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Ninth Circuit Says Pension Plan Participants Cannot be Forced to Arbitrate

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A Major Victory for ERISA Class Action Lawsuits.

San Francisco, CAOn July 24, 2018, the Ninth Circuit held that the plaintiffs in a pension plan lawsuit could continue their legal fight as a class action, rather than having to arbitrate individually.Munro v. University of Southern California is a major victory for ERISA plan participants who were required to sign individual arbitration agreements as a condition of employment. The Court likened these ERISA lawsuits to whistle blower lawsuits–essentially viewing the plaintiffs as public prosecutors acting in defense of the pension plan itself. This is a very broad argument that may ultimately have wider legal implications.

What happened in Munro?

In 2016, nine current and former employees of the University of Southern California who participated in in the USC Retirement Savings Program and the USC Tax-Deferred Annuity Plan brought a class action lawsuit against three defendants: USC, the committee that oversaw the administration of the plans and the chairperson of that committee. The original complaint claims that the defendants breached their fiduciary duty under the Employee Retirement Income Security Act by making financial decisions to benefit conflicted third party service providers—TIAA-CREF, Vanguard, Fidelity, and Prudential—instead of plan participants. It’s a double-dipping lawsuit. There are a lot of them.

USC and co-defendants countered with an argument that the employees should not be allowed to sue because they had signed agreements to individually arbitrate any disagreements with the university when they were hired.

In March 2017, the District Court for the Western District of California held for the plaintiffs. In July, the Ninth Circuit Court of Appeals affirmed the District Court’s decision. Maybe soon we’ll get to the merits of the plaintiffs’ claims, unless there is another appeal. That would be to the U.S. Supreme Court, which raise a new set of complexities. The reasoning of the Ninth Circuit’s decision is nonetheless intriguing.

Here it is In a nutshell: “Because the parties consented only to arbitrate claims brought on their own behalf, and because the Employees’ present claims are brought on behalf of the Plans, we conclude that the present dispute falls outside the scope of the agreements.”

Anodyne words, but the Ninth Circuit regards the plaintiffs as whistleblowers. It treats their fiduciary breach claims as if they were brought for the public good. How far might the Munro logic go to protect class action lawsuits from forced arbitration arguments in the future?

Can Munro Reinvigorate Employee Class Action Lawsuits?

This is a particularly acute issue, given the U.S. Supreme Court’s May 2018 decision in Epic Systems Corp. v. Lewis (Gorsuch, J.).There the Court upheld the enforceability of forced arbitration agreements in situations that involved disputes under the Fair Labor Standards Act. FLSA claims generally cover wage and hour claims. The decision barred class action lawsuits when employees had signed arbitration agreements as a condition of employment. This holding makes it far more likely that employers will now require those agreements, for even lower-level jobs.

Dragged into the mix were the Federal Arbitration Act (FAA) and the National Labor Relations Act. It was ultimately a policy fight about which statute trumped which. Employers emerged victorious via the FAA. Many saw the employer-friendly result as disastrous because the struggle for employee rights often takes place in the framework of class action lawsuits. ERISA, fortunately, wasn’t at that particularly shambolic party.

The Munro decision looks at whether, solely in the context of pension plan fiduciary claims, ERISA or the FAA should govern. The court gave ERISA primacy. That is why the Munro decision may stand up under further appeal. The big question is about how far it can go from here?

What’s the Matter with Individual Arbitration?

In a perfect world, nothing is wrong with alternate dispute resolution forums--we should certainly all agree to get along. But tell that to the lamb asked to lie down with the lion.

In the employer/employee context, where bargaining power is unequal, forced arbitration clauses in employment contracts are an economically cynical attempt to price workers out of their legal rights. Individual arbitration is very expensive. Costs for a class action lawsuit, on the other hand, are contingent on success and shared among members of the represented class. It’s not a perfect solution, but for most workers, it is the only way they can fight back in grossly unequal economic circumstances.

How Far will Munro Go?

Two cases loom on the immediate horizon. Both Cryer v. Franklin Resources, Inc. and Dorman v. The Charles Schwab Corporation will be decided in the Ninth Circuit. Munro is expected to control on the issue of whether they can proceed as class action lawsuits. That is good news because the Ninth Circuit sees a lot of ERISA cases.

Outside the Ninth Circuit, the impact of the decision may depend on whether the conflict between the FAA and the fiduciary provisions of ERISA has come up before. Where it has not, Munro could be really helpful to plaintiffs. The Ninth Circuit is generally thought to be very plaintiff friendly, but the decision is so solidly grounded in ERISA that it can be expected to hold up well. That is the “reach” goal.

In cases that do not involve ERISA fiduciary questions, Munro’s impact is less certain. It is tempting to argue that class action lawsuits generally serve a public purpose. The plaintiffs’ bar makes that argument frequently, but it has not caught on widely. Munro might be applicable in situations where other statutes include fiduciary duty language or where there is a tradition of implying those obligations. That looks like more creative jurisprudence than we can expect at the moment, but if and when the tide turns, Munro is there.


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