DOL Argues That Class Action Waivers in Plan Agreements Are Unenforceable

The Department of Labor filed an amicus brief to the U.S. 6th Circuit Court of Appeals in May which argued that a mandatory arbitration provision in a 401(k) plan document is unenforceable if it is tied to a class-action waiver.

The case in question is Tanika Parker et al. v. Tenneco, Inc., et al. First brought in April 2023, the suit alleges that Tenneco and its affiliates maintained a plan with excessive fees. Tenneco argued that the case should be sent to arbitration individually, per their plan documents.

The district court disagreed, because the combination of mandatory arbitration and a class action waiver compels the participant to forfeit a statutory right, namely to secure plan-wide relief for fiduciary misconduct.

The defendants then appealed to the U.S. 6th Circuit Court of Appeals. The DOL filed an amicus brief for the case in December 2023 at the appeals court. The department argued that “the district court correctly refused to compel arbitration because the Arbitration Procedure includes a non-severable provision precluding Plaintiffs from obtaining in arbitration the very relief that ERISA expressly allows them to seek in court,” that being plan-wide remedies.

The DOL asked the court to uphold the ruling that “the Representative Action Waiver is unenforceable because it prevents the effective vindication of Plaintiffs’ statutory right to seek plan-wide relief.”

In May, DOL sent a supplementary amicus brief to the 6th Circuit. This was in reaction to a decision of the U.S. 2nd Circuit Court of Appeals, which ruled in another case, Cedeno v. Sasson, on May 1 that the class action waiver was unenforceable. The DOL wrote that the plaintiff’s “avenue for relief under ERISA is to seek a plan-wide remedy, and the specific terms of the arbitration agreement seek to prevent Cedeno from doing so,” which renders the agreement unenforceable.

The U.S. 3rd and 10th Circuit Courts of Appeal have also previously ruled this way in similar cases.

The Supreme Court in October 2023 declined to hear two cases concerning the enforceability of mandatory arbitration and class action waivers in plan documents. Those cases, from the 10th and 3rd Circuit Courts of Appeals, the defendants’ moves to force individual arbitration and prevent a class action remedy were denied.