Workplace Mandatory Arb Ban Reversed by Kentucky Lawmakers

By Vincent Sauvet

Kentucky has re-authorized the use of mandatory arbitration in employment contracts less than five months after the state’s top Court declared the agreements void.

For a short time, Kentucky was the only state prohibiting the mandatory arbitration of employment disputes. Its legislature has now brought the Commonwealth back into the flock with Senate Bill 7.

In a unanimous 2018 decision, the Kentucky Supreme Court held that the state’s Revised Statutes § 336.700(2) prohibited employers from conditioning employment on an existing employee’s or prospective employee’s agreement to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled.” N. Ky. Area Dev. Dist. v. Snyder, No. 2017-SC-000277-DG, 2018 Ky. LEXIS 363 (Sep. 27, 2018) (available at http://bit.ly/2HmZp8B) (quoting the statute, which is available in full in the opinion).

While the Snyder ruling made Kentucky the nation’s first state to prohibit mandatory employee arbitration agreements, it didn’t last long. With Senate Bill 7, sponsored by state Senate President Robert Stivers, Kentucky reinstated the use of mandatory arbitration in employment contracts,  rendering such agreements enforceable. The provisions of Senate Bill 7 are to be applied retroactively and prospectively.

The bill was signed by Kentucky Gov. Matt Belvin on March 25. The bill passed in the Senate the day before following a 25-11 vote, and a 51-45 vote in the House a day earlier. Save for a few Republicans voting against the bill–eight in the House and three in the Senate–both votes showed a partisan split, with majority Republicans voting for the measure and the Democratic minority voting against (one House Democrat joined 50 Republican colleagues in approving the measure). The bill also had strong support from the Kentucky Chamber of Commerce, the Kentucky League of Cities and numerous other employer and business groups.

This move happens in a context of long-running disagreement over the question of arbitration in nursing home care agreements between the Kentucky Supreme Court and the U.S. Supreme Court. In that dispute, the nation’s top Court set down the law, but the Kentucky Court managed to get in the last word and squash an arbitration agreement.

In Kindred, the Kentucky Supreme Court refused to enforce arbitration agreements signed on behalf of two nursing home residents on the ground that since the right to a trial by jury was “constitutionally sacred” and “inviolate,” the holder of a non-specific power of attorney was barred from entering any agreement on behalf of a principal that would forfeit that right to a jury trial, such as an arbitration agreement.

The U.S. Supreme Court held that the Federal Arbitration Act  “preempts any statute rule discriminating on its face against arbitration” and “displaces any rule that covertly accomplished the same objective by disfavoring contracts that have the defining features of arbitration agreements.” It reversed the Kentucky decision in Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421 (2017) (available at http://bit.ly/2JAWZ7Q).

But in the decision, the U.S. Supreme Court remanded one of the Kindred combined cases for further consideration to examine whether a power of attorney contract was broad enough to allow the attorney to enter into an arbitration agreement on behalf of a nursing home resident.

On remand, the Kentucky Supreme Court stuck to its view that the power of attorney didn’t allow the attorney to make the arbitration agreement, and it upheld its original determination striking arbitration. Kindred Nursing Ctrs. Ltd. P’ship v. Wellner, No. 2013-SC-000431-I (Ky. S.Ct. corrected Nov. 22, 2017) (available at http://bit.ly/2Q3k18A)).

In its first week of the current term last October, the U.S. Supreme Court denied the nursing home’s request to review the case, so it won’t be heard in Washington a second time. That leaves a narrow standard related to powers of attorney that could void an arbitration agreement in Kentucky.

But the broader Snyder decision went directly against the Kindred holding, as well as last year’s Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK), which permitted mandatory pre-dispute arbitration agreements as a condition of employment.  Snyder therefore was likely to constitute the start of another counterattack on the Kentucky Supreme Court’s arbitration agreement jurisprudence.

Instead, the Kentucky legislature decided to take the matter into its own hands.  The new law now ensures that Snyder is nothing more than a one-off.

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The author was a CPR Institute Spring 2019 intern. 

 

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