April 1 2014, By: Richard Brodsky, Esq.
Employers who use The Alternative Dispute Resolution process need to review and change their arbitration provisions regularly. Changes in statutes and case law provide a continuing challenge, as a recent ruling indicates.
A decision by the Fifth Circuit Court of Appeals dealt with the validity of arbitration provisions of employment contracts. The argument made against applying a broadly-worded arbitration provision was novel. Although ultimately unsuccessful, it is a cautionary note about the need for staying current as the law evolves.
In Holmes v. Air Liquide USA, L.L.C.et al., No. 12-20129 (5th Cir. Nov. 26, 2012), the Fifth Circuit declined to rule that provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) invalidate generally worded arbitration language.
Plaintiff Holmes had been fired by Defendant Air Liquide. She brought an action in Federal District Court in Texas under three Federal laws, the Americans with Disabilities Act, the Civil Rights laws, the Family Leave Act, as well as the Texas Human Rights laws. Air Liquide invoked the arbitration provisions of her employment contract: “disputes arising out of or relating to the interpretation and application of this ADR Agreement or the employee’s employment with Air Liquide or the termination of employment . . . shall be resolved through ADR, including binding arbitration if necessary,” and moved to compel arbitration.
The District Court agreed and issued the Order compelling arbitration. Plaintiff appealed to the Fifth Circuit. The Circuit looked at two established criteria for review of judicial orders compelling arbitration.
First, had the parties agreed to arbitrate the disputes? There was no disagreement that Holmes had consented to arbitration.
Second, were there federal laws that made the dispute non-arbitrable? Here Holmes raised a novel argument. She asserted that Dodd-Frank, which had been enacted to reform Wall Street excesses in the wake of the financial meltdown of 2008, rendered the arbitration provision null and void.
Holmes drew the Court’s attention to the following language: “[n]o pre-dispute arbitration agreement shall be valid and enforceable, if the agreement requires arbitration of a dispute arising under [Dodd-Frank] . . .” (7 U.S.C. $ 26(n)(2), 18 U.S.C. $ 1514A(e)(2)).
The Fifth Circuit declined to adopt these arguments. Its first reason was tailored to the sufficiency of the pleadings, which had not alleged any underlying Dodd-Frank claims. The second reason was based on a broader concern for the survival of ADR provisions in the wake of Dodd-Frank. The Circuit opined that a decision to strike down ADR provisions in this case “would lead to the untenable conclusion that the Act invalidates all broadly-worded arbitration agreements (of which there are many) even when plaintiffs bring wholly unrelated claims.” The Circuit sustained the District Court decision compelling arbitration.
It is worth considering whether the ruling would have been the same if Holmes had included any Dodd-Frank claims in her initial complaint. Such a claim could have been based on an allegation that the employment dispute included “whistle-blower” retaliation, an assertion in employment cases that has become more common since the enactment of Dodd-Frank and other qui tam statutes. (There are substantial economic incentives in such cases when a successful claim of violation of securities laws or other statutes is made.)
Dodd-Frank itself is unlikely to be used against employers who are not publicly traded. Other statutes may yet turn out to have unanticipated effects on arbitration provisions. And case law changes in the broad support for ADR are likely to arise from unexpected areas of law and litigation. At the very least, the attorneys for Holmes offered a creative argument which, if adopted, would have undercut ADR across-the-board. Two conclusions can be drawn. First, an up-to-date understanding of changes in law will help employers and employees to make sure that the language of their employment contracts reflects their actual desire to use ADR. Second, broadly-worded ADR provisions may need to be made more specific and narrower, thereby avoiding unexpected and collateral legal attack.
Richard Brodsky, Esq., a former New York State Assemblyman, is a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel and is available to hear arbitrations and mediations throughout the New York Metro area.
Click here to view Richard Brodsky’s resume.
For any questions or comments, please contact Jacqueline I. Silvey, Esq. / NAM General Counsel, via email at email@example.com or direct dial telephone at 516-941-3228.