The Kentucky Supreme Court issued a preemption opinion yesterday that could have an impact on state bills being enacted in the wake of the #MeToo movement.
The state statute at issue in this Kentucky case generally forbids an employer from conditioning employment on the waiver of any of the employee’s rights. As a result of this statute, the Kentucky Supreme Court held that an arbitration agreement between an employer and employee was not enforceable.
Regarding FAA preemption, the court explained that the FAA preempts state laws that “single out” or “attack” or “specifically discriminate” against arbitration. The court reasoned that the state law at issue did not attack or single out arbitration because the law broadly prohibited the waiver of any right in the employment context, without singling out arbitration. Moreover, the state law still permits employees to enter into arbitration agreements with employers voluntarily, as long as the arbitration clause was not a condition of employment.
This case is significant because in the wake of the #MeToo movement, states like California are trying to enact similar statutes (see, e.g., California Assembly Bill 3080). Under the rationale from this new Kentucky Supreme Court case, these state statutes would survive FAA preemption. However, there is some language in the Supreme Court’s landmark opinion in AT&T Mobility v. Concepcion suggesting a broader view of FAA preemption. The Kentucky Supreme Court analyzed FAA preemption by asking whether the state statute specifically discriminates or singles out arbitration. But there is language in Concepcion suggesting the FAA would preempt a state law that has a “disproportionate impact on arbitration,” even if the state law appears neutral on its face. In other words, Kentucky seems to be applying a narrower concept of FAA preemption.
I don’t like the “disproportionate impact” preemption language from Concepcion – how is this vague standard measured? For example, in order to apply this test, do we assess the impact of a state law on FAA proceedings in state courts, federal courts in that state, or maybe both state and federal courts in a state, for an undefined time period or a period of X months, compared to all non-FAA proceedings involving that same law during some undefined time period? Also, what if the sample size is small? For example, what if there are only 2 reported decisions applying the state law, and these 2 decisions happen to involve an arbitration agreement. Are 2 reported cases enough to determine a “disproportionate impact”? This standard of preemption is not well-defined.
Last year, SCOTUS was quick to issue a judicial smackdown and reversal of the Kentucky Supreme Court’s views of FAA preemption in the Kindred Nursing case. I expect this new Kentucky decision could also be headed for SCOTUS. The case is Northern Kentucky Area Development District v. Snyder, No. 2017-SC-000277 (Sept. 27, 2018) (click here for a copy of the decision.)