Kentucky embraces mandatory arbitration as condition of employment

On March 25, Gov. Matt Bevin signed a bill that, among other things, allows Kentucky employers to require that their employees resolve workplace disputes through mandatory arbitration rather than the courts.

This law takes effect on or about June 13, 90 days after the end of the legislative session in which the bill passed. The legislation will “apply prospectively and retroactively.”

Public opinion

According to Vox, approximately half of U.S. workers not in unions are subject to mandatory arbitration clauses. In the #MeToo age, imposing an arbitration clause in an employment contract has come under intense national scrutiny.

In and of itself, this requirement may seem reasonable. As Vox explains, arbitration is a way for an employer to resolve conflicts with employees in a faster, more private, and more economical fashion.

However, in the context of a claim for sexual harassment or even assault in the workplace, public criticism of imposed arbitration agreements has grown, as the agreements prevent workers from having juries decide their claims and allegations and instead require resolution under sealed, confidential proceedings before a private arbiter.

Critics say that imposing arbitration (often combined with a confidentiality requirement) on sexual harassment claims allows employers to keep this negative information out of the public arena, increasing the odds that illegal harassment could continue.

Arbitration clauses in Kentucky

On July 14, 1994, a Kentucky statute took effect prohibiting an employer from requiring an employee as a condition of employment to “waive, arbitrate, or otherwise diminish” any legal claim. The new bill amends this statute.

Stepping back to September 2018, the Supreme Court of Kentucky in Northern Kentucky Area Development District v. Snyder upheld this statute in the context of a state agency employer, NKADD, that required an employee, Snyder, to agree to arbitration as a condition of continuing her employment.

The court found that the statute voided the agreement imposed on Snyder by NKADD. However, an important federal law had the potential to pre-empt the state statute.

The state Supreme Court considered whether the 1925 Federal Arbitration Act pre-empted the state statute. The FAA is a federal law that broadly protects the validity of many arbitration agreements. The U.S. Supreme Court has interpreted the FAA broadly and favorably.

The Kentucky high court concluded that while the FAA “preempts any state rule discriminating on its face against arbitration,” including a state law that forbids arbitrating a particular kind of legal claim, the Kentucky statute did not do this. The court said that the state law prohibiting forced arbitration agreements as a condition of employment did not violate the FAA because it did not stop anyone from voluntarily agreeing to arbitration. Instead it only forbade conditioning a job on such an agreement.

The Kentucky legislature responded, effectively overturning Snyder and allowing employers to condition employment on an employee’s agreement to arbitrate all workplace claims, including discrimination, retaliation, harassment, and wage-and-hour claims.

Any Kentucky employer with questions about the new law, such as how to implement arbitration agreements or how the bill might impact existing agreements, should speak with an experienced employment lawyer.

Kentucky employees should have an attorney review any employment agreement, including an arbitration agreement, for advice about the implications of signing and whether and how to negotiate the terms with the potential employer.


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