Kentucky Employers Can't Enforce Arbitration Agreements Required For Employment

Kentucky employers may need to reconsider how they implement employee arbitration agreements after a Supreme Court of Kentucky decision issued late last month.

In a unanimous opinion rendered September 27, 2018, the Court held in Northern Kentucky Area Development District v. Danielle Snyder, No. 2017-SC-000277-DG, that Kentucky employers may not require employees to sign arbitration agreements as a condition of their new or continued employment. The decision makes Kentucky the first state in the nation to prohibit employers' use of mandatory arbitration agreements as a condition of employment.

The Case

The decision arose from a lawsuit brought against the Northern Kentucky Area Development District (the "District"), a state agency, by one of its former employees. As a condition of her employment, the employee had been required to a sign a binding arbitration agreement in which she agreed to submit any employment-related disputes with the District to binding arbitration.

When the employee later sued the District in state court asserting various employment-related claims, the District moved to enforce the arbitration agreement. Both the trial court and the Court of Appeals held that the arbitration agreement was unenforceable. The Supreme Court of Kentucky then granted discretionary review to consider the principal legal issue: whether the Federal Arbitration Act ("FAA") preempts (and effectively nullifies) Kentucky Revised Statute 336.700, which prohibits employers from requiring employees to sign arbitration agreements as a condition of employment.

The Court held that the FAA does not preempt KRS 336.700, and observed that the FAA "preempts any state rule discriminating on its face against arbitration—for example, a 'law prohibit[ing] outright the arbitration of a particular type of claim.'" However, the Court reasoned that KRS 336.700 does not "actually attack, single out, or specifically discriminate against arbitration agreements." Instead, the statute "simply prevents [employers] from conditioning employment on the employee's agreement to arbitration."

Thus, because the "statute only proscribes conditioning employment on agreement to arbitration, not the act of agreeing to arbitration," the Court concluded that the statute was not preempted by the FAA. In so holding, the Court did not limit its decision to only...

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