Compliance Corner

Retirement Updates

May 24, 2022

On April 27, 2022, in Hawkins, et al. v. Cintas Corp., et al., the Sixth Circuit Court of Appeals affirmed that ERISA §502(a)(2) fiduciary breach claims belong to the plan and require the plan’s consent for arbitration. As a result, participants cannot be forced to arbitrate such claims without the plan’s consent.

In this case, two retirement plan participants brought a putative class action suit against their former employer, Cintas Corporation (Cintas), for breach of fiduciary duties owed to the company’s retirement plan. First, they alleged that Cintas only offered participants actively managed plan investment funds, rather than more cost-efficient passively managed funds. Second, they claimed that Cintas imprudently charged the plan expensive recordkeeping fees.

However, the participants had each signed employment agreements that contained arbitration provisions requiring arbitration of employment-related claims, including those arising under ERISA. Therefore, Cintas moved to compel arbitration and stay the class action lawsuit, asserting that the participants were bringing claims covered by the arbitration provisions.

The district court denied both of Cintas’ motions. The court determined that the action was brought on behalf of the plan, and the plan’s consent was necessary for arbitration. Thus, it was irrelevant that individual participants had consented to arbitration through their employment agreements.

On appeal, the Sixth Circuit agreed that the employment agreements did not force the case into arbitration. The court noted that the participants’ claim was not brought under ERISA §503(a)(1)(B) for benefits or rights due to them individually under the plan terms. Rather, the participants filed an ERISA §502(a)(2) suit seeking plan-wide relief that should be brought as a plan claim. Because the arbitration provisions only established the individual participants’ consent to arbitration, their employment agreements do not subject the plan claims to arbitration.

Additionally, the plan document did not contain an arbitration provision or other expression of the plan’s consent to arbitrate. The Sixth Circuit recognized that Cintas could amend the plan document to include an arbitration provision but did not decide whether such a provision would subject § 502(a)(2) claims to arbitration because this matter was not under review. However, the Sixth Circuit noted that all other circuit courts that have addressed the issue have held that ERISA claims are generally arbitrable.

The Sixth Circuit also rejected Cintas’ alternative argument that if plan consent to arbitrate is required, such consent was provided by their participation in the lawsuit to compel arbitration. In the Sixth Circuit’s view, this argument failed to recognize the distinction between Cintas as the plan sponsor and the plan as a legal entity.

Employers that sponsor ERISA plans should be aware that arbitration provisions in employment agreements do not automatically result in all ERISA claims being subject to arbitration. Employers who want ERISA claims, including those brought on the plan’s behalf under § 502(a)(2), to be arbitrated should ensure express consent to arbitrate is reflected in the plan documents.

Hawkins, et al. v. Cintas Corp., et al., Sixth Circuit Court of Appeals »