In March 2019, Kentucky Governor Matt Bevin signed Senate Bill 7 into law, aligning Kentucky with the other 49 states in allowing companies to require employees to sign arbitration agreements as a condition of employment. The new law, which is seen as a direct response to a recent Kentucky Supreme Court case, allows both employers and employees to limit the time period for when all employment-related lawsuits and claims can be filed.
Invalidating a State Supreme Court Decision
Senate Bill 7 has been viewed as an answer to a recent state Supreme Court case – Northern Kentucky Area Development District v. Snyder – that prohibited mandatory arbitration agreements, a very common business practice. The 2018 Snyder decision made Kentucky the first and only U.S. state to implement this regulation. In an effort to remain compliant, Kentucky employers rushed to update their policies in the wake of the decision.
Snyder held that Kentucky Revised Statute (KRS) 336.700 prevents companies from implementing arbitration agreements as a condition of employment. Further, the Court found that the Federal Arbitration Act (FAA), a federal statute that usually protects arbitration agreements from state laws like KRS 336.700, did not preempt the statute. Senate Bill 7 clearly outlines how Kentucky employers can require an employee or applicant “to execute an agreement for arbitration, mediation or other forms of alternative dispute resolution as a condition or precondition of employment.”
Adding Rights for the Employee
In an effort to protect arbitration agreements from similar changes in the future, Senate Bill 7 goes a step further. The law not only permits arbitration as a condition of employment, but also states that the agreements are contingent on general contract defenses, including fraud, duress and unconscionability. In addition, Senate Bill 7 outlines five specific safeguards for employees who are subject to arbitration, in accordance with the FAA, including:
- the arbitration agreement must provide for a “reasonable” location;
- the agreement to arbitrate must be a mutual decision between the employee and employer;
- there must be equal access for all parties to arbitrate, including naming an impartial arbitrator and planning for an equal allocation of costs between all parties;
- the agreement must ensure all parties have equal access to at least one legal avenue; and
- the arbitrator must award any and all requested forms of relief that would otherwise be available in court, including punitive damages.
Adding Rights for the Employer
Now that it’s been signed into law, Senate Bill 7 also will provide all Kentucky employers with new rights, stating that employers can require:
- a former employee to waive any existing claims as a condition for rehiring as part of a settlement of pending litigation;
- a job applicant to agree to a reduced limitations period for filing claims against the employer as a condition of employment, as long as the agreement does not reduce the period of limitations by more than 50 percent of the time provided by law. This is especially significant given that the default five-year statute of limitations for many employment-related causes of action in Kentucky may now be reduced by half; and
- a job applicant to agree to a pre-employment background check.
These additional rights are a sigh of relief for Kentucky employers. Kentucky is no longer the anomaly when it comes to mandatory arbitration. Employers in the state are once again allowed to use arbitration agreements as a condition of employment. Not only does Senate Bill 7 reinstate the rights of employers throughout the state, but Kentucky employers now have new flexibility in determining limits for future employee claims.
Thomas Birchfield, Fisher Phillips