ERISA Claims Are Not Employment Related and Not Subject to Arbitration

Plaintiff Cooper worked for a company (“DST”) which offered a profit sharing plain in which Cooper participated. The plan had two pools of funds, one which included contributions of the employee, which were partially matched by DST, and a profit sharing account (the “PSA”), to which only DST contributed. DST’s employees were automatically enrolled in the PSA and were obligate to keep those funds in the account for so long as they remained employees.

DST hired an advisor, Ruane Cunniff & Goldfarb, to manage the PSA funds, with complete investment discretion, but overseen by DST. The PSA was covered by ERISA regulations which required periodic disclosure of summary descriptions of the employees’ rights thereunder. These descriptions made no mention of arbitration in event of any dispute. DST employees also received investment information and updates about the PSA investments.

All of the employees received a handbook which included that all employment related disputes were to be adjudicated in arbitration. That provision excluded, among other things, ERISA relate claims.

Cooper alleged in his lawsuit that from 1973 through 2015, when the PSA plans suffered large loses, DST did not limit the investment oversight of the advisor. Cooper also alleged that the advisor violated its fiduciary duties to the members of the PSA.

In response, the advisor demanded arbitration, which the lower court compelled. That decision was based, in part, on the fact that because the PSA was considered part of the Cooper’s (and all of the employees’) compensation it related to their employment, which required arbitration.

The Second Circuit, in reversing the lower court, issued an extensive but split decision. On the issue of whether Cooper’s claims were employment related, the Second Circuit divided its analysis in two. It first addressed the issue of whether the claims were “related to” his employment. Agreeing with other courts, the Second Circuit rejected DST’s claims that all claims must be related to Cooper’s employment as but for his employment he’d have no claim under the PSA. Relatedness to the issue in dispute that could require arbitration must arise from the scope of employment and not the employee’s mere presence. Wrote the court, “we weigh heavily the consideration that none of the facts relevant to the merits of Cooper’s claims against Ruane relates to his employment. Cooper’s claims hinge entirely on the investment decisions made by Ruane; the substance of his claims has no connection to his own work performance, his evaluations, his treatment by supervisors, the amount of his compensation, the condition of his workplace, or any other fact particular to Cooper’s individual experience at DST. Moreover, . . . others who were never DST employees could have brought claims identical to those stated by Cooper—for example . . . other Plan beneficiaries (such as spouses, heirs, or designees of participants); by other Plan fiduciaries, including DST itself; and by the Secretary of Labor.” With this, arbitration would not be compelled.

This outcome seems almost intuitive as taking DST’s “but for” argument to its logical end would mean that everything that touched on the parties’ relationship could be deemed employment related, leading to absurd outcomes, something the court noted. This is another lesson that arbitration claims, for and against, can present in specific and unique situations.

Cooper v. Ruane Cunniff & Goldfarb, Inc.

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