The Seventh Circuit Court of Appeals recently concluded that an arbitration clause that prohibited claimants from seeking or receiving any remedy that provided additional retirement benefits or other relief was unenforceable because it prospectively waived ERISA remedies.
James Smith worked for Triad Manufacturing Inc. Triad offered Smith and other employees a defined contribution employee retirement plan. In 2018, after Smith had left Triad, Triad added an arbitration provision with a class action waiver to the plan, which stated:
Each arbitration shall be limited solely to one Claimant’s Covered Claims, and that Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than the Claimant.
In 2020, Smith filed a putative ERISA class action alleging that Triad’s board had breached fiduciary duties and engaged in prohibited transactions based on the board’s governance of the retirement plan. The board filed a motion to compel arbitration or, in the alternative, to dismiss.
The district court denied the board’s motion. The district court concluded that Smith had not consented to the arbitration clause because his employment with Triad ended in 2016 but the arbitration clause had been added in 2018 and there was no evidence that Smith had even received notice of the amendment. The court also concluded that the arbitration clause was “unenforceable because it prospectively waived Smith’s right to statutory remedies provided by ERISA.”
The Seventh Circuit affirmed the district court’s decision. It agreed that the arbitration clause was unenforceable because its language prohibiting claimants from seeking or receiving any remedy that provided additional benefits or other relief was inconsistent with ERISA’s allowance of “such other equitable or remedial relief as the court may deem appropriate, including removal of [a] fiduciary.” The Seventh Circuit did not address whether Smith had agreed to the arbitration clause, whether he had received notice of the provision, or whether a plan sponsor can unilaterally add an arbitration clause. The Seventh Circuit did, however, conclude that “ERISA claims are generally arbitrable” and noted that the arbitration clause’s class action waiver did not present any problem, as the Seventh Circuit “has blessed that arbitration maneuver many times.”
Smith v. Board of Directors of Triad Manufacturing, Inc., No. 20-2708 (7th Cir. Sept. 10, 2021).