Participants can bring claims of fiduciary breach to court, instead of having to go to arbitration. (Photo: Getty)

Participants in the retirement plan of the University of Southern California can’t be compelled by USC to go to arbitration with claims about plan mismanagement.

A Bureau of National Affairs report says that participants can bring claims of fiduciary breach to court, instead of having to go to arbitration. That’s according to Judge Virginia A. Phillips of the U.S. District Court for the Central District of California in Munro v. Univ. of S. Cal. , C.D. Cal., No. 2:16-cv-06191, 3/23/17.

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Phillips’ judgment found that participants’ fiduciary breach claims under the Employee Retirement Income Security Act are, by their nature, plan claims and the plan didn’t consent to arbitrate—and, as a result, those claims can be heard in federal court instead of in a confidential arbitration session.

It’s a significant ruling because although employees sign an arbitration agreement when they’re hired, that agreement is not also signed by anyone with the authority to bind an ERISA plan and it is also not a part of plan documents.

Therefore, the plan itself has not agreed to be bound by arbitration.

And, according to Phillips’ ruling—which, according to the report, relied on multiple cases that have held that a release and agreement not to sue doesn’t prevent a participant from suing for fiduciary breach on behalf of the plan—while participants suing on behalf of a plan can’t waive the plan’s right to pursue claims, they also can’t waive a plan’s right to file its claims in court.

If an arbitration agreement could control participants’ ERISA claims, fiduciaries could mitigate their own ERISA obligations by compelling prospective employees to sign those agreements, including their provisions of confidentiality, expedited arbitration procedures, limited discovery and mandatory splitting of arbitrators’ fees, or else not be hired.

The judge pointed out that not allowing arbitration agreements to affect participants’ fiduciary breach claims under ERISA is “closely aligned” with the goals of the statute.