Further Update on Arbitration Agreements in Kentucky

By Jay Inman

Kentucky continues to be a site of active litigation regarding the enforceability of arbitration agreements. While employers should hold the course with existing arbitration agreements, it is important for HR professionals to keep a close eye on the enforceability landscape, as more activity unfolds.

As readers know, arbitration agreements have been put in place in many workplaces in Kentucky and, more generally, the United States, and the impact of this practice has been hotly disputed. While misinformation about arbitration contends the process to be more employer-friendly that litigation – largely because class-action waivers are enforceable in arbitration agreements – research further contradicts and refutes this myth. In fact, a May 2019 empirical study published by the United States Chamber of Commerce analyzing more than 10,000 employment arbitrations and over 90,000 employment lawsuits concluded that as many disputes resolve by settlement agreement in arbitration as in litigation. The process is quicker (569 days in arbitration on average versus 665 days in litigation), and in arbitration, employers are more likely to prevail and to receive higher monetary awards. Thus, when so many employees and former employees challenge arbitration agreements today, they may well be shooting themselves in the foot, rather than standing up for justice.

In Kentucky, earlier this year, the Kentucky legislature recognized the importance of arbitration agreements to the broader business community and passed Senate Bill 7, which the Governor signed into law. That new law amended KRS § 336.070, which the Kentucky Supreme Court held in the fall of 2018 in Northern Kentucky Area Development District v. Snyder to bar at least government employers – and, based on the Court’s broad language, potentially private employers – from conditioning employment on assent to arbitration agreements. The amendments emphasized that employers may condition employment on assent, after all, and included a retroactivity provision designed to make the Snyder decision moot. Additionally, the amendments set out that employees and employers may agree that the applicable statutes of limitation for claims may be reduced by up to 50% — for example, the five-year statute of limitations for Kentucky Civil Rights Act claims can be reduced to 2.5 years.

Since the amendments to KRS § 336.070 were signed into law, at least two important developments have occurred:

• The plaintiffs’ bar in Kentucky has filed multiple constitutional challenges to the newly amended KRS § 336.070, attempting to challenge the retroactivity provision in particular.

• On July 17, 2019, the Northern Kentucky Area Development District (NKADD) filed a petition for certiorari with the United States Supreme Court, seeking to vacate Snyder. The case number is 19-99.

HR professionals should monitor these developments and be ready to act, if necessary, to partner with in-house or outside legal regarding arbitration agreements. The proper posture requires looking beyond a global yes or no as to enforceability to seek the contours of what transpires and think about any implications for arbitration programs already in place or under consideration. 

While many of the plaintiffs’ bar challenges to KRS § 336.070 appear to take a “kitchen sink” approach, the most common argument appearing in the “sink” is an ex post facto challenge. Essentially, the theory is that, pursuant to Snyder, employment could not be conditioned on assent to arbitration prior to the amendments to KRS § 336.070 and Kentucky lawmakers cannot go back in time to alter the past. One of many counters is that the prior version of KRS § 336.070, which unlawfully violated the Federal Arbitration Act by targeting arbitration rights, did not afford any substantive rights anyway, so there is no possibly meaningful “back to the future” maneuver at issue. Because Kentucky has so many counties – 120 – and each county has its own Circuit Court, early proceedings will almost certainly be mixed, so HR professionals should especially keep an eye out for decisions from the Kentucky Court of Appeals and Kentucky Supreme Court. Additionally, this is an opportunity to build and rely on networks of HR professionals to share news and updates, as it develops. A decision may appear only to impact one case in one of the 120 counties in Kentucky, but its impact might, ultimately, be broader, and if we share news with each other, we can learn about developments rapidly and have the greatest possible time to think through appropriate next steps.

As to the United States Supreme Court filing, the NKADD asks the Court to vacate Snyder – i.e., confirm Snyder to have been wrongly decided in violation of the Federal Arbitration Act. If the NKADD achieves this result, the plaintiffs’ bar’s constitutional challenges will fall flat before they can advance very far because Snyder will fall. While the odds for Supreme Court review generally are low, the Supreme Court has taken interest previously in addressing state attacks on arbitration – including a 2017 decision in Kindred Nursing Centers LP v. Clark, wherein the Supreme Court said the Kentucky Supreme Court “flouted the FAA’s command to place [arbitration] agreements on an equal footing with all other contracts.” There’s history here, to put it one way, and it will be interesting to see what the Supreme Court does (or does not do) here. If the Supreme Court chooses not to act now, more than likely it will have another chance after years of litigation about the impact of Snyder and the retroactivity of the amendments to KRS § 336.070, so we can only hope the Supreme Court provides much needed definitive law now.

HR professionals should continue to monitor the arbitration landscape in Kentucky closely as these events unfold. Specific questions to ask include the following:

• Do we have an arbitration program, and are we engaged in interstate commerce such that the FAA governs that program?

• If the FAA governs, do we have signed arbitration agreements from before the amendments to KRS § 336.070 were signed into law?

• How can we most effectively enforce those agreements if the United States Supreme Court does not address the Snyder decision?

• If the Supreme Court does not act this term, how can we most effectively enforce those agreements despite the constitutional challenges from the plaintiffs’ bar?

• Should we revise and update any part of our arbitration program based on Kentucky’s amended KRS § 336.070?

• If we haven’t adopted an arbitration program, should we do so? What are the advantages and disadvantages?

With this guiding questions, and more, HR professionals will be prepared and poised to assist their workplaces to handle how the law unfolds.