State Law Bars Conditioning Employment on Agreement to Arbitrate

By Bill Wright

Recently, the Kentucky Supreme Court considered whether the Federal Arbitration Act (“FAA”) preempts a state law.  The FAA prevents states from setting higher standards for entering into or enforcing arbitration agreements than for contracts generally.  The Kentucky law at issue read: [N]o 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” either federal or Kentucky law.   On the face of it, this statute makes it harder to create an arbitration agreement and should run afoul of the FAA. But no! According to the Kentucky Court, this statute is only an anti-discrimination statute – it forbids employers from discriminating in employment against people who refuse to sign arbitration agreements (or any other agreement reducing their rights or benefits). N. Ky. Dev. Area Dist. v. Snyder, 2017-SC-000277-DG (Sept. 27, 2018)

The result is a counter intuitive.  For most contracts, employers can use employment or continued employment as the quid-pro-quo for the employees’ promises.  For example, the employee promises to comply with company policy or to work full time, and the company employs the employee.  But not for arbitration or other agreements limiting employee rights or benefits.   So, before you roll out that nationwide arbitration agreement with class waivers, consider any applicable state law.