Supreme Court Bypasses ERISA Arbitration Disputes as Circuit Split Deepens

The Supreme Court recently declined to review two significant cases involving arbitration under the Employee Retirement Income Security Act (ERISA). This decision leaves unresolved a growing divide among appellate courts regarding the enforceability of individual arbitration provisions in ERISA litigation. The Second and Sixth Circuits have invalidated such clauses, while a recent ruling from the Central District of California upheld similar language, relying on precedent from the Ninth Circuit.

The ongoing conflict among the circuits revolves around the interpretation of the Effective Vindication Doctrine, which maintains that ERISA §502(a)(2) protects the right to seek plan-wide relief. Courts interpreting this doctrine are increasingly limiting the enforceability of arbitration clauses that confine claimants to individual remedies. The Eleventh Circuit is currently considering an appeal that may further clarify the application of this doctrine, potentially impacting how arbitration provisions are structured.

Mandatory arbitration provisions have become prevalent in various sectors, including retirement plans. Plan sponsors and trustees often adopt these clauses to mitigate the financial risks associated with litigation. Despite this trend, the Supreme Court’s recent refusal to engage with the issue suggests hesitance to clarify individualized arbitration requirements. As courts grapple with the implications of their decisions, the absence of a unified standard continues to create uncertainty.

Conflicting Circuit Rulings on Arbitration Clauses

In the case of Cedeno v. Argent Tr. Co., a New York district court ruled against the enforcement of an individual arbitration clause. The court determined that the clause constituted an impermissible waiver of statutory rights by limiting claimants solely to individual relief. This ruling was affirmed by the Second Circuit in November 2024.

Similarly, in Parker et al. v. Tenecco, Inc., a Michigan district court reached a comparable conclusion. The defendants’ attempt to compel arbitration was rejected on the basis that the arbitration provision restricted claimants’ rights to seek broader, plan-wide remedies. The Sixth Circuit upheld this decision in January 2025.

Both cases draw upon the Effective Vindication Doctrine, which posits that arbitration agreements limiting claimant remedies to individual relief for fiduciary violations are unenforceable. This interpretation is rooted in the belief that ERISA §502(a)(2) allows claimants to pursue comprehensive relief for alleged fiduciary breaches.

California Court Upholds Individual Arbitration Language

In contrast to the Second and Sixth Circuits, the Central District of California provided a different interpretation in the recent case of Yagy. The court upheld an arbitration clause that restricted claims to an individual’s losses, which appears to contradict the principles of effective vindication. Notably, the arbitration and class action waiver language in Yagy differed from that in Cedeno and Parker. It explicitly allowed an arbitrator to award relief that would otherwise be inaccessible under ERISA.

The court cited Dorman v. Charles Schwab Corp., a 2019 Ninth Circuit decision that permitted limiting claims to individual capacities within defined contribution plans, such as Employee Stock Ownership Plans (ESOPs). However, given the resistance from other courts to follow this precedent, the likelihood of Yagy achieving a successful appeal remains uncertain.

The Eleventh Circuit is now examining the implications of Yagy in the pending case of Shapiro, with oral arguments held on August 12, 2025. In this instance, defendants reference the findings from Yagy to assert that the Effective Vindication Doctrine does not apply, as their arbitration language only limits additional benefits to others, while allowing for individual relief under ERISA. Nevertheless, questions raised by the panel indicate skepticism regarding this argument.

Given the current landscape, plan sponsors and trustees considering the inclusion of mandatory arbitration clauses in their plans are advised to engage with ESOP specialists. They should assess their plan language in light of the evolving case law within their jurisdictions to navigate the complexities introduced by these conflicting rulings.