With mandatory arbitration clauses becoming more and more popular with employers, it is predictable that issues will continue to arise in the courts regarding how these clauses are impacted by ERISA. The recent Sixth Circuit case of Simon v. Pfizer, 2005 U.S. App. LEXIS 2881 (6th Cir. 2005) provides some good background regarding the narrow issue of whether or not ERISA preempts arbitration under the Federal Arbitration Act (“FAA”), even though the court in the end declined to rule on the issue.
The ERISA plan in question was an “Enhanced Severance Plan”, or “ESP” for short. Plaintiff had been terminated from his employment and was seeking benefits under the ESP. The plan provided for a three-step claims review process after which an unsuccessful participant could then proceed to arbitration before the American Arbitration Association and the results would be binding on the participant and the employer.
The plaintiff had brought claims against the employer for retaliatory discharge and discrimination in violation of ERISA § 510, improper denial of benefits, breach of fiduciary duty, and failure to provide timely and proper notice of COBRA benefits. The employer filed a motion to dismiss seeking to dismiss all counts of the complaint based on the ESP’s mandatory arbitration provisions and on a failure on the part of the plaintiff to exhaust his administrative remedies.
The District Court denied the employer’s motion to dismiss with respect to all but Count III (breach of fiduciary duty) and refused to require exhaustion of administrative remedies as to plaintiff’s ERISA Section 510 (Count I) and COBRA (Count IV) claims on the basis that the claims were statutory and thus separate and apart from plaintiff’s claim under the ESP.
On appeal, the Sixth Court overturned the District Court’s decision denying the employer’s motion to dismiss with respect to the ESP claims, holding that a “compulsory arbitration provision divests the District Court of jurisdiction over claims that seek benefits under an ERISA plan, such as the ESP.” However, the Court upheld the District Court’s denial of the employer’s motion to dismiss with respect to the ERISA section 510 claim and the COBRA claim, holding that these claims were not subject to arbitration in the case. The Court held that, even though there was some “factual overlap” between the ERISA section 510 claim and COBRA claim and the wrongful denial of benefits claim, nevertheless the ERISA 510 and COBRA claims had “independent legal bases” and were not simply claims for violations of the ESP that had been recharacterized in order to avoid arbitration. The Court went on to state that, because plaintiff’s ERISA Section 510 and COBRA claims were not covered by the arbitration clauses at issue, it was not necessary to address the question of whether ERISA would pre-empt an arbitration clause that did cover those claims.
Nevertheless, despite the fact that the Court did not find it necessary to decide the issue in the Sixth Circuit, the Court did provide a helpful list of cases which had already reached a decision on the issue:
This narrow issue has not yet been addressed by the Sixth Circuit, see Eckel v. Equitable Life Assur. Soc. of the U.S., 1 F.Supp.2d 687 at 688 (noting that the Sixth Circuit had not yet addressed the issue); however, the majority of courts considering this issue have held that disputes arising under ERISA, including COBRA claims, are subject to arbitration under the FAA. See Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th Cir.1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1115-16 (3d Cir.1993); Bird v. Shearson Lehman/American Express, Inc. 926 F.2d 116, 122 (2d Cir.1991), cert. denied 501 U.S. 1251 (1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, Inc., 847 F.2d 475, 479 (8th Cir.1988); Peruvian Connection, Ltd. v. Christian, 977 F.Supp. 1107, 1111 (D.Kan.1997); Fabian Fin. erv. v. Kurt H. Volk, Inc. Profit Sharing Plan, 768 F.Supp. 728, 733-34 (C.D.Cal.1991); Southside Internists Group PC Money Purchase Pension Plan v. Janus Capital Corp., 741 F.Supp. 1536, 1541-42 (N.D.Ala.1990); Glover v. Wolf, Webb, Burk & Campbell, Inc., 731 F.Supp. 292, 293 (N.D.Ill.1990).
Please note that employers who include such clauses in their plans may subject themselves to additional fiduciary obligations with respect to notifying participants of such provisions, as indicated in this Ninth Circuit decision here: Chapel v. Laboratory Corporation of America.