The Third Circuit refused to enforce a mandatory arbitration clause with a class action waiver in an ESOP, finding that the class action waiver deprived participants of statutory rights. The ESOP plan added the clause at issue in 2017. When plaintiffs filed a putative class action in 2019 asserting fiduciary breach and prohibited transaction claims, Defendants moved to dismiss on the grounds that the plan document required arbitration. The district court refused to enforce the ESOP’s arbitration clause, finding that mandatory arbitration requires consent. There was no evidence that the plaintiff or plan participants consented to add the arbitration provision in the plan document.

Defendants appealed, and the Third Circuit affirmed the district court’s holding on alternative grounds. Specifically, the Third Circuit concluded that the class action waiver within the arbitration agreement was unenforceable because it waived statutory remedies—namely, the right to seek plan-wide relief under ERISA § 502(a)(2). Because the class action waiver was not severable, the Third Circuit concluded the entire provision was void. Notably, the court expressly did not take a position on whether the Plan or its participants must consent to arbitration for such a clause to be valid.

With this decision, the Third Circuit joins the list of circuit courts – the Second, Sixth, Seventh, and Tenth Circuits – refusing to enforce arbitration provisions. In fact, the Ninth Circuit is the only appellate court to have compelled arbitration based on an arbitration clause found in an ERISA plan document.