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January 03, 2024 Feature

IV. Labor

Paul J. Ondrasik, Jr., Daniel P. Bordoni, Eric G. Serron, Thomas Veal,and Alana Genderson

The Labor Committee’s report reviews significant decisions over the past year in federal employment and employee benefit laws. The report’s employment law section covers Supreme Court decisions on the scope of the Federal Arbitration Act, as well as a number of important lower court decisions addressing collective action issues under the Fair Labor Standards Act, gender dysphoria as a covered disability under by the Americans with Disabilities Act, and the protection of “whistle-blowers” under the Sarbanes-Oxley Act. It also reviews a number of new laws providing additional protections to victims of sexual assault and harassment and requiring workplace accommodations for pregnant workers and new mothers. The employee benefits section of the report returns to the so-called “excessive fee” cases that have continued to dominate the ERISA class action landscape. It reviews a number of circuit court decisions addressing the pleading standard for such cases in the aftermath of the Supreme Court’s 2022 decision in Hughes v. Northwestern University.

A. Employment Law Developments

1. Federal Arbitration Act

a. U.S. Supreme Court Holds That Individual Claims Under California’s Private Attorneys General Act Can Be Compelled to Arbitration.

In Viking River Cruises, Inc. v. Moriana,1 the United States Supreme Court held that individual claims under California’s Private Attorneys General Act of 2004 (PAGA) can be compelled to arbitration. The Court found that the California Supreme Court’s ruling in Iskanian v. CLS Transportation Los Angeles LLC,2 which held that California law prohibited waivers of the right to bring representative and individual PAGA claims in court or arbitration, was partially preempted by the Federal Arbitration Act (FAA).

Plaintiff, a former Viking River Cruises, Inc. (“Viking”) employee, executed an agreement to arbitrate any dispute arising from her employment, which included a “Class Action Waiver” prohibiting her from bringing “any dispute as a class, collective, or representative PAGA action.”3 That agreement also had a severability clause noting that, “if the waiver was found invalid, any class, collective, representative, or PAGA action would presumptively be litigated in court,” but that “if any ‘portion’ of the waiver remained valid, it would be ‘enforced in arbitration.’”4

Plaintiff filed a PAGA suit against Viking asserting violations of California’s wage and hour laws, asserting both individual claims and representative claims on behalf of other employees. Viking’s efforts to compel arbitration of the individual claims were rejected by the California courts on the ground that the arbitration waiver was invalid under Iskanian.

The Supreme Court reversed, holding that the Iskanian rule was preempted by the FAA, to the extent that it prohibited waiver of plaintiff’s individual claims. The decision turned on the two separate definitions of “representative” under PAGA. First, PAGA claims are “representative” in the sense that employees are acting as State representatives. Second, some PAGA claims are “representative” as based on alleged violations suffered by other employees. Under the second meaning, the Supreme Court held that it “makes sense” to distinguish individual PAGA claims premised on violations allegedly sustained by the plaintiff herself.

The Supreme Court then found that the FAA preempted the prohibition of agreements to arbitrate individual claims. While an agreement cannot provide for a wholesale waiver of PAGA claims under California law, the severability clause in the agreement meant that Viking was entitled to compel arbitration of the individual claim. The Supreme Court then held that once a plaintiff’s individual PAGA claim is compelled to arbitration, the plaintiff no longer has statutory standing to assert non-individual claims, and, thus, those claims must be dismissed.

b. U.S. Supreme Court Clarifies the Scope of the Transportation Worker Exception to Arbitration Under the Federal Arbitration Act.

In Southwest Airlines Co. v. Saxon, the United States Supreme Court held that workers who load cargo on and off of airplanes are exempt from coverage under the FAA.5 Specifically, the Court concluded that ramp supervisors for Southwest Airlines (Southwest) belong to “a class of workers who physically load and unload cargo on and off airplanes on a frequent basis” and, based on these duties, are “engaged in foreign or interstate commerce.”6

Plaintiff, a ramp supervisor, brought a class action on behalf of herself and other ramp supervisors, alleging that Southwest had violated the overtime requirements of the Fair Labor Standards Act. The district court dismissed the case on the ground that the issue was subject to the arbitration under the plaintiff’s employment agreement. The Seventh Circuit reversed, holding that the ramp supervisors were exempt from the FAA as workers engaged in interstate or foreign commerce: “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce, as that term was understood at the time of the [FAA’s] enactment in 1925.”7

