ADR-Legal Service Providers ERISA: Arbitration Now An Accepted Alternative To Litigation

Monday, August 1, 2005 - 01:00

Philip B. Ytterberg
National Arbitration Forum

When the Employment Retirement Income Security Act (ERISA) passed in 1974, arbitration was still early in its growth phase and was not a serious alternative to the litigation of federal statutory claims. Beginning in the early 1980's, the U.S. Supreme Court began to lead the charge in recognizing the clear advantages that arbitration provides, and today arbitration is recognized as the preferred means to resolve contractual, common law and statutory claims that can arise between contracting parties.

The scope of ERISA claims can be as broad as claims for benefits, claims for severance pay, breaches of ERISA's fiduciary duty and prohibited transaction provisions, actions under Section 510 (anti-retaliation/discrimination), delinquent employer contribution claims, actions challenging particular investment decisions, plan investment losses, modifications to retiree benefit plans, denial of benefits or plan interpretations, COBRA coverage, severance pay, executive compensation, and claims challenging plan restrictions on particular types of coverage, delinquent employer contribution and withdrawal liability.

ERISA's statutory scheme includes strong preemption of state law claims, and requires quick responses to claims in order to provide employers and employees with the finality that they desire. Arbitration is well suited to address these concerns

Like many other federal statutes, ERISA is silent on the arbitrability of claims. The statutory language of ERISA grants exclusive jurisdiction of ERISA civil actions to the federal district courts. 29 U.S.C §1132(e)(1) (1988). The Federal Arbitration Act of 1925 ("FAA") requires that courts recognize and enforce arbitration agreements and awards, and the Supreme Court has interpreted the FAA as establishing a "federal policy favoring arbitration," under which all federal statutory claims are subject to arbitration instead of litigation "unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991).

Other federal statutory claims that are commonly arbitrated include the Truth in Lending Act, the Magnuson Moss Warranty Act, Title VII, the Equal Employment Opportunity Act, the Sherman Antitrust Act, RICO, ADEA, the Securities Exchange Act, and many others. Courts recognize that arbitration does not limit a party's right to seek redress but simply shifts the resolution of the dispute from a judicial forum to an arbitral forum. Arbitration can provide parties with all of the legal remedies available in court, but in a forum that is more flexible and generally much less expensive than court.

Arbitration is an attractive forum for ERISA claims for multiple reasons. The U.S. Supreme Court has noted arbitration's many benefits, including lower costs, simpler procedural and evidentiary rules, less hostility between parties, less disruption of ongoing and future dealings among the parties, and more flexible scheduling of times and places for hearings and discovery. Allied Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 280 (1995). Independent studies have shown repeatedly that arbitration is faster and less expensive than litigation, and participants in arbitration are generally more satisfied with the resolution process.1

History Of ERISA Arbitration

The first cases involving ERISA arbitration reflected criticisms of arbitration that cannot be justified today. Courts criticized arbitrators for lacking the competence to interpret statutes and for not being bound to follow the law. See Amaro v. Continental Can Co., 724 F.2d 747, 750 (9th Cir. 1984)("Arbitrators, many of whom are not lawyers, lack the competence of courts to interpret and apply statutes as Congress intended.") and Barrowclough v. Kidder, Peabody & Co., Inc ., 752 F.2d 923, 941 (3rd Cir. 1985)(arbitrators are inappropriate decision-makers in ERISA cases because they are not bound to consider law or precedent in their decisions).

These perceptions of arbitration are no longer supportable. At the National Arbitration Forum (NAF), for example, all arbitrators are former judges and senior attorneys. They are required by the NAF Code of Procedure to apply the substantive law rather than a personal sense of what they deem just. See e.g., Johnson v. West Suburban Bank, 225 F.3d 366, 375 (3rd Cir. 2000)("[R]ule 20(d) of the National Arbitration Forum, the arbitrators selected in the parties' contract, currently authorizes arbitrators to 'grant any remedy or relief allowed by applicable substantive law and based on a Claim, Response, or Request properly submitted by a Party under this Code.'").

Accordingly, in 1991, the Second Circuit expressly rejected Amaro and held that the FAA required enforcement of a pension plan arbitration agreement. Bird v. Shearson Lehman/American Express, Inc ., 926 F.2d 116, 121 (2d Cir. 1991)("ERISA's text and legislative history do not support a conclusion that Congress intended to preclude arbitration of [ERISA] claims."). The Third Circuit revisited its holding in Barrowclough in 1993, overruling the previous decision and now holding that claims of ERISA violations are subject to mandatory arbitration. Pritzker v. Merrill Lynch, 7 F.3d 1110, 1111 (3rd Cir. 1993).

