Arbitration clause in separate agreement governs dispute over ERISA plan benefits

Former employees who allege the vesting and forfeiture provisions of a retirement plan violated ERISA must arbitrate their claim pursuant to the arbitration clause contained in a separate agreement that summarized the employer’s compensation and benefits package, the U.S. Court of Appeals in New Orleans (CA-5) has ruled.

A financial services company issued annually its “Compensation Plan,” which provided information concerning compensation, benefits, and other financial programs provided for the company’s branch managers and financial advisors. The Plan also contained arbitration and class waiver provisions. Covered employees signed letters of understanding agreeing to be bound by the Plan’s terms.

Referenced in the “Compensation Plan” was a separate “PartnerPlus Plan,” which provided for employee and employer contributions.
The employee’s contributions vested immediately but employer contributions began vesting six years after the contribution. If a plan participant left the employer without signing a noncompetition agreement, unvested contributions would be forfeited. The Partnersplus Plan contained an arbitration provision, but not a class waiver.

A group of former employees left the company without signing the noncompete agreements. They filed an action under ERISA Sec. 502(a)(3), maintaining that the PartnersPlus Plan is an ERISA retirement plan and that its vesting and forfeiture provisions violated ERISA. The company moved to compel arbitration, but the district court denied the company’s motion.

Arbitration provision was enforceable

The appellate court determined that a valid agreement to arbitrate existed between the employees and the company. It rejected the employees’ contention that the Compensation Plan is merely a summary brochure that lacks any enforceable provisions. The court concluded the arbitration provision in the Compensation Plan is an independent and enforceable provision.

The employees also argued the Compensation Plan could not be enforced because it conflicts with the PartnersPlus Plan, in part because one plan included a class waiver and the other did not. The court concluded that the lack of a class waiver in the PartnersPlus Plan did not relieve the employees from their separate obligation to arbitrate the claim. It reasoned the arbitration panel could determine the implications of the class waivers, i.e., whether each employee would be required to arbitrate on an individual basis, at the appropriate time.

In addition, the employees’ dispute fell within the scope of the arbitration provision, which provided the parties would arbitrate “any disputes” related to compensation and employment, including ERISA disputes. Accordingly, the appellate court ordered the district court to compel arbitration.

Source: Hendricks v. UBS Financial Services, Incorporated (CA-5).

Visit our News Library to read more news stories.