The Supreme Court affirmed, agreeing that the plaintiff, as a ramp supervisor, was of the “class of workers” exempted from the FAA. Because the day-to-day work of ramp supervisors includes “physically load[ing] and unload[ing] cargo on and off airplanes on a frequent basis,” the Court concluded that ramp supervisors are “actively ‘engaged in transportation’ of those goods across borders” and thus are “engaged in foreign or interstate commerce.”8

2. Fair Labor Standards Act (“FLSA”)

a. Third Circuit Holds That Filing a Consent to Join a Collective Action Is Action Covered by the FLSA’s Anti-Retaliation Provision.

In Uronis v. Cabot Oil & Gas Corp.,9 the U.S. Court of Appeals for the Third Circuit held that the anti-retaliation provision of the FLSA protects employees who have indicated their intent to join a collective action. In so ruling, the Court effectively determined that the FLSA’s language protects not only employees who have been subpoenaed to testify but also employees who are anticipated to file a consent to join a collective action.

Plaintiff brought a collective action against Cabot Oil & Gas Corporation (“Cabot”), alleging that Cabot had retaliated against him due to his anticipated testimony and participation in a separate FLSA collective action against it for failure to pay overtime wages. The district court granted Cabot’s motion to dismiss, reasoning that the FLSA’s protections of individuals who are “about to testify” requires that an individual be “scheduled” or subpoenaed to testify.10

On appeal, the Third Circuit reversed, holding that the term “testify” includes an employee’s consent to join an FLSA suit and that plaintiff had adequately pleaded he was “about to testify” by alleging that Cabot was aware that he was a potential member and witness in the separate suit.11 That result was consistent with Section 15(a)(3)’s primary purpose of preventing “a fear of retaliation from chilling employees’ assertion of FLSA rights.”12

b. Third Circuit Deepens Split Among Circuits in Holding That Out-of-State Plaintiffs Cannot Opt In to FLSA Collective Action Suits.

In Fischer v. Federal Express Corp., the U.S. Court of Appeals for the Third Circuit held that an employee who resides outside of the state where an FLSA collective action is pending may not opt in to such an action without demonstrating that “his or her claim arises out of or relates to the [employer’s] minimum contacts with the forum state.”13 In so ruling, the Third Circuit joined the Sixth and Eighth Circuits in limiting a nonresident’s ability to participate in FLSA collective actions, deepening a split with the First Circuit’s contrary ruling.14

Plaintiff, a Pennsylvania resident who worked as a security specialist for Federal Express Corporation (FedEx), filed a putative nationwide collective action, alleging that FedEx had misclassified certain employees as exempt from the FLSA’s overtime rules. Finding that Federal Rule of Civil Procedure 4(k)(1)(A) requires that all claims must arise out of or relate to minimum contacts with the forum state, the district court granted conditional certification of the proposed collective action, but limited its scope to employees who worked in Pennsylvania.

On interlocutory appeal, the Third Circuit affirmed. It agreed that the district court did not have personal jurisdiction over out-of-state plaintiffs because those individuals had not demonstrated that their overtime claims arose out of or related to minimum contacts with Pennsylvania. The court determined that FLSA collective actions were in personam suits, thus requiring any opt-in plaintiffs to satisfy threshold personal jurisdiction requirements.

3. Employment Discrimination and Retaliation

a. Fourth Circuit Holds Gender Dysphoria Is an ADA-Covered Disability.

In Williams v. Kincaid, the Fourth Circuit became the first federal appellate court to rule that gender dysphoria is a “disability” under the Americans with Disabilities Act (ADA).15 Plaintiff, a transgender woman whose driver’s license listed her gender identity as female, was initially assigned to the women’s side of a Virginia prison and given a women’s uniform, as well as bras and women’s underwear. After a preliminary medical evaluation with a prison nurse, she was reassigned to the men’s side of the prison and required to wear men’s clothing.

Plaintiff informed the nurse that she was transgender and suffered from gender dysphoria, for which she had received hormone treatment for fifteen years. Plaintiff “explained that she had not undergone transfeminine bottom surgery.”16 That led to her reassignment because, under prison policy, inmates were classified on whether they have male or female genitalia. While incarcerated, plaintiff did not receive medication prescribed for her gender dysphoria, which she claimed caused her mental and emotional distress. Plaintiff also claimed that she was harassed about her sex and gender and was searched by male rather than female deputies.