All Circuits that have addressed the issue have also held that claims brought under ERISA can be properly resolved through arbitration. The Fifth Circuit has ruled that Congress did not intend to exclude statutory ERISA claims from the reach of the FAA. Kramer v. Smith Barney, 80 F.3d 1080, 1084 (5th Cir. 1996). The Tenth Circuit has held the same. Williams v. Imhoff, 203 F.3d 758, 766 (2000). The Eighth Circuit held that § 1110 (a) of ERISA does not prohibit the arbitration of an ERISA claim. Sulit v. Dean Witter, 847 F.2d 475, 479 (8th Cir. 1988).

The Sixth Circuit ruled that an arbitration agreement for a severance plan covered by ERISA would be enforced even though other ERISA claims that were not enumerated within the scope of the arbitration agreement were to proceed to court. Simon v. Pfizer, Inc., 398 F.3d 765, 777 (6th Cir. 2005). Another case, Caley v. Gulfstream Aero. Corp. 333 F.Supp.2d 1367 (N.D. Ga. 2004), granted the defendants' motion to compel arbitration. The case is currently pending before the Eleventh Circuit to decide whether continuing employment after being notified that the ERISA plan contains an arbitration agreement constitutes acceptance. See Chappel v. Laboratory Corp. of America, 232 F.3d 719, 727 (11th Cir. 2000)(compelling arbitration and granting employee additional time to file a claim in arbitration due to lack of effective notice of the arbitration agreement's terms).

Because arbitration delivers decisions on claims in a speedy and efficient manner, arbitration is also consistent with regulations promulgated by the Department of Labor's Employee Benefits Security Administration (EBSA) insofar as those regulations comport with the rules on agency interpretation of statutes ( Chevron doctrine) and, with respect to insurance matters, certain retained rights of the states under the McCarran Ferguson Act, 15 U.S.C.§ 1012 (a) (1945) to permit arbitration.

Drafting An Effective Arbitration Clause For ERISA Claims

It is essential to draft an arbitration provision that is clear, fair, and gives proper notice to all parties. In order to ensure that a proper arbitration clause has been implemented, it is necessary to consult with an attorney as well as an arbitration provider. To ensure proper implementation of ERISA arbitration, it is important to focus on (1) the scope of the arbitration agreement, (2) the cost allocation, and (3) the notification of beneficiaries. Carefully consider each component, because a complication in any one may signify the difference between a functional arbitration clause and a disputed one.

For the scope of arbitration, broad provisions are best, such as an "all disputes" clause. Because only those claims covered by the terms of the arbitration agreement will be arbitrated, the scope should cover all potential ERISA claims. For example, "all claims arising from or relating to the contract and the relationships established thereby shall be resolved by arbitration by the National Arbitration Forum under the NAF Code of Procedure...." Such clauses incorporate by reference all of the provisions covered by the provider institution's rules, thus making it unnecessary to draft lengthy provisions addressing discovery, the method for selecting the tribunal, preliminary relief, and numerous other matters.

Cost allocation is another aspect of an arbitration clause. Courts are reluctant to enforce vague cost-sharing provisions where one of the parties is an individual or employee and the parties agree to "split" or "share" the initial costs. A recent Eighth Circuit opinion held that a provision requiring employees to split the costs of mandatory arbitration violates ERISA. Bond v. Twin City Carpenters Pension Fund, 307 F.3d 704, 707 (8th Cir. 2002). Arbitration should be conducted under rules that provide court-tested cost provisions. Supreme Court Justice Ginsburg pointed to the NAF as a model of "fair cost and fee allocation." Greentree v. Randolph, 531 U.S. 79, 95 (2000).

Providing notice of the arbitration agreement to beneficiaries is also an important aspect of implementing an ADR program. A recent First Circuit decision states that email is an accepted medium to submit arbitration agreements, and thus could be used in employer implementation of ERISA arbitration. See Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 559 (1st Cir. 2005). Though in Chappel v. Laboratory Corp. of America, 232 F.3d 719, 727 (11th Cir. 2000) the court implied that an employer must be mindful of potential fiduciary obligations and affirmatively notify participants to ensure that the arbitration provision is ultimately enforced.

Arbitration is federally sanctioned as a recommended alternative to litigation for ERISA claims. The arbitration process has proven to be cost effective and fast, both of which are important to the adjudication of ERISA claims in general and adverse healthcare insurance coverage decisions in particular. Based on the weight of Supreme Court and Court of Appeals precedent, ERISA arbitration must be permitted under auspices of the FAA and the original intent of the ERISA legislation.


Philip B. Ytterberg is Vice President & Assistant General Counsel of the National Arbitration Forum.

Please email the author at with questions about this article.