A Sept. 27, 2018, Kentucky Supreme Court ruling found that mandatory arbitration agreements conditioned on employment were not enforceable. See Northern Kentucky Area Development District v. Snyder, No. 2017-SC-000277-DG. The opinion not only isolated Kentucky regarding its enforcement of arbitration agreements but also raised issues regarding the potential impact of Federal Arbitration Act (FAA) pre-emption.
In the case, Danielle Snyder, who worked as an administrative purchasing agent, brought an action under the Kentucky Whistleblower Act and Kentucky Wages and Hours Act after she was terminated. The Kentucky Supreme Court ultimately ruled that her employer “acted beyond the scope of its power when it conditioned Snyder’s employment on her willingness to sign an arbitration agreement.” And it found that “the FAA does not mandate a contrary holding . . . .”
But a careful reading of Kindred Nursing Centers Limited Partnership v. Clark, opinion 137 S. Ct. 1421 (2017), left many very skeptical of the validity of the Kentucky high court’s reasoning. Challenges based on FAA pre-emption were almost a certainty. Now, the issue is effectively moot.
The New Law
The new Kentucky law, signed by Governor Matt Bevin on March 25, 2019, again gives employers in the state the right to require that employees agree to arbitration as a condition of employment. See Senate Bill 7, which will become effective June 26, 2019.
Senate Bill 7, which amends Kentucky Revised Statute 336.700, authorizes employers to do the following:
Any employer may require an employee or person seeking employment to execute an agreement for arbitration, mediation, or other form of alternative dispute resolution as a condition or precondition of employment;
Any employer may require a former employee to execute an agreement to waive an existing claim as a condition or precondition for the rehiring of the former employee as part of a settlement of pending litigation or other . . . proceeding;
Any employer may require . . . an employee or person seeking employment to execute an agreement to reasonably reduce the period of limitations for filing a claim against the employer as a condition or precondition of employment, provided that the agreement does not apply to causes of action that arise under a state or federal law where an agreement to modify the limitations period is preempted or prohibited, and provided that such an agreement does not reduce the period of limitations by more than fifty percent (50%) of the time . . . that is applicable to the claim; and
Any employer may require, . . . an employee or person seeking employment to agree for the employer to obtain a background check or similar type of personal report on the employee or person . . . in conformance with a state or federal law that requires the consent of the individual prior to an employer’s receipt or use of such a report.
Safeguards for the Employee
Senate Bill 7 also provides the following rights or safeguards for employees:
- [A] reasonable location for the arbitration;
- Mutuality of obligation sufficient to support the agreement to arbitrate;
- [P]rocedural fairness for the parties to access arbitration, including a fair process for selecting an impartial arbitrator and the equitable, lawful allocation of arbitration costs between the parties;
- [The parties to] the agreement shall have at least one channel for the pursuit of a legal claim, either by requiring the claim to be arbitrated individually . . . or otherwise; and
- [Authorize] the arbitrator to award all types of relief for a particular type of claim that would otherwise be available for a party through judicial enforcement, including punitive damages as provided by law.
The new law also provides a variety of other requirements that companies should be aware of. For example, if the arbitration agreement does not specify applicable rules and procedures for the arbitration proceeding, then the Kentucky Rules of Civil Procedure will apply. Further, any shortened limitation period contained in a previously executed arbitration agreement will “be stricken” if it does not meet the new law’s standard, but this will not invalidate the entire agreement.
Employers operating in Kentucky can once again have mandatory arbitration agreements but must become familiar with the important changes brought by the new law and ensure their agreements are compliant. And, those operating in multiple states should ensure that they have specified the procedures to govern the arbitration process, bearing in mind that the American Arbitration Association rules may not be best for all applications. Finally, as referenced in the new Kentucky law, not all laws (and jurisdictions) permit shortening of limitation periods. So employers must carefully consider broadly adopting arbitration rules or across-the-board limitation periods for all claims.
Employers can again have mandatory arbitration agreements under the new Kentucky law, but they must take steps to ensure compliance with its provisions.