Cintas can’t force arbitration of lawsuit over retirement-plan options, fees

Retirement plan brochures are seen at the Calpers regional office in Sacramento.
REUTERS/Max Whittaker
  • Cintas said the disgruntled employees were bound to arbitrate their complaints
  • Court says suit was filed on behalf of the plan, and the plan never agreed to arbitrate

(Reuters) - Cintas Corp cannot require former employees to arbitrate a potential class action over the management of its employer-sponsored retirement plan, a federal appeals court held Wednesday.

The 6th U.S. Circuit Court of Appeals said Cintas cannot enforce the arbitration clauses in its employment agreements with the plaintiffs because they are suing on behalf of the retirement plan, not themselves or their individual accounts.

The employment agreements “only establish the Plaintiffs’ consent to arbitration, not the plan’s,” and there was no evidence that the plan had consented to arbitration in some other way, Circuit Judge Danny Boggs wrote, joined by Circuit Judges Julia Smith Gibbons and John Nalbandian.

For example, Cintas argued that it could consent to arbitration on the plan’s behalf – an argument Boggs compared to letting the fox guard the henhouse. However, the court speculated that an arbitration clause contained in official retirement-plan documents “might” be enforceable.

Cincinnati-based Cintas, which makes uniforms and other products for business, and its attorneys at Sidley & Austin did not immediately respond to requests for comment on Wednesday.

The plaintiffs’ attorneys at Capozzi Adler declined to comment.

The decision affirms a ruling by a federal judge in Cincinnati, who denied Cintas’ motion to compel arbitration of Raymond Hawkins and Robin Lung’s lawsuit for breach of fiduciary duties under ERISA, the federal law governing employer-sponsored benefit plans.

According to their class-action complaint, Hawkins and Lung are former Cintas workers who participated in the Cintas Partners Plan, an employer-sponsored 401(k) with more than $1 billion in assets.

They accuse Cintas, its Investment Policy Committee, and its board of directors of breaching their duties of prudence and loyalty by offering only high-priced, actively-managed investment options and by charging excessive recordkeeping fees.

“Their actions were contrary to actions of a reasonable fiduciary and cost the Plan and its participants millions of dollars,” Hawkins and Lung allege.

Like the lower court, the 6th Circuit adopted the reasoning of a 2018 decision by the 9th Circuit, which declined to order arbitration of an ERISA claim against the University of Southern California on “nearly identical” facts.

In a footnote, the 6th Circuit added that the 2nd Circuit later reached the same result for different reasons: it found an arbitration clause unenforceable because the plaintiff's allegations about the fund’s poor investment decisions did not “relate to” his employment.

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