when the Defendants only offered opportunities to invest in “actively managed funds” and when excessive recordkeeping fees were charged to participants. The Plaintiffs brought action against Cintas, as well as its Investment Policy Committee and Board of Directors. These entities within the company are responsible for administering and appointing members to investment committees. The suit is putative class action encompassing all participants in the Plan and their beneficiaries during the relevant class period.

The issue on appeal is whether individual employment agreements signed by employees who participated in the Plan delineating that all claims be settled through arbitration are applicable to the claim of breach of fiduciary duty under ERISA. Due to these agreements, the Defendants moved to stay proceedings in federal court and compel arbitration. The district court denied the motions, stating that the fact that the Plaintiffs had signed individual arbitration agreements was irrelevant, as the action was brought on behalf of the Plan and any agreements signed by individual employees were inapplicable.

The Defendants argued that the arbitration agreements related to “all rights and claims relating to their employment” which includes claims arising under ERISA. Further, they argue that the “right” to assert the claims “belong[s]” to the individual plaintiffs, and thus claims are subject to the arbitration agreement consented to by the employees. However, the Plaintiffs countered that the claims of breach of fiduciary duty belong to the Plan itself, which was not subject to arbitration as it had not consented. The Court is careful to add that it is generally settled that ERISA claims are arbitrable, but state that the issue in this case is not whether ERISA claims can be arbitrated, but rather if the claims must be arbitrated as subject to the employee arbitration agreement.

The Court concludes that the Plaintiffs are correct in their assertion that the claims at issue belong to the Plan and not to the participants themselves, and thus the arbitration clause does not apply. § 502(a)(2) states that actions may be “brought in a representative capacity on behalf of the plan as a whole.” The Court relies on precedent set in Mass. Mut. Life Ins. Co. v. Russel, 473 U.S. 134 (1985). Russel provides that, “the ‘plan’ [is] [the] victim of any fiduciary breach and the recipient of any relief,” when considering the structure of defined-benefit plans. Mass. Mut. Life Ins. Co. v. Russel, 473 U.S. 134, 254-55, (1985). This context changes slightly when considering defined-contribution plans, though the Court still notes that, “although § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” Id. at 256. Further, in LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), the Court established that, “§ 502(a)(2) authorizes suits on behalf of a defined-contribution plan even if the harm is inherently individualized.” Hawkins v. Cintas Corp., 2022 U.S. App. LEXIS 11377 at 11.

The Court next recognizes the failures of the Defendants arguments, mainly that in responding to case law presented by the Plaintiffs, they fail to offer a definition of the word “rights” as it applies to the language in the arbitration agreement and the right of the plan participants to bring a claim under § 502(a)(2). The Defendants proffer that since the agreements include “all of Employee’s rights or claims arising under [ERISA],” the claims at issue in this case are precluded from litigation by the agreement. The Court rejects this argument, stating that despite the inclusion of language relating to ERISA in the agreements, they are not “fundamentally different” than the arbitration agreements in cases used in support of the Plaintiffs’ arguments. Further, the Defendants did not provide an alternative definition of “rights,” nor did they provide case law interpreting the word. The Defendants also offered no explanation as to the possibility of arbitration being used to assert such a “right.”

The Court concludes that based on precedent, if an injury is considered a plan injury rather than an injury sustained by one person’s account, the claim is not considered to be sought for individual relief and thus is not bound by arbitration agreements. According to the Court, the claims at issue in this case relate to the Plan as a whole, and thus the Plaintiffs are not precluded from pursuing the claims in court by the arbitration agreements. Therefore, the Court of Appeals affirmed the district court decision and ruled in favor of the Plaintiffs.


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