After her release, plaintiff filed suit, alleging, among other things, violations of the ADA and the Rehabilitation Act. Her ADA and Rehabilitation Act claims were dismissed on the ground that “gender dysphoria is not a ‘disability’ under the ADA.”17 On appeal, the Fourth Circuit reversed. The Fourth Circuit noted that, while the ADA excludes protections for certain “gender identity disorders not resulting from physical impairments,” it does not define the term “gender identity disorders” and does not expressly mention gender dysphoria.18 The Fourth Circuit concluded that “nothing in the ADA, then or now, compels the conclusion that gender dysphoria constitutes a ‘gender identity disorder’” such that it would be excluded from protection.19 The court further held that, even if gender dysphoria were a gender identity disorder, Williams had alleged sufficient facts to suggest a plausible inference that her gender dysphoria resulted from physical impairments.

4. Whistleblower Protections

a. Second Circuit Holds That a Plaintiff Alleging Retaliation Under the Whistleblower Protection Provisions of the Sarbanes-Oxley Act Must Demonstrate That Their Employer Acted with Retaliatory Intent.

In Murray v. UBS Securities, LLC, the U.S. Court of Appeals for the Second Circuit held that a plaintiff alleging retaliation under the whistleblower protection provisions of the Sarbanes-Oxley Act (SOX) must prove, by a preponderance of the evidence, that their employer acted with retaliatory intent.20 The Second Circuit’s decision creates a split with the Fifth and Ninth Circuits, which have held that retaliatory intent is not an element of such a claim.21 The Supreme Court has granted certiorari to review the Second Circuit’s decision in its upcoming term.

Plaintiff was hired as a mortgage-backed securities strategist by UBS Securities, LLC (UBS). In his role, plaintiff was required by the Securities and Exchange Commission to certify that his reports were produced independently and reflected his own views accurately. He allegedly was concerned that two superiors were improperly pressuring him to skew his research to support their business strategies. Shortly after reporting his concern, plaintiff was terminated.

Plaintiff sued UBS, alleging that he was terminated in retaliation for his complaints in violation of SOX. UBS contended that it terminated plaintiff due to a shift in strategy and that his position had been eliminated in a reduction in force. A jury returned a verdict in plaintiff’s favor after it had been instructed that he was to prevail if it found that his “protected activity was a contributing factor in the termination of his employment.”22

On appeal, the Second Circuit found this instruction erroneous and remanded for a new trial. Looking to the plain meaning of SOX’s antiretaliation provision, which states that no covered employer “may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee . . . because of” that employee’s whistleblowing activity, the court determined that the term “discriminate” requires a “conscious decision to act based on a protected characteristic or action.”23 The Second Circuit further determined that the phrase “because of” connotes a causal relationship between the discriminatory action and the whistleblowing.24 It thus found that the statute requires retaliatory intent.25

B. Labor Law Developments

1. National Labor Relations Board

a. National Labor Relations Board Narrows the Definition of Lawful Dress Code and Uniform Policies.

In Tesla, Inc., the National Labor Relations Board (NLRB) held that employers are required to establish “special circumstances” for maintaining policies that interfere “in any way with its employees’ right to display union insignia.”26 It reversed Wal-Mart Stores, Inc.,27 which gave employers more flexibility to regulate the display of union insignias in the workplace.

Tesla maintained a policy for production associates that stated, “It is mandatory that all Production Associates and Leads wear the assigned team wear,” and further that “[o]n occasion, team wear may be substituted with all black clothing if approved.”28 During a union campaign, production associates wore black shirts with a small union logo on the front—“Driving a Fair Future at Tesla”—and a larger “UAW” logo on the back of the shirt.29 Subsequently, Tesla began strictly enforcing its uniform policy and informed production associates that they would be sent home if they wore a union shirt again.

The NLRB held that Tesla’s policy was presumptively invalid because it allowed production associates to wear only all-black team shirts or all-black alternative shirts and, therefore, prohibited employees from wearing union shirts. Relying on Republic Aviation Corp. v. NLRB,30 the NLRB concluded that Tesla had “the burden to establish special circumstances that justify its interference with production associates’ protected right to display union insignia.”31 The NLRB reversed its prior decision in Wal-Mart Stores, which held that employers are not required to establish special circumstances where an employer maintains “a facially neutral rule that limits the size and/or appearance of union buttons and insignia that employees can wear but does not prohibit them.”32

b. National Labor Relations Board Holds That Dues Checkoff Obligations Survive Contract Expiration.

