February 4, 2023

Volume XIII, Number 35

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February 03, 2023

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February 02, 2023

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Fourth Circuit Rejects Broad Reading of Arbitration Ban in Dodd-Frank

In a variation on a familiar refrain, the Fourth Circuit recently upheld the enforceability of another arbitration provision under the Federal Arbitration Act (“FAA”) in Santoro v. Accenture Federal Services, LLC. This time, the plaintiff attempted to escape arbitration by relying on restrictions in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) that invalidate certain agreements to arbitrate. The Fourth Circuit, referencing the Supreme Court’s decision last term in American Express Co. v. Italian Colors Restaurant reaffirming the strength of the arbitration mandate, rejected the plaintiff’s argument and read the statute as a narrow carve-out limited only to Dodd-Frank whistleblower claims.

In Santoro, the plaintiff was employed as an account executive for Accenture pursuant to an annual contract that included an arbitration provision. The arbitration provision was broad:  it applied to “any and all disputes arising out of, relating to or in connection with” his employment without any exceptions. As part of a cost-cutting measure, Santoro was terminated in 2011. Sixty-six years old at the time, Santoro was replaced by a younger employee. Santoro filed suit in the Eastern District of Virginia, asserting various employment law claims, including a claim for age discrimination under the ADEA.

Santoro argued that his agreement to arbitrate was void under two whistleblower provisions of Dodd-Frank:  7 U.S.C. § 26(n)(2) and 18 U.S.C. § 1514A(e)(2). Although Santoro was not himself a whistleblower, he claimed that Dodd-Frank invalidates in its entirety any arbitration agreement of a publicly-traded company that fails to include a carve-out for Dodd-Frank whistleblower claims, even if the plaintiff is not a whistleblower. 

Santoro relied on the plain language of the whistleblower provisions in Dodd-Frank, which establish new causes of action for whistleblowers and provide that:

(1)   The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment including by a predispute arbitration agreement. 

(2)   No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.

7 U.S.C. § 26(n)(1)-(2); 18 U.S.C. § 1514A(e)(1)-(2).  Santoro argued that since his agreement violated Dodd-Frank by not including a carve-out that complied with these sections, all arbitration provisions in his contract were void.

The Fourth Circuit rejected Santoro’s broad reading of Dodd-Frank, but in doing so, noted how specific and direct Congress must be in order to override the “broad federal policy favoring arbitration agreements” in the FAA.  Citing the Supreme Court’s decision in Italian Colors, the Fourth Circuit noted there is an exception to the rule in favor of arbitration where the “FAA’s mandate has been overridden by a contrary congressional command.”   The “burden is on the party opposing arbitration,” however, “to show that Congress intended” to override the FAA.

Applying this rule to this case, the Fourth Circuit held that in subsection (2) Congress had succeeded in invalidating all agreements to arbitrate whistleblower claims under Dodd-Frank.  Santoro could not “meet his burden,” however, of showing a “contrary congressional command” overriding the FAA as to non-whistleblower claims. 

Not only did the Fourth Circuit reject Santoro’s broad reading of subsection (2), it noted in dicta that even the “non-waiver of rights” provision in subsection (1) would likely be insufficient by itself to override an agreement to arbitrate whistleblower claims.  While that provision means that an arbitration provision (like any other agreement) cannot waive the substantive right to bring a whistleblower claim, it does not mean one cannot agree to arbitrate such a claim.  In order to override the presumption in favor of arbitration, the provision would have to “explicitly preclude arbitration or other nonjudicial resolution of claims” as does subsection (2).

The lessons to be learned?  First, there is no need to include an express carve-out for Dodd-Frank whistleblower claims in arbitration agreements.  For employers, the better path continues to be to adopt broad “all disputes” arbitration provisions.  Why risk including narrower carve-outs that could be construed to exclude more than the statutory Dodd-Frank prohibition?  More broadly, for employers, Santoro is an important precedent for the principle that the arbitration mandate in the FAA stands absent a direct and targeted attempt to overrule it.  For employees, Santoro is an important reminder to be wary of the scope of your arbitration agreements:  attempts to avoid arbitration provisions will achieve success rarely, if at all.

Copyright © 2023 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume IV, Number 160

About this Author

Raymond Bennett, business litigation attorney, Womble Carlyle, pharmaceuticals legal counsel, deceptive trade practices lawyer, intellectual property law

Ray Bennett counsels clients in complex business litigation, particularly cases involving technology and intellectual property disputes. He has represented clients in litigation involving technology licensing, unfair and deceptive trade practices, online defamation, copyright, and misappropriation of trade secrets and he has represented clients in numerous industries including software, computer hardware, pharmaceuticals, and telecom.

In addition, Ray has significant appellate experience, representing clients in both federal and state courts,...