Employers across Kentucky may need to drastically change their hiring practices in light of a recent Kentucky Supreme Court decision, Northern Kentucky Area Development District v. Snyder. The court’s ruling essentially bans mandatory arbitration agreements as a precondition of employment. The effect on Kentucky employers is unclear at this stage, as this is the first state-wide prohibition on a mandatory employment arbitration policy.
The court held that the Federal Arbitration Act does not displace a Kentucky statute, KRS § 336.070(2), that prohibits employers from enforcing mandatory arbitration policies. The decision arose from a state agency’s requirement that all potential hires sign pre-employment agreements that required private arbitration for all employment disputes rather than a lawsuit in court.
It is unclear how Kentucky courts will apply this decision going forward. Future cases could construe the ruling as a ban on all arbitration agreements, for both prospective hires and existing employees. The courts could also narrowly limit the ruling to state administrative agencies, allowing private employers to continue with mandatory arbitration. Further uncertainty exists for those employers who offer employees a choice of whether to submit to arbitration.
The state agency can still appeal the decision to the United States Supreme Court, which has taken a pro-arbitration approach and expanded the reach of federal law on arbitration agreements in recent years. Some experts predict that the high court would limit the ruling and allow mandatory arbitration agreements in the private sector.
Until the case is either heard by the United States Supreme Court or is interpreted by Kentucky courts, however, all Kentucky public and private employers should refrain from requiring employees to arbitrate their claims as a condition or precondition of employment.