Kentucky Supreme Court Bans Mandatory Arbitration as Condition of Employment

Author: David B. Weisenfeld, XpertHR Legal Editor

UPDATE - Kentucky Gov. Matt Bevin signed a law on March 25, 2019, effective June 26, 2019, that will nullify this ruling and permit mandatory arbitration agrements as a condition of employment.

October 12, 2018

A landmark decision from the Kentucky Supreme Court bans employers from requiring job applicants or employees to sign a mandatory arbitration agreement as a condition of their employment. In Northern Kentucky Area Development District v. Snyder, the court held that state law prevents conditioning employment on an employee's agreement to waive any existing or future claim to which he or she would otherwise be entitled.

What makes the ruling significant is that the US Supreme Court has consistently upheld the use of mandatory arbitration clauses in the employment context in a series of rulings dating back to its 1991 Gilmer decision. In addition, the Federal Arbitration Act (FAA) broadly prohibits discrimination against arbitration agreements.

But in distinguishing this case, the Kentucky Supreme Court said the state law does not discriminate against arbitration contracts in any way. The court reasoned that the law simply prohibits an employer from firing or failing to hire someone for refusing to waive any and all rights against the employer. It explained that the law does not invalidate contracts because they are arbitration contracts.

As a result, the court ruled that the employer acted beyond the scope of its power in conditioning an individual's employment on her willingness to sign an arbitration agreement. It added that the FAA does not mandate a contrary holding because this law does not single out arbitration agreements.

With the US Supreme Court's previous broad interpretations of the FAA's reach, an appeal to the nation's highest court is possible.