Kentucky’s Non-Enforcement of Employment Arbitration Agreement Preempted by Federal Arbitration Act?

The Kentucky Supreme Court unanimously refused to enforce an agreement conditioning employment on an agreement to arbitrate. Kentucky Statute 336.700(2) “prohibits 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 . . . .’ ”, according to Northern Kentucky Area Development District v. Danielle Snyder

Several commentators have observed conflict between this Kentucky Supreme Court ruling, and the U.S. Supreme Court’s broad holding on Federal Arbitration Act (FAA) preemption of such anti-arbitration state law:

Jackson Lewis PC said “[t]he Kentucky Supreme Court’s opinion appears to be at odds with recent U.S. Supreme Court rulings on FAA preemption of state laws that treat arbitration agreements differently than other contracts, see, e.g., Kindred Nursing Centers Lmtd P’ship v. Clark, 137 S. Ct. 368 (2016).”

Vorys Sater Seymour and Pease LLP said “[i]t seems difficult to reconcile the Snyder decision with the United States Supreme Court’s 2018 decision in Epic Systems Corp. v. Lewis … that expressly upheld mandatory arbitration agreements or its 2017 decision in Kindred Nursing Centers v. Clark that prohibits rules that single out arbitration for unfavorable treatment.”

Stoll Keenon Ogden PLLC said “[i]mportantly, the Supreme Court of Kentucky’s decision appears to conflict with recent U.S. Supreme Court precedent upholding the FAA’s broad preemptive effect. See, e.g., Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421 (2017).”

I commented on Epic Systems here and on Kindred Nursing here. Kindred Nursing also involved a decision by Kentucky’s Supreme Court.

Supreme Court Hearing Three Arbitration Cases in October

On October 3rd the Court heard oral arguments in New Prime, Inc. v. Oliveira, asking whether  FAA section 1, which excludes certain transportation “workers” from the FAA’s reach, applies to independent contractors, in addition to the employees, of a transportation company.  Ogletree Deakins writes: “Given the justices’ seeming alignment with Oliveira at the oral argument, it is anticipated that the Supreme Court will ultimately issue a decision allowing truck drivers and others independent contractors in the transportation industry to avoid arbitration.”

In late October the Court will hear Lamps Plus, Inc. v. Varela in which the Ninth Circuit held the agreement permitted class arbitration.

The Court will also hear Henry Schein v. Archer & White Sales, Inc. This contract provided for arbitration of all disputes, except claims for injunctive relief and involving intellectual property rights. Plaintiff sought injunctive relief and argued the case should be litigated, but defendants argued the arbitration agreement sends to the arbitrator any questions about the arbitrability of some or all of the case. The Fifth Circuit ruled that the court should decide arbitrability, and affirmed denial of the motion to compel arbitration.

The National Law Review provides a more detailed discussion of the issues.