The AARP and its charitable arm threw their support behind a former Triad Manufacturing Inc. worker's bid to keep his proposed ERISA class action in the courthouse, telling the Seventh Circuit that the arbitration clause in Triad's employee retirement plan was illegal.
In an amicus brief filed Thursday in a case accusing Triad of mismanaging its plan, AARP said the arbitration clause flouted the Employee Retirement Income Security Act because it tried to force workers to resolve class claims through individual arbitration, ignoring ERISA's protection of workers' right to sue collectively.
AARP and the AARP Foundation told the Seventh Circuit they filed the brief because they believe defending workers' right to file ERISA class actions is an important part of keeping America's retirement system strong.
"Congress enacted ERISA to ensure that employees would receive the retirement benefits they were promised. To this end, Congress carefully crafted ERISA's civil enforcement provisions … to enable participants to protect the financial integrity of their plans and, thus, their benefits," AARP and its charitable arm said. Allowing companies to push class actions into individual arbitration would "greatly diminish [ERISA's] remedial goals and effectiveness," AARP said.
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Benefits attorneys are keeping a close eye on this case due to its interrogation of whether individual arbitration clauses in employee benefit plans violate ERISA, a hot-button issue that has also been taken up by the Ninth Circuit. In an unpublished memorandum issued in 2019, that court upheld the legality of such clauses.
In the case before the Seventh Circuit, a proposed class of current and former Triad workers led by James Smith accuse the company's board of directors and three board members of selling Triad stock to the company's employee stock ownership plan, or ESOP, at an inflated price, giving board members "a hefty profit at their employees' expense."
The board sought to force Smith to arbitrate the dispute, citing a provision in the ESOP's governing documents that sent all proposed ERISA class actions to individual arbitration. Smith fought back, saying the provision was invalid and inapplicable to him because he was no longer employed by Triad when the arbitration clause was added.
An Illinois federal judge agreed with both of Smith's arguments, denying the board's motion to compel arbitration. The company appealed the denial to the Seventh Circuit in October. Smith has urged the circuit court to uphold the lower court's decision.
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Smith and the proposed class are represented by Karen L. Handorf, Michelle C. Yau and Jamie L. Bowers of Cohen Milstein Sellers & Toll PLLC and Peter K. Stris, Rachana A. Pathak, Douglas D. Geyser and John Stokes of Stris & Maher LLP.
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