Kentucky Revives Enforceability of Employment Arbitration

Kentucky's governor recently signed a bill enabling employers to require an employee or person seeking employment to execute an agreement for arbitration as a condition or precondition of employment. This legislation overrules the Kentucky Supreme Court decision in Northern Kentucky Area Development District v. Danielle Snyder which relied on a Kentucky statute forbidding any “employer [from requiring] as a condition or precondition of employment that any employee or person seeking employment 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.” KSA 336.700(2). The Kentucky Supreme Court ruled the Federal Arbitration Act (FAA) did not preempt the Kentucky statute because, instead of targeting arbitration specifically, the  KSA 336.700(2) “is a law that prohibits employers from firing or failing to hire on the condition that the employee or prospective employee waive all existing rights that employee would otherwise have against the employer.”

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.

California Supreme Court Vacates Arbitration Award and Refuses to Enforce Arbitration Clause in Void Contract

The California Supreme Court held that a law firm’s failure to disclose to the firm’s client the firm’s conflict of interest violated Rules of Professional Conduct and thus rendered the firm’s engagement agreement with its client, including the arbitration clause, unenforceable in its entirety.

This decision is interesting for:

1. applying state arbitration law rather than the Federal Arbitration Act;
2. vacating an arbitration award on the merits; and
3. not applying the separability doctrine of Prima Paint v. Flood & Conklin (1967) 388 U.S. 395.

On the first of these topics, the court said: “the parties’ agreement calls for application of California law, including the CAA, and both parties agree that the CAA governs. This case thus presents no question concerning application of the Federal Arbitration Act, 9 United States Code section 1 et seq. (See Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 470; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 387.)”

On the second, the court said: a court may vacate an arbitration award when “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the

decision upon the controversy submitted.” (Code Civ. Proc., § 1286.2, subd. (a)(4) (section 1286.2(a)(4)).) And: “the merits of an arbitral award are not generally subject to judicial review, but ... “the rules which give finality to the arbitrator’s determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator’s award.”

Law 360 discusses the case

Supreme Court: Federal Arbitration Law Preempts State Law on Nursing Home Power of Attorney

By a 7-1 vote, the U.S. Supreme Court reversed a Kentucky Supreme Court decision refusing to enforce nursing-home arbitration agreements entered into by agents with power of attorney on behalf of their principals.

The Kentucky Supreme Court "fails to put arbitration agreements on an equal plane with other contracts," according to the opinion, authored by Justice Elana Kagan. "By requiring an explicit statement before an agent can relinquish her principal’s right to go to court and receive a jury trial, the court did exactly what this Court has barred: adopt a legal rule hinging on the primary characteristic of an arbitration agreement."

Commentary by University of North Carolina law professor Mark Weidemaier

The Hill coverage

SCOTUS blog coverage

Supreme Court Rules for DirectTV in Class Arbitration Case

The full text of DIRECTV, INC. v. IMBURGIA ET AL addresses whether a California choice of law clause chose California law on arbitral class waivers over federal law on them.

Commentary on the case by Georgetown Law professor Greg Klass says "all the opinion says is that when a state court is messing around with preempted state law, it should be really, really clear that it understands that in the end federal law always wins"

Federal Arbitration Act Preemption

Ohio State law professor Sarah Rudolph Cole is an experienced, careful, and well-balanced scholar of arbitration law.  Her recent article discusses one of the most important topics in arbitration law, FAA preemption of state law.  She points out that the Supreme Court’s Stolt-Nielsen (2010) and Concepcion (2011) decisions permit preemption of state law in areas the FAA does not address.

Contractual Arbitration, Mandatory Arbitration and State Constitutional Jury-Trial Rights

Contractual Arbitration, Mandatory Arbitration and State Constitutional Jury-Trial Rights

This Article discusses the relationship between the Federal Arbitration Act and state constitutional jury-trial rights.

Privatizing Law Through Arbitration

Default Rules from Mandatory Rules: Privatizing Law Through Arbitration

This Article considers the extent to which the creation of law has been privatized through arbitration. It suggests that, under Supreme Court cases and other current legal doctrine, vast areas of law are privatizable and that this degree of privatization is possible only through arbitration. The implications of this point are separated along the familiar line between mandatory rules of law and default rules. The first implication is that arbitration jeopardizes mandatory rules of law. To preserve the mandatory effect of these rules, the Supreme Court must make a choice. The Court must either reverse its decisions that claims arising under otherwise mandatory rules are arbitrable, or require de novo judicial review of arbitrators' legal rulings on such claims. The second implication is that claims arising under default rules should be arbitrable and completely free from judicial review for errors of law. The arbitration of claims arising under default rules presents an opportunity to privatize the creation of vast areas of law. It is an opportunity to create private legal systems of unwritten norms, written rules, and the precedents of private courts.

Arbitration and Unconscionability

Wake Forest Law Review.

This article advocates the contractual approach over competing approaches to issues of unconscionability in arbitration.