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Kentucky Senate Bill 7 and Your Business

Since the Kentucky Supreme Court's decision in October 2018, Kentucky has been the only state that prohibits the use of mandatory arbitration agreements as a condition of employment or continued employment. However, a newly signed Bill on March 25, 2019 by Governor Matt Bevin overturns the Kentucky Supreme Court's decision. 

Senate Bill 7 gives the right to Kentucky employers to require arbitration as a condition of employment and continued employment. Senate Bill 7 will become effective June 26, 2019 and will apply both prospectively and retroactively. Senate Bill 7 brings Kentucky businesses back on the same competing grounds as the rest of the country.

Senate Bill 7 nullifies the Kentucky Supreme Court's 2018 decision in Northern Kentucky Area Dev. Dist. v. Snyder, No. 2017-SC-000277-DG, which only allowed for voluntary arbitration agreements.

Further, Senate Bill 7 amends the Kentucky Revised Statute 336.700. Currently, KRS 336.700 states that no employer shall require as a condition or precondition of employment that any person or person seeking employment waive, arbitrate, or diminish any existing future claim, right, or benefit. However, Senate Bill 7 amends the Kentucky statute to allow employers to require arbitration agreements to be a condition of employment. This amended section is found under KRS 336.700(3). The amended statute is outlined below.

Key Points of Senate Bill 7

Employers may now 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;
  • A former employee to waive an existing claim as a condition or precondition of rehire as part of a settlement of pending litigation or other legal or administrative proceeding;
  • An employee or person seeking employment to execute an agreement to "reasonably reduce" the statute of limitations for filing a claim against the employer, provided that the applicable federal or state law does not preempt and prohibit such a shortening of the statute of limitations, and provided that the agreement does not reduce the statute of limitations by more than 50 percent;
  • An employee or person seeking employment to consent to a background check or similar type of personal report in conformance with state and/or federal law that requires consent of the individual prior to an employer's receipt or use of the report.

Agreements must account for:

  • A reasonable location for the arbitration;
  • Mutuality of obligation sufficient to support the agreement;
  • Fairness to the parties to the agreement, which includes providing a fair process to select an impartial arbitrator, and equitably and lawfully allocate arbitration costs between the parties;
  • That the parties have at least one channel for pursuit of a legal claim, either by requiring the claim be arbitrated individually or otherwise; and
  • Empowering the arbitrator to award all types of relief for the particular type of claim that would be available in a court, including punitive damages as provided by law.
  • Arbitrators must disqualify themselves if they have a conflict of interest (as defined by the statute on judicial disqualification, KRS 26A.015).
  • If the mandatory arbitration agreement fails to specify the rules and protocols that will govern the arbitration process, then the arbitrator will use Kentucky Rules of Civil Procedure.
  • Any shortened statute of limitations provided in a previously signed arbitration agreement that reduces the statute of limitations beyond that permitted under Senate Bill 7 "shall be stricken" and will not operate to invalidate the entire agreement.

Senate Bill 7 also amends the Kentucky Revised Statute 417.050(1) which presents guidelines for validation and submission of arbitration agreements. KRS 417.050(1) now states:

"A written agreement to submit any existing controversy to arbitration or a provision in written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract. This chapter does not apply to: Arbitration agreements contained within the collective bargaining agreements entered into by employers and the respective representatives of member employees; and Insurance contracts. Nothing in this subsection shall be deemed to invalidate or render unenforceable contractual arbitration provisions between two (2) or more insurers, including reinsurers."

These new developments should be reviewed with experienced counsel to determine how the new law will affect your business and/or the employment relationship.

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