Jay Inman
The Kentucky Supreme Court’s September 27, 2018, decision in Northern Kentucky Area Development District v. Snyder, Case No. 2017-SC-00277, has sparked considerable discussion about the Commonwealth’s stance towards arbitration as a condition of employment. As this article sets out, arbitration remains a strong and productive choice for employers in Kentucky.
The Snyder Decision
Danielle Snyder worked for the Development District (NKADD), a government entity providing social programs to eight counties in Northern Kentucky, as an administrative purchasing agent. As a condition of her employment, she signed an agreement requiring arbitration of any employment dispute with NKADD. The agreement specifically stated, in bold type: “By accepting employment with the District, you will have accepted this Agreement under the Federal Arbitration Act, and it will be binding on claims relating to your employment.”
After NKADD terminated Ms. Snyder’s employment, she filed a whistleblower and wage and hour lawsuit in Boone Circuit Court. NKADD moved to stay the proceedings and compel arbitration, which the court denied. On appeal, the Kentucky Court of Appeals affirmed denial of the motion, concluding that NKADD never had authority to enter into the arbitration agreement. As to the FAA, the court of determined: “federal law does not preempt the authority of the Commonwealth to deny the authority of its [agencies] to enter into arbitration agreements.”
The Kentucky Supreme Court granted discretionary review to consider whether the FAA preempts KRS § 336.700(2), which reads:
Notwithstanding any provision of the Kentucky Revised Statutes to the contrary, no employer shall require 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 under any provision of the Kentucky Revised Statutes or any federal law.
The court first determined that the NKADD, as a state-created entity, acted beyond its authority in requiring an employee to arbitrate employment disputes as a condition of employment. Following that conclusion, the court considered “if the FAA nullifies this conclusion because of its preemptive effect on laws discriminating against arbitration.”
As to FAA preemption, the Kentucky Supreme Court turned to the United States Supreme Court’s decision in Kindred Nursing Centers Ltd. Partnership v. Clark and quoted the preemptive scope as follows: “The FAA thus preempts any state rule discriminating on its face against arbitration . . . And not only that: The Act also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”
The court determined that, under this standard, FAA preemption would not apply because KRS § 336.070(2) “does not actually attack, single out, or specifically discriminate against arbitration agreements.” That is, according to the court, because the statute applies more generally to bar conditioning employment on waiving, arbitrating, or diminishing any employment rights, FAA preemption is not implicated.
In reaching this decision, the Kentucky Supreme Court noted that employees and employers may continue voluntarily to enter into arbitration agreements that do not constitute conditions of employment.
Post-Snyder Debate and Actions
The Kentucky Supreme Court utilized broad language, but placed its analysis in a narrow context that the FAA “does not mandate a contrary holding” than that Kentucky state agencies cannot condition employment on waiving, arbitrating, or diminishing employment rights. As a result, different constituencies have read, and championed, the decision, differently, as their needs and preferences require.
Post-Snyder arguments often fail to understand the status of the matter:
- Snyder is not a final decision yet. NKADD filed a timely petition for rehearing, which has now been fully briefed and stands ready for decision. The Supreme Court sent the briefing out for assignment on November 7, 2018, so a decision may come at any time.
- Even if the Kentucky Supreme Court declines to rehear the case or amend its decision, NKADD has the opportunity to petition the United States Supreme Court to hear the matter. It is not a stretch that such a petition will be successful. Just a year prior, the United States Supreme Court granted a petition to review a Kentucky arbitration decision referenced above in Kindred Nursing Centers Ltd. Partnership v. Clark, vacated the Kentucky Supreme Court’s opinion, and remanded for entry of a new decision.
Importantly, the Kentucky legislature has begun work on a bill to address the issue. On February 14, 2019, Senate President Robert Stivers introduced Senate Bill 7, which makes plain that all employers may require arbitration as a condition of employment. After favorable reports from committees, the Bill passed the Senate on February 21, 2019, by a vote of 26-10 and has been received in the House, where committees have reported favorably and a vote is anticipated any time. If the Bill reaches his desk, Governor Bevin is expected to sign it into law.
Even if nothing changes, Snyder should be read appropriately as restricting government agencies, not far beyond its scope to impact private employers as well. The notion that the Kentucky Supreme Court intended its decision about the arbitration provision of a government employer to contradict years of established precedent from the United States Supreme Court permitting private employers to require arbitration makes little sense.
Conclusion
The Kentucky Supreme Court’s Snyder decision prompted a productive debate about arbitration in the workplace and compelled action by Kentucky legislators, as well as continued action by NKADD and potential amici. While warning signals reasonably sounded at first, employers should take the long view, which reflects longstanding judicial and legislative endorsement of arbitration in Kentucky and, of course, well beyond. Arbitration continues to be a sound, effective choice for Kentucky employers.
Jay Inman is a shareholder in Littler Mendelson’s Lexington, Kentucky, office, where he frequently provides solutions for clients pertaining to the drafting and enforcement of arbitration agreements.