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Kentucky rejects mandatory arbitration in employment contracts

In May, the U.S. Supreme Court held that employers, under the Federal Arbitration Act (FAA), can force employees to sign arbitration agreements that prohibit employees from pursuing class actions and collective actions against the employer. In other words, employers can force employees to give up their rights to file legitimate legal claims in a court of law, either individually or as a group, and pursue those claims in arbitration instead.

The Court’s decision was predicted to alter the very framework of how employment disputes are resolved by significantly restricting employees’ access to the courts. Some have even read it to preclude workers from initiating actions with the U.S. Equal Employment Opportunity Commission and other agencies meant to enforce workplace laws.

The predicted changes, however, may not be taking place in Kentucky. The Kentucky Supreme Court recently ruled that the FAA has no effect on Kentucky Revised Statute 336.700(2), which prohibits employers from requiring mandatory arbitration agreements and other waivers of rights as a condition of employment.

The case, Northern Kentucky Area Development District v. Snyder, involved an employee of a government entity that provides social programs in northern Kentucky. As a condition of her employment, Snyder signed a mandatory arbitration agreement. After she was terminated, however, she filed a whistleblower lawsuit claiming wage and hour violations by the district.

The district, relying on the signed arbitration agreement, tried to compel Snyder into arbitration, but the

trial court and court of appeals refused, finding that KRS § 336.700(2) did not allow employers to condition employment on the signing of an arbitration agreement. The district appealed to the Kentucky Supreme Court, arguing that the FAA, which preempts conflicting state laws that “discriminat[e] on [their] face against arbitration,” preempted the Kentucky statute.

The Kentucky statute, however, was not preempted because it does not disfavor or discriminate against arbitration agreements in general -- it simply regulates how arbitration agreements may be bargained for in Kentucky. The statute, in fact, does not even prohibit mandatory arbitration agreements; it merely requires that they not be a condition of employment. Employers and employees may still enter into such agreements voluntarily.

The Northern Kentucky Area Development District may appeal the ruling to the U.S. Supreme Court. For now, employers should be cautioned that mandatory arbitration agreements that employees signed as a condition of employment are not enforceable under Kentucky law.

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