In NKADD v. Snyder (Sept. 27, 2018), the Kentucky Supreme Court held that an employer could not compel arbitration under an arbitration agreement signed as a condition of continued employment. This decision turned on KRS 336.700(2) which prohibited Kentucky employers from conditioning employment on an 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.” The Kentucky Supreme Court rejected NKADD’s argument that the Federal Arbitration Act preempted the state law. Instead, it found that KRS 336.700(2) “does nothing to discriminate against arbitration clauses—it only prevents an employer from terminating or refusing to hire an individual who refuses to agree to such a clause.”
The Kentucky legislature promptly reversed course, passing an amendment to KRS 336.700 in March 2019. The amendment, effective June 27, 2019, includes several revisions affecting employers’ rights relating to alternative dispute resolution.
Under the revised statute, Kentucky employers may require employees or applicants to execute an agreement for arbitration, mediation, or another form of alternative dispute resolution as a condition of employment. Employers may further require the execution of an agreement to reduce the period of limitations for filing a claim against the employer, provided that the agreement does not apply where state or federal law prohibits such an agreement, and provided that it does not reduce the period of limitations by more than 50%.
The legislature also expressly incorporated certain provisions of the Federal Arbitration Act, requiring that an arbitration agreement:
- Provide a reasonable location for the arbitration;
- Include a mutuality of obligation sufficient to support the arbitration agreement;
- Ensure procedural fairness for the parties to access arbitration, including a fair process for selecting an impartial arbitrator and the equitable, lawful allocation of arbitration costs between the parties;
- Ensure that the parties to the agreement shall have at least one channel for the pursuit of a legal claim;
- Empower the arbitrator to award all types of relief for a particular type of claim that would otherwise be available for a party through judicial enforcement.
Employers should note that the provisions of KRS 336.700 apply prospectively and retrospectively, leaving open the possibility for employers to compel arbitration under agreements executed prior to the amendment’s June 27, 2019 effective date. Employers are encouraged to consult legal counsel to review existing arbitration agreements for compliance with the amended statute.
Taft’s Employment and Labor Relations attorneys are ready to help existing and future clients navigate these legal issues and follow best practices. Feel free to call us with any questions about this ruling, or specific state and local laws, and how they may impact your business.