In Valley Hospital Medical Center, Inc. (Valley Hospital II), the NLRB held that dues checkoff obligations, which authorize employers to deduct union dues from employee pay, “should be treated as part of the status quo that cannot be changed unilaterally after contract expiration.”33 The NLRB reversed its earlier decision in Valley Hospital Medical Center (Valley Hospital I), under which employers were permitted to cease dues checkoff practices when a collective bargaining agreement expired.34 This reversal came after Valley Hospital I was reviewed by the Ninth Circuit and remanded for further consideration on the ground that the NLRB’s decision failed to address relevant, and seemingly contrary, precedent.35

In reversing its decision in Valley Hospital I, the NLRB held that “dues checkoff is without dispute a mandatory subject of bargaining, and, once implemented under an agreement, it becomes part of employees’ terms and conditions of employment, most of which, pursuant to the Katz doctrine, may not be changed unilaterally.”36 As a term and condition of employment, the NLRB found that dues checkoff should survive contract expiration. It distinguished dues checkoff provisions from other provisions that are well-established exceptions to the Katz rule—such as “arbitration provisions, no-strike clauses, and management rights clauses”—because those provisions do not amount to terms and conditions of employment but rather involve a party waiving certain rights outside of the collective-bargaining relationship.37

c. NLRB Expands Available Remedies to Include Compensable Damages.

In Thryv, Inc. (Thryv), the Board, after finding that a company violated Sections 8(a)(1) and 8(a)(5) of the National Labor Relations Act by illegally withholding information concerning layoffs, considerably expanded its traditional “make-whole” remedies to include “all direct or foreseeable pecuniary harms” resulting from an unfair labor practice.38 Under the new standard, the Board’s general counsel has the burden at the compliance stage to demonstrate the amount of pecuniary harm stemming from the unfair labor practice and, further, that the harm was direct and foreseeable. Employers can then present evidence to challenge the amount claimed, contend that the harm was not direct or foreseeable, or argue that the alleged harm would have occurred regardless of the unfair labor practice. In so ruling, the Board explained that pecuniary harms may now include costs such as credit card debt or interest, retirement account withdrawal penalties, increased transportation costs, out-of-pocket medical expenses, and childcare costs.

C. Employment Legislation

1. Legislation

a. President Biden Signs the Ending Forced Arbitration of Sexual Assaultand Sexual Harassment Act.

On March 3, 2022, President Joe Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (the “Act”),39 which amends the Federal Arbitration Act. Under the Act, in legal actions alleging sexual assault or sexual harassment, any predispute arbitration agreements and class and collective action waivers that would otherwise limit a party’s ability to prosecute his or her claims shall be deemed invalid at the election of the person alleging such assault or harassment.

b. President Biden Signs the Speak Out Act.

On December 7, 2022, President Biden signed the Speak Out Act,40 which prohibits the enforcement of predispute nondisclosure and nondisparagement clauses in cases alleging claims of sexual assault or sexual harassment. Under the Speak Out Act, any such clauses that were entered into before a sexual assault or sexual harassment dispute arises are no longer judicially enforceable. Nondisclosure and nondisparagement clauses in agreements entered into after a dispute arises, resolving sexual assault or harassment allegations, remain enforceable. The Act contains a limited carveout for the protection of trade secrets and proprietary information.

c. President Biden Signs the Pregnant Workers Fairness Act and the Providing Urgent Maternal Protections for Nursing Mothers Act.

On December 29, 2022, President Biden signed the Pregnant Workers Fairness Act (PWFA)41 and the Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act).42 The PWFA takes effect on June 27, 2023.43 The PUMP Act is effective immediately.44

The PWFA requires employers with fifteen or more employees to make reasonable accommodations for employees and job applicants with known limitations related to pregnancy, childbirth, or related medical conditions—regardless of whether these conditions rise to the level of a disability. Covered employers are also prohibited from taking any adverse action against employees who request such reasonable accommodations. The PWFA also provides that employers may not require employees to use leave to accommodate pregnancy-related restrictions if other reasonable accommodations are available. The PWFA borrows the “powers, remedies, and procedures” from Title VII for private employers, meaning that employees may bring suit against their employer after exhausting administrative remedies.45

The PUMP Act amends the Fair Labor Standards Act to require employers with more than fifty employees to provide “a reasonable break time for an employee to express breast milk for such employee’s nursing child for 1 year after the child’s birth each time such employee has need to express the milk.”46 It also requires employers to provide employees a place to express breast milk, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public. The PUMP Act contains certain exemptions for some transportation industry workers.

