The Lawletter Vol. 50 No. 2
Nadine Roddy—Senior Attorney
The 401(k) plan is perhaps the most popular form of tax-advantaged savings and investment vehicle for retirement offered by American employers under the Employee Retirement Income Security Act of 1974 (ERISA). Many plans contain provisions requiring arbitration of all disputes arising from the plan, and some of these provisions limit the rights and remedies of plan participants bringing suits in arbitration. The Sixth Circuit recently declared invalid a 401(k) plan’s “individual arbitration provision” requiring a plan participant to bring suit in arbitration only in their individual capacity, and not in a representative, class, or collective capacity. The provision also limited a participant to seeking remedies for losses to their individual plan account, rather than to the plan itself. The case involved two plan participants who filed in federal district court a putative class action against plan fiduciaries on behalf of the plan, themselves, and all others similarly situated. They claimed breach of fiduciary duties and sought all losses accruing to the plan, disgorgement of all profits, and other injunctive relief. Parker v. Tenneco, Inc., 114 F.4th 786, 792 (6th Cir. 2024).
The plan contained an arbitration provision that read in relevant part:
No Group, Class, or Representative Arbitrations. All Covered Claims must be brought solely in the Claimant's individual capacity and not in a representative capacity or on a class, collective, or group basis. Each arbitration shall be limited solely to one Claimant's Covered Claims and that Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary relief (whether such monetary relief is described as legal damages or equitable relief) to any Employee, Participant, or Beneficiary other than the Claimant.
The fiduciaries moved to compel arbitration, arguing that this provision required arbitration of the plaintiffs’ claims on an individual basis (i.e., only losses to their individual accounts) and barred them from suing on behalf of the plans or in a representative capacity. The district court denied motion, ruling that the provision impermissibly limited participants’ substantive rights under ERISA, as it eliminated their statutory right to bring suit on behalf of a plan and to pursue plan-wide remedies under ERISA §§409 and 502(a)(2).
On appeal, the Sixth Circuit first noted that under the Federal Arbitration Act, an agreement to arbitrate “‘shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’” Parker, 114 F.4th at 792 (quoting 9 U.S.C. § 2). Through this “savings clause,” courts may invalidate an arbitration agreement based on generally applicable contract defenses such as fraud or unconscionability, as the Supreme Court recognized in Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022). One such generally applicable defense concerns contractual provisions that violate an express provision of positive law, contradict the purpose of positive law, or are otherwise inimical to public policy, all of which may be unenforceable.
One manifestation of these principles, the Sixth Circuit continued, is found in the federal common law doctrine of “effective vindication,” which requires that a person with a statutory right of action be afforded a means of effective vindication of the rights guaranteed by the statute. In this case, the participants sought plan-wide relief through a statutory mechanism designed for representative actions on behalf of the plan. The individual arbitration provision, however, restricted the participants to actions brought in an individual capacity and not in a representative capacity, and further restricted the monetary relief they could obtain to losses to their individual plan accounts and prorated profits. The provision thus eliminated the ability to proceed in a representative capacity on behalf of the plan and to obtain relief for losses to the plan—which were substantive statutory remedies provided by ERISA. The provision was therefore unenforceable as a prospective waiver of these essential statutory rights. The district court’s ruling was affirmed. Parker, 114 F.4th at 789. Accord Platt v. Sodexo, S.A., ___ F.4th ___, No. 23-55737, 2025 WL 2203415 (9th Cir. Aug. 4, 2025); Cedeno v. Sasson, 100 F.4th 386 (2d Cir. 2024); Henry ex rel. BSC Ventures Holdings, Inc. Emp. Stock Ownership Plan v. Wilmington Tr. NA, 72 F.4th 499 (3d Cir. 2023); Harrison v. Envision Mgmt. Holding, Inc. Bd. of Dirs., 59 F.4th 1090 (10th Cir. 2023); Smith v. Bd. of Dirs. of Triad Mfg., Inc., 13 F.4th 613 (7th Cir. 2021).
