On March 25, 2019, Kentucky Governor Matt Bevin signed into law a bill that reaffirms an employer's right to use arbitration agreements. The law substantively amends the language of two state statutes: KRS § 336.700 and KRS § 417.050.
This development comes on the heels of the Kentucky Supreme Court's controversial decision last September in Northern Kentucky Area Development District v. Snyder, Case No. 2017-SC-00277, in which the court held that KRS § 336.070 bars government agencies from requiring mandatory arbitration as a condition of employment. The court specifically rejected Federal Arbitration Act (FAA) preemption, which should still have applied and precluded the holding. While the Snyder decision remains non-final, with a petition for rehearing pending, the plaintiff's bar had already begun to try to capitalize on broad language in the holding to assert that it also applied to private employers. At a minimum, the decision complicated the arbitration terrain for employers, which faced the choice of staying the course under the view that FAA preemption would prevail or modifying their arbitration agreement mechanics.
The Kentucky legislature reacted swiftly to the Snyder decision, decrying the possibility that Kentucky could be perceived as the only state where employers could not require arbitration as a condition of employment. On February 14, 2019, supported by strong lobbying efforts by local and state Chambers of Commerce, Senate President Robert Stivers introduced Senate Bill 7, which proposed amending state statutes to make plain that mandatory arbitration could be required. After amendments from the House of Representatives were added to address lawmaker concerns about overbreadth, the bill quickly reached the governor's desk for signature.
Ultimately, the FAA still governs arbitration agreements that meet the Act's criteria. However, Kentucky's swift legislative action provides much-needed clarity for arbitration law in the Commonwealth. Amendments include the following:
- Explicit statement that employers "may require an employee or person seeking employment to execute an agreement for arbitration, mediation, or other form of alternative dispute resolution as a condition or precondition of employment";
- Requirement that any arbitration agreement must "safeguard the effective vindication of legal rights," to include reasonable location for the arbitration, mutuality of obligation as consideration for the agreement, procedural fairness including an impartial arbitrator and equitable allocation of costs, and empowering the arbitrator to award all types of relief that would be available for parties in a court of law;
- Specification that, if an arbitration agreement fails to specify the procedure to govern the arbitration, the Kentucky Rules of Civil Procedure will apply; and
- Condition that general contract defenses may apply, including fraud, duress, and unconscionability, as applicable.
The law provides that amendments shall apply "prospectively and retroactively," which directly addresses any contention that Snyder could control pre-amendment agreements.
Importantly, Kentucky's new law includes two additional statutory updates that extend beyond the arbitration context:
- Declaration that, as a condition or precondition of employment, an employer may require an employee or applicant to execute an agreement reasonably reducing the statute of limitations for filing a claim against the employer, as long as the agreement does not reduce the limitations period by more than 50% of the time provided under the applicable law; and
- Designation that employers may require a former employee to waive existing claims as a condition or precondition of rehiring the employee as part of a settlement of litigation or administrative or other proceeding.
All told, Kentucky's new law provides employers with a key opportunity to reexamine arbitration and other employment agreements, and the time is now.
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