D. Employee Income Retirement Act Developments (“ERISA”)

1. “Excessive Fee” Litigation Update: Hughes v. Northwestern University Fallout.

In January 2022, the U.S. Supreme Court issued what was expected to be a blockbuster decision in its first 401(k)/403(b) “excessive fee” case, Hughes v. Northwestern University.47 In reversing the Seventh Circuit, the Court made one thing clear—performance and expense-based fiduciary breach challenges to the investment options in participant-directed plans were not subject to dismissal simply because the defendants had offered participants a diverse investment menu. That notion was inconsistent with the basic trust principle that “a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones.”48

At the same time, the Court did not offer much guidance on how to address these claims at the motion-to-dismiss stage and did not even determine whether the complaint at issue passed muster; that issue was left for resolution on remand. However, it made clear that these complaints were subject to the pleadings standards of Bell Atlantic Corp. v. Twombly49 and Ashcroft v. Iqbal50 and that “the appropriate inquiry will necessarily be context specific” given that fiduciary decisions were to be judged based on circumstances prevailing at the time they were made, and not on hindsight.51 And it emphasized that fiduciaries are entitled to deference in determining whether a breach occurred: “At times, the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.”52

Several circuit courts, including the Seventh Circuit on remand from Hughes, now have grappled with the questions that the Supreme Court left unanswered, with somewhat mixed results. These decisions appear to have a common theme: to clear the “plausibility” pleading hurdle, a plaintiff must make a data-backed showing that the fiduciary’s choices were decisively inferior to alternatives that could have provided the same services to the plan or given participants the same opportunity to pursue their preferred investment strategies. In short, the complaint must provide appropriate, fact-based comparators against which the fiduciary’s allegedly imprudent decisions can be judged. Where such comparators are properly alleged, plaintiffs’ claims might survive dismissal even where there is a lawful alternative explanation for the fiduciary’s decision that the complaint has failed to rebut.

a. CommonSpirit, Albert, Matousek: The Need for an Appropriate Comparator

Smith v. CommonSpirit Health,53 Albert v. Oshkosh Corp.,54 and Matousek v. MidAmerican Energy Co.55 all make clear that plaintiffs cannot avoid dismissal without pleading appropriate comparators to support their performance and expense-based challenges to a plan’s investment offerings or recordkeeping fees. The generalized, non-specific comparisons that plaintiffs have often used to support these type claims are simply not sufficient.

The Sixth Circuit’s decision in CommonSpirit sounded this theme unambiguously. The plaintiff centered her attack on the plan’s qualified default investment alternative, a suite of actively managed Fidelity target date funds. Her attack was two-fold: first, that actively managed funds, with their higher fees than comparable passively-managed index funds, were inherently inappropriate to offer average participants; second, that the funds in question, over periods of three to five years, had poorer returns and higher expenses than Fidelity’s suite of target date funds that invested only in index funds.

The court found those allegations insufficient to satisfy the plausibility standard. With respect to the generic challenge to actively managed options, the court observed that

such investments represent a common fixture of retirement plans, and there is nothing wrong with permitting employees to choose them in hopes of realizing above-average returns over the course of the long lifespan of a retirement account—sometimes through high-growth investment strategies, sometimes through highly defensive investment strategies. It is possible indeed that denying employees the option of actively managed funds, especially for those eager to undertake more or less risk, would itself be imprudent. 56

The plaintiff’s second line of attack based on a comparison to the performance and fees of index funds fared no better; the index funds were not an appropriate comparator:

A side-by-side comparison of how two funds performed in a narrow window of time, with no consideration of their distinct objectives, will not tell a fiduciary which is the more prudent long-term investment option. A retirement plan acts wisely, not imprudently, when it offers distinct funds to deal with different objectives for different investors.57

