Fifth Circuit is the Latest Federal Appellate Court To Find ERISA Plan Arbitration Clause Unenforceable

On February 10, 2026, the US Court of Appeals for the Fifth Circuit became the eighth federal appellate court to apply the judicially created “effective vindication doctrine,”¹ and hold that an arbitration clause in an ERISA plan document was unenforceable because it required the plaintiff-participant to waive substantive rights and remedies under ERISA. In Parrott v. Int’l Bancshares Corp.,² the Fifth Circuit held that the arbitration clause in the company’s defined contribution retirement plan³ violated the effective vindication doctrine because it prohibited participants from asserting claims in a representative capacity on behalf of the plan, which the Court explained “is facially at odds with the statutory text” of ERISA Section 409 (29 U.S.C. § 1109) “and the remedy it provides.”⁴ The arbitration clause was also unenforceable because it only permitted participants to obtain individualized relief in arbitration rather than plan-wide relief. The Court emphasized that, because fiduciary breach claims under ERISA Section 502(a)(2) (29 U.S.C. § 1132(a)(2)) “by definition, must be brought in a representative capacity and plan participants are entitled to bring suit to recover all losses and profits, the antirepresentative-action clause and remedy limitation are violative of the effective vindication doctrine.” (emphasis added).

Although the company argued that the plan’s arbitration clause and its remedy limitation were enforceable under the Supreme Court’s 2008 decision LaRue v. DeWolff, Boberg & Assocs., Inc. because ERISA simply “permits rather than requires class-wide relief,” the Fifth Circuit disagreed. The Court emphasized that, while “LaRue may stand for the proposition that there can be plan injuries to individual accounts, it does nothing to undermine the principle that such suits are still brought on behalf of the plan and thus in a representative capacity.” The Court went on to explain that its interpretation of ERISA’s statutory scheme—and its application of the effective vindication doctrine—were supported by several other recent federal appellate court decisions invalidating similar plan arbitration clauses.⁵

The table below lists the federal appellate courts that have applied the effective vindication doctrine in holding that an ERISA plan arbitration clause was unenforceable.

Impact of the Fifth Circuit’s Ruling

Beginning with the Seventh Circuit in September 2021, eight federal appellate courts have now applied the effective vindication doctrine to invalidate arbitration clauses in ERISA plan documents that precluded representative actions and/or did not permit plan-wide relief (equitable or monetary). While several federal appellate court have yet to address the issue, absent Supreme Court intervention, plan sponsors should carefully evaluate the propriety and enforceability of any existing or prospective plan arbitration clauses, in light of the growing weight of authority finding arbitration clauses in ERISA plan documents unenforceable. 

It remains to be seen how courts would view a carefully crafted plan arbitration clause that (i) delegates the question of arbitrability to the arbitrator, and (ii) does not include the reoccurring plan language in the court rulings to date precluding representative actions or plan-wide relief. However, many plan sponsors may not find appealing the prospect of an individual arbitration for plan-wide monetary relief with respect to alleged excessive administrative fees, imprudent investment options, or forfeitures.  In that scenario many of the benefits of arbitration, including speed, efficiency, and reduced costs, may be negated by the plan-wide nature of the claims, and the limited ability to challenge on appeal an even plainly erroneous (and potentially substantial) arbitration award. Another open question is whether the arbitration language implicating the effective vindication doctrine is severable (i.e., the rest of the arbitration clause can be enforced without it). While many of the arbitration clauses at issue in the prior federal appellate court decisions did not include severability language, the plan before the Fifth Circuit did. However, because the Fifth Circuit concluded the plan language was ambiguous, it remanded the case back to the district court to determine in the first instance if the unenforceable antirepresentative-action language and remedy limitation can be severed from the rest of the arbitration clause.

¹ Although the Supreme Court has never applied the effective vindication doctrine to invalidate an arbitration agreement, it has explained that the doctrine “invalidates arbitration provisions that prospectively waive a party’s right to pursue statutory remedies.” Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 235 (2013) (internal quotation omitted) (explaining that the key question is whether “the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum”). 

² Parrott v. Int’l Bancshares Corp., No. 25-50367, -- F.4th --, 2026 WL 364324 (5th Cir. Feb. 10, 2026).

³ The challenged plan arbitration clause stated:

(h) No Group, Class, or Representative Arbitrations. All Covered Claims must be brought solely in the Arbitration Claimant's individual capacity and not in a representative capacity or on a class, collective, or group basis. Each arbitration shall be limited solely to one Arbitration Claimant's Covered Claims. It is the intent of this Section that disputes be resolved on an individualized basis between an individual Arbitration Claimant and IBC. It is agreed that no dispute shall be certified as a class or collective action, or on a basis involving claims brought in any purported representative capacity on behalf of current or former employees, applicants or other persons similarly situated and no arbitration proceeding under this Section shall be consolidated with, or joined in any way with, any other arbitration proceeding. Arbitration Claimant and IBC hereby waive any right to participate in a class or collective action or any representative proceeding (the “Class Action Waiver”). Arbitration Claimant and IBC shall be required to pursue any claims on an individual basis under this Section.

⁴ ERISA § 409 provides that a plan fiduciary “who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.” 

⁵ 2026 WL 364324, at * 6 (citing Second, Third, Sixth, Ninth, and Tenth Circuit decisions).