Here’s an excellent client alert, out of Holland and Knight, on the question of mandatory arbitration provisions in ERISA benefit plans. The alert discusses a recent federal district court decision out of Arizona requiring the participant in an ESOP to arbitrate her claim, rather than bring a putative class action case in federal court, based on a mandatory arbitration clause in the plan document. What’s interesting to me about the decision and the alert is the manner in which the discussion focuses on hyper-technical, almost granular issues to conclude that the arbitration clause is enforceable.

We saw essentially this same approach in the development of the jurisprudence over the propriety of including contractual statutes of limitations in benefit plans, which had the effect of substantially reducing the window for participants to litigate, as well as over venue selection clauses in ERISA governed plans, which often have the effect of forcing employees in one part of the country to only bring suit in an entirely different part of the country. These issues, when litigated, were also addressed by means of technical legal doctrines, such as, for instance, applying, to the specific situation of ERISA governed benefit plans, general standards for allowing contracting parties to select forums.

In each instance – contractual statutes of limitations, venue selection clauses and arbitration clauses – courts have often approached the issue as though it were just another instance of private contracting and applied doctrinal approaches developed in the context of private contracts entered into at arm’s length by the contracting counterparties. But to see the parties to an ERISA plan in that light requires imposing an extensive legal fiction. Employees have effectively no say in the terms of ERISA plans or the details of the benefits (leaving aside executives operating under top hat plans and similar scenarios). Furthermore, they cannot even realistically opt not to participate, without effectively surrendering a substantial part of their compensation, their ability to invest for or afford retirement, or their ability to access health care.

Under those circumstances, it is not necessarily reasonable for courts to think about these types of issues in the hyper-technical ways of contract lawyers, rather than approaching the questions from the broader perspective of whether they represent appropriate outcomes in the ERISA context. For instance, I have made the case time and again on this blog (and I do not claim that this is a novel idea) that ERISA has to be understood as invoking a private attorney general regime, in which the plaintiffs’ bar, and class action lawyers in particular, serve as the means to enforce its goals and requirements. Certainly, government regulators do so as well, but the breadth of ERISA plans across the scope of the massive United States economy makes it impossible to rely solely or even primarily upon regulatory enforcement action to protect participants and beneficiaries. While defenders of including these types of clauses in ERISA plans can provide a variety of different justifications for doing so – many of them entirely legitimate – it would be disingenuous to argue that making it harder for plaintiffs’ lawyers to access the court system is not one of them.

I would argue that under those circumstances, analyzing the propriety of venue selection, contractual limitations periods or arbitration clauses in ERISA plans by means of doctrines developed in the context of the realm of private contracting is the wrong prism for viewing these issues, and that the right prism is to instead ask whether those types of barriers to judicial access fit properly with both the contract of adhesion nature of ERISA plans as well as the private attorney general format for the enforcement of rights under ERISA.

This doesn’t necessarily mean that they should not be valid under ERISA, or that they should in fact be allowed to restrict participants’ access to the court system. It does, however, mean that the validity of such terms should be considered by comparing the legitimate rationales for their inclusion in plans against the harm to the private attorney general model they engender, rather than by simply considering whether such clauses are legal when analyzed under traditional doctrines developed in the private contracting model.