The latter point—the necessity of truly valid comparisons between alternatives—was also a major focus in the Albert and Matousek decisions. Albert marked the Seventh Circuit’s first return to “excessive fee” cases after the Supreme Court’s reversal of its Hughes decision. That case included a challenge to the plan’s recordkeeping fees which the plaintiff asserted were “excessive”: those fees allegedly were over twice as high as the per participant fee paid by nine other similarly sized plans (in terms of number of participants and total assets), based on data derived from those plans Form 5500 filings. The Seventh Circuit found this fee comparison, without more, insufficient as the “complaint is devoid of allegations as to the quality or type of recordkeeping services the comparator plans provided.”58 It also found allegations that “the Plan paid . . . excessive recordkeeping fees by ‘fail[ing] to regularly solicit quotes and/or competitive bids’”59 were inadequate based on its prior decision in Hecker v. Deere & Co., which had held that “nothing in ERISA requires every fiduciary to scour the market to find and offer the cheapest possible fund (which might, of course, be plagued by other problems).”60

Claims that the plan paid excessive investment management and investment advisory fees failed for much the same reason—the absence of usable comparative data. One aspect of the plaintiff’s argument was the same as that rejected in CommonSpirit, namely, that the fees charged by actively managed funds are excessive by virtue of being higher than index fund fees. Coupled to that was a more imaginative contention: that offering lower-fee “institutional” mutual fund shares rather than “retail” shares was imprudent because the latter provided higher revenue sharing, leading to a lower net expense. “This,” the court noted, “is the inverse of what ERISA plaintiffs typically argue” and suffered from the defect that its factual support was drawn solely from Form 5500 filings, which lack the detail to demonstrate the effect of revenue sharing on net plan costs in any particular instance.61

In Matousek, the Eighth Circuit dealt with essentially the same issues and reached essentially the same conclusions. For comparative recordkeeping costs, the plaintiff’s complaint drew on the aggregate payments to the plan’s recordkeeper disclosed on its Form 5500 and two surveys of average costs for plans of varying sizes. Missing from these allegations was data about the cost of the extensive ancillary services, such as individualized investment advice that the defendant’s recordkeeper provided and that comprised the bulk of its compensation. Thus, there was no meaningful benchmark against which to judge the defendants’ alleged misconduct.

Similarly, the plaintiff’s data on the expense ratios of the challenged investment options compared those options to, in some cases, alleged “peer groups” whose composition “remains a mystery” and, in others, to funds that pursued markedly different investment strategies. Again, no proper comparator was provided.

b. Forman, Hughes II: Courts Find Certain Claims Meet the Plausibility Hurdle.

While the post-Hughes circuit court decisions appear to have held plaintiffs’ performance and expense-based challenges to a more stringent plausibility standard, some such claims were allowed to proceed by the Sixth Circuit in Forman v. Tri-Health, Inc.62 and by the Seventh Circuit in Hughes v. Northwestern University (Hughes II)63 on remand from the Supreme Court. In both cases, the courts found that the plaintiffs had provided appropriate comparators to support the plausibility of certain of the claims they advanced, and, in particular, claims based on the failure to offer the cheapest share class of mutual funds available to participants.

The Sixth Circuit’s decision is relatively straight-forward. There, the court, relying on its earlier decision in CommonSpirit, affirmed the district court’s dismissal of a variety of typical excessive fee claims based on the plaintiff’s failure to provide appropriate comparators, that is, “a sound basis for comparison.”64

The plaintiff’s assertion that defendants had failed to offer participants the cheapest share class of a number of the mutual funds on the plan’s menu, however, was upheld. As to those funds, the plaintiff had provided a “meaningful benchmark,” given that the cheaper share class, but for expense, was essentially identical to the more expensive class offered. As the court explained:

But if the plaintiff, as in this case, alleges that the fiduciary should have chosen a less expensive share class (with the same investment strategy, portfolio, and management team), the meaningful benchmark comes with the claim. [T]his claim has a comparator embedded in it.65

The court thus concluded that the plaintiff had adequately pleaded an imprudent management-based claim arising from the plan’s failure to use the cheaper share classes, given allegations that the plan had the size and market clout to take advantage of those cheaper alternatives.

Nor, in the court’s view, did the availability of lawful explanations for the use of the higher cost share classes require rejection of plaintiff’s claim at the motion to dismiss stage. In particular, the court noted an argument made by an amicus and not the defendants themselves—that higher cost share classes often provided “revenue sharing” back to plans that is used to offset its administrative expenses or passed back to participants. While the court recognized that this possibility—and other explanations that the defendants could advance such as the inability to meet minimum investment requirements—could well defeat plaintiffs’ claim, such arguments, in its view, were only “competing inferences” at this stage that necessitated further factual development.66 As such, they were insufficient to render plaintiffs’ share class claim implausible.

