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Kentucky Supreme Court Holds Employers May Not Require Arbitration Agreements as a Condition of Employment

On September 27, 2018, the Kentucky Supreme Court issued its opinion in Northern Kentucky Area Development District v. Danielle Snyder, No. 2017-SC-000277-DG and held that Kentucky employers may not require employees to sign arbitration agreements as a condition of their employment.  In reaching its conclusion, the Court relied upon KRS 336.700(2), which states:

[n]otwithstanding any provision of the Kentucky Revised Statutes to the contrary, no employer shall require as a condition or precondition of employment that any employee or person seeking employment 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 under any provision of the Kentucky Revised Statutes or any federal law. 

The case involved Northern Kentucky Area Development District (“NKADD”), a state agency created by Kentucky state statute, that required employee Danielle Snyder (“Snyder”) to sign an arbitration agreement that stated:

As a condition of employment with the District, you will be required to sign the attached arbitration agreement. . . You may revoke your acceptance of the agreement by communicating your rejection in writing to the District within five days after you sign it.  However, because the agreement is a condition of employment, your employment and/or consideration for employment will end via resignation or withdrawal from the process.

When Snyder later sued NKADD for employment-related claims, NKADD moved to enforce the arbitration agreement.  The trial court and court of appeals both found the agreement unenforceable.  The Kentucky Supreme Court granted discretionary review to consider whether the Federal Arbitration Act (“FAA”) preempts Kentucky Revised Statutes 336.700(2), which prohibits employers from requiring employees to sign arbitration agreements as a condition of employment.  

The Court held the FAA does not preempt KRS 336.700(2).  It reasoned that although “[t]he FAA [] preempted any state rule discriminating on its face against arbitration—for example, a ‘law prohibit[ing] outright the arbitration of a particular type of claim,’” KRS 336.700 does not “actually attack, single out, or specifically discriminate against arbitration agreements,” but merely prohibits employers from conditioning employment on an agreement to arbitrate.  The Court held that KRS 336.700(2) prevents the conditioning of employment on “an employee's agreement to waive or otherwise diminish ‘any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled…’, which could also include the agreement to waive the right to file certain types of suits against an employer.  For these reasons, the Court concluded that the FAA does not preempt the Kentucky statute.  In so deciding, the Kentucky Supreme Court effectively invalidated all arbitration agreements Kentucky employees were required to sign as a condition of their employment. 

The Kentucky Supreme Court’s opinion appears to be at odds with recent U.S. Supreme Court rulings on FAA preemption of state laws that treat arbitration agreements differently than other contracts, see, e.g., Kindred Nursing Centers Lmtd P’ship. v. Clark, 137 S. Ct. 368 (2016), but it is the law of Kentucky, for now.  Other precedent from federal courts in Kentucky suggests that if the United States Supreme Court weighs in on this matter, it might decide differently.  See Mable A. Johnson v. Career Systems Developments/DJI Joint Venture, et al., No. 4:09-cv-76 (W.D. Ky. 2010) (holding the FAA preempts KRS 336.700(2)). 

As of now, Kentucky employers would be well-served to review their employment agreements and consider offering employees an opportunity to opt out of arbitration agreements such that they are not a condition of employment.  Employers also may offer other incentives to employees to encourage them to agree to arbitrate disputes.  

In any case, employers in Kentucky, and across the United States should continue to monitor the law in this area as they implement and enforce arbitration agreements. 

Jackson Lewis P.C. © 2018

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About this Author

Samia Kirmani, Jackson Lewis Law Firm, Unemployment Counseling Attorney
Principal

Samia M. Kirmani is a Principal in the Boston, Massachusetts, office of Jackson Lewis P.C. She concentrates her practice in employment counseling, training and litigation on behalf of management.

Ms. Kirmani provides practical legal advice to clients on various employment law issues, including discrimination, health and leave management, reductions in force, retaliation and whistleblower matters, individual separations, and employee relations issues. Ms. Kirmani also assists clients with policy creation, revision and...

617-367-0025
Ryan M. Martin, Labor and Employment Law Attorney, Jackson Lewis Law Firm
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Ryan M. Martin is an Associate in the Cincinnati, Ohio, office of Jackson Lewis P.C. He counsels and represents employers in all aspects of labor and employment law, including litigation for employers in federal and state courts involving discrimination, harassment, retaliatory discharge, wrongful discharge, wage and hour matters, ERISA matters, class actions, and trade secret and non-competition agreements.

Mr. Martin is also experienced in public records and open meetings litigation.

513-898-0050
Abraham Saiger, Jackson Lewis Law Firm, Labor and Employment Litigation Attorney
KM Attorney

Abraham (“Avi”) Saiger is the Knowledge Management (“KM”) Attorney for Jackson Lewis P.C.’s General Employment Litigation Practice Group, and is based in the Chicago, Illinois, office of Jackson Lewis P.C. Mr. Saiger creates and manages legal and electronic resources and materials to provide innovative client services, serves as a resource for other practice group members, monitors and analyzes regulatory and case law developments, and contributes to the firm’s blogs and legal updates. In his role, Mr. Saiger draws upon his years of litigation experience in defending...

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Of Counsel

Brendan Sweeney is Of Counsel in the Long Island, New York, office of Jackson Lewis P.C. He has more than 20 years of experience in employment law and other types of litigation.

Mr. Sweeney has helped clients achieve success in various ways including counseling, developing compliance and early case assessment programs, implementing class action waivers, defeating class certification, and negotiating favorable resolutions. He has significant experience defending employers in class actions and complex litigation, including wage and hour and discrimination matters...

631-247-4646
Sherry Swieca, Ninth Circuit, Litigation, Appellate, Jackosn Lewis Law FIrm
Principal

Sherry L. Swieca is a Principal in the Los Angeles, California, office of Jackson Lewis P.C. Her practice focuses on appellate matters in the California Courts of Appeal and Ninth Circuit Court of Appeals, as well as assisting employers in many industries with compliance, best practices, and preventive measures such as advice on employee discipline and disability-leave management, updating written employment policies, handbooks and arbitration agreements, and conducting personnel investigations and training.

Ms. Swieca is a Certified Appellate Specialist with...

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