Rare FAA exception invalidates arbitration provision

The Federal Arbitration Act (FAA) enforces certain arbitration agreements involving federal law, including some employment disputes and claims against employers under the Employee Retirement Income Security Act of 1974 (ERISA). But is an arbitration agreement that prohibits an individual from seeking relief provided by federal statute still enforceable? The 7th Circuit recently addressed the issue.

FAA and ERISA

Congress enacted the FAA in 1925. The federal law enforces certain arbitration agreements entered into between parties.

ERISA is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to protect individuals subject to the plans. Specifically, Section 1132(a)(2) provides a civil suit may be filed for appropriate relief as listed under Section 1109, which in turn imposes liability for any fiduciaries who breached their duties to the plan. Notably, Section 1109 also authorizes "other equitable or remedial relief that the court deems appropriate."

Facts

James Smith worked for Triad Manufacturing, Inc., and participated in the company's employee stock ownership plan (ESOP), a contribution employee retirement plan covered under ERISA. Triad's board later amended the plan to include an arbitration provision with a class action waiver, requiring arbitration for any claim related to the plan. The arbitration provision also severely limited the remedies available to anyone who filed an ERISA claim.