The Seventh Circuit in its Hughes II remand decision reached essentially the same conclusion, but with a somewhat more detailed analysis. The court first examined the appropriate pleading standard for an ERISA prudence claim and concluded that, consistent with Twombly/Iqbal, “a plaintiff must plausibly allege fiduciary decisions outside a range of reasonableness.”67 A plaintiff’s claim was not plausible under that standard if “an obvious alternative explanation . . . suggests an ERISA fiduciary’s conduct falls within the range of reasonable judgments a fiduciary may make based on her experience and expertise.”68 Where there was such an obvious alternative, the plaintiff, at the pleadings stage, must make “a plausible showing that such alternative explanations may not account for the defendant’s conduct.”69 However, where the alternative inferences that could be drawn from the defendant’s alleged conduct “are in equipoise—that is, where they are all reasonable based on the facts—the plaintiff is to prevail on a motion to dismiss.”70

Applying this analysis to the “excessive fee” claims that remained in the case, the Seventh Circuit found that two survived: a “share class” claim like that upheld in Forman, and a claim challenging recordkeeping fees. The court found that the share class was plausible based on allegations that the defendants offered “more expensive retail-class shares of mutual funds, when, by using the [plans’] size and correspondent bargaining power, less expensive but otherwise identical institutional-class shares were available . . . .”71 That claim was “special” since “the comparator action that a prudent fiduciary should have taken—replacing retail shares with institutional shares—is baked into the claim.”72 And, as in Forman, the proffered justifications for using the more expensive share classes, including revenue sharing, raised fact issues that precluded dismissal, particularly given plaintiffs’ allegations that the plans’ recordkeeping expenses were “four to five times” higher than an appropriate level.73

The court appeared to have more difficulty in upholding the excessive recordkeeping expense claim, given its prior Albert decision. While it confirmed that the failure to solicit new quotes or conduct a request for proposal, without more, would not state a plausible claim, it emphasized that fiduciaries had a duty to monitor such expenses and to act to reduce them where appropriate. Here the court found that the plaintiffs had pleaded sufficient facts to support a recordkeeping fee claim based on the size of the fees paid the plans’ two recordkeepers. Plaintiffs satisfied the comparator problem by adequately pleading that the “quality or type of recordkeeping services provided by competitor providers are comparable” to those provided by the existing plans’ recordkeepers.74 The court also pointed to allegations that recordkeeping services were largely commoditized so that recordkeepers competed primarily on price, particularly where large plans were involved; that other university plans had lowered fees by soliciting bids and consolidating to a single recordkeeper; and that Northwestern itself had reduced fees during the class period.

* * *

The first round of post-Supreme Court “excessive fee” cases offers much to like for plan fiduciaries. Requiring plaintiffs to plead firm fact-based comparisons to support their claims of fiduciary breach should weed out many complaints that escaped dismissal in the past. At the same time, Forman and Hughes II suggest these type cases are not yet over. The treatment of revenue sharing by those courts in allowing share class claims to proceed is especially disappointing. In many cases, the availability of revenue sharing provides an obvious and lawful alternative explanation for the decision to use a higher cost share class. This is particularly true where there is no plausible allegation that the plan’s overall administrative expenses are unreasonable; allowing such claims to proceed does nothing but give them a settlement value that they do not deserve.


1. 142 S. Ct. 1906 (2022).

2. 59 Cal. 4th 348 (2014).

3. 142 S. Ct. at 1916.

4. Id.

5. 142 S. Ct. 1783 (2022).

6. Id. at 1789.

7. Id.

8. Id. at 1790.

9. 49 F.4th 263 (3d Cir. 2022).

10. Id. at 266.

11. Id. at 273–74.

12. Id. at 270.

13. 42 F.4th 366, 370 (3d Cir. 2022), cert. denied, 143 S. Ct. 1001 (2023).

14. Id.; Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84 (1st Cir. 2022); Canaday v. Anthem Cos., 9 F.4th 392 (6th Cir. 2021); Vallone v. CJS Sols. Grp., LLC, 9 F.4th 861 (8th Cir. 2021).

15. 45 F.4th 759 (4th Cir. 2022), cert. denied, 143 S. Ct. 2414 (2023).

