Sixth Circuit Holds ERISA Retirement Plan’s Individual Arbitration Provisions Are Invalid

In Parker v. Tenneco, Inc., No. 23-1857, __F.4th__, 2024 WL 3873409 (6th Cir. Aug. 20, 2024), Plaintiffs-Appellees are participants in 401(k) Plans administered by Tenneco Inc., the parent company of their respective employers. Plaintiffs brought a putative class action against Defendants-Appellants, fiduciaries of the plans, alleging breaches of fiduciary duties owed under ERISA and seeking liability for these breaches pursuant to ERISA §§ 409 and 502(a)(2). Defendants sought to enforce individual arbitration agreements signed by Plaintiffs which would bar them from suing on behalf of the Plans or in a representative capacity. The district court denied Defendants’ motion to compel arbitration since it found that the individual arbitration provision limited participants’ substantive rights under ERISA. The Sixth Circuit Court of Appeals considered whether an individual arbitration provision’s requirement that claims be brought in an “individual capacity and not in a representative capacity,” and its limitation of relief to a claimant’s “individual Plan account” and other equitable or remedial relief so long as it “does not include or result in the provision of additional benefits or monetary relief” to any other participant, bar Plaintiffs from effectively vindicating their statutory rights under ERISA and thus is unenforceable. The court found the individual arbitration procedure to be unenforceable and affirmed the judgment of the district court.

The 401(k) Plans at issue here were amended in 2021 to create a mandatory and binding arbitration procedure for disputes, including any claim for breach of fiduciary duty. The arbitration procedure bars representative or class arbitrations and mandates only individual arbitration. For any claim brought under ERISA § 502(a)(2), relief is limited only to the individual Plan account and cannot result in additional benefits or monetary relief to any other employee. However, a claimant can seek injunctive relief such as removing or replacing a Plan fiduciary.

In affirming the district court, the Sixth Circuit explained that ERISA §§ 409(a) and 502(a)(2), as reflected by their plain language and interpreted by Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 140-42 (1985) and LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. 248, 256 (2008), allow participants to sue on behalf of a plan for remedies that accrue to the plan. This court in Hawkins v. Cintas Corp., 32 F.4th 625, 629 (6th Cir. 2022), cert. denied, ––– U.S. ––––, 143 S. Ct. 564, 214 L.Ed.2d 335 (2023) similarly held that § 502(a)(2) claims belong to the plan, and the plan takes the legal claim to recovery under § 409. In this case, Plaintiffs allege plan-wide injuries and seek to proceed in a representative capacity on behalf of the plans, which is prohibited by the individual arbitration provision. Plaintiffs also seek two remedies under § 409(a) that the individual arbitration provision prohibits: “all losses” to the Plans caused by the breaches of fiduciary duties, and restoration to the Plans of “any profits resulting from such breaches.” “The individual arbitration provision therefore functions as a prospective waiver of Parker’s substantive statutory remedies and is unenforceable. Because the individual arbitration provision is non-severable from the arbitration procedure, the arbitration procedure is unenforceable.” The court made clear that it was not holding that §§ 409(a) and 502(a)(2) are incompatible with the arbitral forum, only that this arbitration provision, which is non-severable, limits statutory remedies that bar effective vindication of statutory rights.