In Platt v. Sodexo, the U.S. Court of Appeals for the Ninth Circuit has ruled that an employer cannot create an arbitration requirement by unilaterally modifying an ERISA-covered group health plan. Instead, the employer must obtain consent from the relevant party(ies) to form a valid arbitration agreement.
Law. Under ERISA, an employer is generally free to adopt, modify, or terminate a welfare benefit plan at any time and for any reason. However, plan participants must be notified of changes through such communications as a Summary of Material Modifications, a Summary of Benefit and Coverage or a new Summary Plan Description (“SPD”).
ERISA expressly states that it shall not be “construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States.” The Federal Arbitration Act (“FAA”) requires that parties consent to arbitration to form a valid arbitration agreement. The FAA requires that arbitration be a “matter of consent, not coercion.”
Facts. An employer’s group health plan required participants to pay a monthly tobacco surcharge, if applicable. Later, the employer unilaterally amended the plan to add an arbitration provision. The provision states that “[a]ny claim under ERISA or otherwise with respect to the Plan, other than a claim for benefits…shall be submitted to binding arbitration.” An employee sued the employer in federal court, claiming that its tobacco surcharge violated the legal requirements for such surcharges. The employer attempted to have the case dismissed, claiming that the arbitration provision prohibited the lawsuit. However, the district court refused to dismiss the case.
Appeals Court. The Ninth Circuit began its analysis by noting that “nothing in the language of ERISA displays a ‘clearly expressed congressional intention’ to displace the FAA’s requirement of consent for a valid arbitration agreement.” Because ERISA does not conflict with or displace the FAA’s requirement of consent for a valid arbitration agreement, the Ninth Circuit held that the employer may not unilaterally amend the plan to include an arbitration provision without the relevant party’s consent.
The employer claimed that it had received consent because it had revised its SPD to include the arbitration agreement and to inform participants that their continued participation in the plan would constitute consent to arbitration.
The court responded that the SPD the employer sent to participants was 170 pages long. “Hidden within the 170 pages was the arbitration provision on page 153…. It is unreasonable to expect that [the participant] would notice a new arbitration provision hidden in a lengthy document. Mutual assent requires, at a minimum, that the party relying on the contractual provision establish that the other party had notice and gave some indication of assent to the contract.”
Because the plan’s arbitration provisions did not meet this requirement, the Ninth Circuit refused to dismiss the lawsuit and returned the case to the district court for further proceedings.