16. Id. at 764.

17. Id. at 765.

18. Id. at 769–72.

19. Id. at 766–69.

20. 43 F.4th 254 (2d Cir. 2022), cert. granted, No. 22-660 (May 1, 2023).

21. Halliburton, Inc. v. Admin. Rev. Bd., 771 F.3d 254 (5th Cir. 2014); Coppinger-Martin v. Solis, 627 F.3d 745 (9th Cir. 2010).

22. Id. at 257–58.

23. Id. at 259.

24. Id.

25. It also concluded that its interpretation was consistent with its interpretation of “nearly identical” language in the Federal Railroad Safety Act. Id. at 260; Tompkins v. Metro-N. Commuter R.R. Co., 983 F.3d 74 (2d Cir. 2020).

26. 371 NLRB No. 131, slip op. at 1, 2022 WL 3910090 at *1 (2022).

27. 368 NLRB No. 146, 2019 WL 7169812 (2019).

28. 371 NLRB No. 131, slip op. at 2.

29. Id., slip op. at 2-3.

30. 324 U.S. 793 (1945).

31. 371 NLRB No. 131, slip op. at 7.

32. Id., slip op. at 15 (citing Wal-Mart Stores, Inc., 368 NLRB No. 146).

33. 371 NLRB No. 160, slip op. at 1, 2022 WL 5179877 (Sept. 30, 2022).

34. 368 NLRB No. 139, 2019 WL 6840790 (Dec. 16, 2019).

35. Local Joint Executive Board of Las Vegas v. NLRB, 840 F. App’x 134 (9th Cir. Dec. 30, 2020),

36. 371 NLRB No. 160, slip op. at 8.

37. Id.

38. 372 NLRB No. 22, 2022 WL 17974951 (Dec. 13, 2022).

39. Pub. L. 117-90 [H.R. 4445], 117th Cong. (2021–2022) (enacted).

40. Pub. L. 117-224, S. 4524], 117th Cong. (2021–2022) (enacted).

41. H.R. 1065, 117th Cong. (2021-2022) (enacted).

42. Pub. L. 117-228, [H.R. 3110], 117th Cong. (2021–2022) (enacted).

43. H.R. 1065.

44. H.R. 3110.

45. H.R. 1065 § 3.

46. S. 1658/H.R. 3110, 117th Cong. § 2.

47. 142 S. Ct. 737 (2022).

48. Id. at 741 (quoting Tibble v. Edison Int’l, 575 U.S. 523, 530 (2015)).

49. 550 U.S. 544, 570 (2007).

50. 556 U.S. 662, 678 (2009).

51. Hughes, 142 S. Ct. at 742.

52. Id.

53. 37 F.4th 1160 (6th Cir. 2022),

54. 47 F.4th 570 (7th Cir. 2022),

55. 51 F.4th 274 (8th Cir. 2022).

56. CommonSpirit, 37 F.4th at 1165 (emphasis added). The court also pointed out that the plan’s investment menu included passively managed index funds from which participants could choose (“Offering actively managed funds in addition to passively managed funds was merely a reasonable response to customer behavior”). Id.

57. Id. at 1167.

58. Albert, 47 F.4th at 579.

59. Id.

60. Hecker, 556 F.3d 575, 586 (7th Cir. 2009).

61. Id. at 581.

62. 40 F.4th 443 (6th Cir. 2022).

63. 63 F.4th 615 (7th Cir. 2023).

64. Forman, 40 F.4th at 449.

65. Id. at 451.

66. Id. at 453.

67. Hughes II, 63 F.4th at 629.

68. Id.

69. Id.

70. Id.

71. Id. at 634.

72. Id. at 636.

73. Id.

74. Id. at 632.

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Paul J. Ondrasik, Jr., Daniel P. Bordoni, Eric G. Serron, Thomas Veal,and Alana Genderson

Paul J. Ondrasik, Jr. is Senior Counsel in the Washington, D.C., office of Steptoe & Johnson LLP and chair of the Labor Committee. Daniel P. Bordoni is a partner in the Washington, D.C., office of Morgan Lewis & Bockius LLP and a vice-chair of the Labor Committee. Eric G. Serron is a partner in Steptoe & Johnson LLP’s Washington, D.C., office. Thomas Veal is the Principal of ERISA Cavalry PLLC in Washington State. Alana F. Genderson is a partner in Morgan Lewis & Bockius LLP’s Washington, D.C., office.