Cintas Asks Supreme Court to Bless 401(k) Plan Fee Arbitration

Cintas Corp. called on the US Supreme Court to send a dispute over its 401(k) plan fees into arbitration, saying the federal circuit courts are split over whether arbitration agreements in employment contracts can cut off ERISA class litigation.

Federal courts including the Second, Fifth, and Tenth Circuits have long agreed that claims under the Employee Retirement Income Security Act are generally arbitrable, even if they allege violations of the statute’s fiduciary obligations, Cintas said in a petition docketed Monday. But in the past few years, both the Sixth and Ninth Circuits have incorrectly allowed ERISA class claims to advance despite arbitration agreements contained in individual employment contracts, the company said.

The Sixth Circuit’s April decision against Cintas was rooted in the erroneous idea that ERISA fiduciary breach claims belong to the relevant benefit plan and thus can’t be forced into arbitration without the plan’s consent, the company said. It makes “particularly little sense” to ask whether a plan has consented when the claims at issue “involve participants suing to vindicate their own interests in plan assets,” Cintas said.

A Supreme Court decision on arbitration of ERISA fiduciary breach claims could have big implications for litigation over retirement plan fees, which has exploded in recent years. Several employers have tried to cut off class litigation on this issue by pointing to arbitration clauses in employment agreements or plan documents, and the Second, Sixth, Seventh, and Ninth Circuits have issued varying rulings on these questions over the past few years.

Cintas is accused of keeping expensive, actively managed mutual funds in its 401(k) plan without properly investigating cheaper alternatives.

The uniform maker argued the case was blocked by an arbitration agreement in plan participants’ employment contracts. A federal court in Ohio disagreed in 2021.

The Sixth Circuit affirmed, reasoning that claims for fiduciary breach under ERISA belong to the benefit plan that’s allegedly being mismanaged, and not to individual plan participants. An arbitration agreement in an individual worker’s employment contract establishes only that worker’s consent to arbitration, and doesn’t require arbitration of claims brought on behalf of the plan, the court said.

This decision is “irreconcilable” with the Supreme Court’s subsequent ruling in Viking River Cruises Inc. v. Moriana, which enforced an individual arbitration agreement in the context of a representative action under California’s Private Attorneys General Act, Cintas said.

Sidley Austin LLP represents Cintas. Capozzi Adler PC represents the Cintas plan participants.

The case is Cintas Corp. v. Hawkins, U.S., No. 22-226, petition for certiorari docketed 9/12/22.