October 10, 2022

House Passes Bill That Would Limit Arbitration in ERISA Plans

By a vote of 220-205, the House passed the Mental Health Matters Act. Most of the bill would provide funds to expand access to mental health and substance abuse services for children and young adults but another provision would bar compulsory arbitration in all ERISA plans. Additionally, it would ban forced arbitration clauses, class action waivers, and discretionary clauses, and it would make representation waivers unenforceable. Participants can still agree to arbitration after a dispute arises, but only if:

  • They are not coerced, and the arbitration provision was not made a condition of participating in a plan, receiving benefits, or receiving any other privilege or benefit;
  • They are informed in writing of their right to refuse without retaliation,¬†and;
  • They agree only after a waiting period of not less than 45 days beginning after required disclosures are made.
  • Each participant or beneficiary agreeing to the provision consents in writing.

The new provisions would take effect upon enactment. However, no person would be deemed in violation of the new law due to plan documents that have not been updated accordingly until after the beginning of the first plan year on or after the one-year anniversary of the new law's enactment, so long as that person acts in accordance with the new law even while the plan has not yet been updated.

Senate prospects are uncertain. ESOP arbitration has been a controversial issue in the courts. Some have sided with companies that have required arbitration and others have not. Companies could draft compliant rules, but it is not clear why an employee would opt out of the right to sue if that would not affect plan participation.