Bill forcing workers to sign arbitration agreements advances

Republican Senate President Robert Stivers | Photo by Joe Sonka

A bill that would allow Kentucky employers to force workers into signing a binding arbitration agreement as a condition of employment moved closer to final passage on Tuesday, after clearing a state House committee on a party-line vote.

Senate Bill 7, sponsored by Republican Senate President Robert Stivers, stems from a unanimous ruling of the Kentucky Supreme Court in September, which banned the practice of requiring employees or prospective employees to sign an agreement waiving their right to file a civil lawsuit against the employer and compelling the settlement of a dispute through binding arbitration.

Previous to that court ruling, employers in every state — including Kentucky, where state law explicitly prohibits such arbitration requirements for workers — had been able to use such agreements as conditions of employment because of federal courts’ interpretation of the Federal Arbitration Act as superseding state laws, with broader rights for employers.

However, in the lawsuit involving whistleblowers suing a state agency for allegedly being harassed and fired for exposing fraud, the Kentucky Supreme Court ruled that the state’s law prohibiting the requirement on employees took precedence over the federal act, banning this practice for both public and private employees.

In response to requests from business groups and chambers of commerce like Greater Louisville Inc., Stivers filed SB 7 to amend the state statute to now allow employers to require workers to sign an arbitration agreement — in which an arbiter would issue a binding settlement to a dispute — and waive their rights to a civil trial before a judge and jury.

In his testimony for the bill before the House State Government Committee on Tuesday, Stivers noted that Kentucky is now the only state in the country in which employers do not have this right, which they should be afforded.

“As an individual who owns a company, I should have the ability to have this within my employment contracts, where I’m the individual who is investing and putting in the money, the capital, the resources, and the person who is taking the risk,” said Stivers, adding that if employees don’t want to work under those conditions they can go work somewhere else.

However, Democrats in both the Senate and House have uniformly criticized the bill as weakening the rights of workers who face harassment, injury or assault in the workplace, arguing that the arbitration processes inherently favors employers.

The use of mandatory arbitration agreements is on the rise among private employers nationally — currently required by companies like Walmart, McDonald’s and Starbucks — which view the process with an arbiter as less costly and lengthy than litigation.

However, in the wake of the #MeToo movement, several large companies like Google, Facebook, Microsoft, Uber and Lyft have recently ended their policy of forced arbitration when it comes to settling claims of sexual assault and sexual harassment. The new Democratic majority in the U.S. House of Representatives has also moved to broaden the rights of workers to resist being forced to sign arbitration agreements or be retaliated against for refusing to sign them.

Speaking against SB 7 just before it passed in the Senate last month, Sen. Morgan McGarvey, D-Louisville, said that the bill would not just allow employers to require new hires to sign such an agreement, but also current employees in order to keep their job. Unless specified in the agreement, employees may also have to share the costs of the arbitration process, on top of attorney fees.

Noting that this could apply to state government employees — though not specifically mentioning the recent scandal in which four legislators signed a private settlement with a Legislative Research Commission staffer over sexual harassment claims — McGarvey added that an arbiter could mandate that a sexual harassment complaint be sealed against the wishes of that employee.

The bill easily passed the Senate last month with a 26-10 vote, though two Republicans, including Sen. Dan Seum of Louisville, voted against it.

Before the bill was taken up and passed by the House committee on Tuesday, Sen. McGarvey told Insider Louisville that SB 7 “is a terrible bill that will hurt real people in real ways.”

“This bill could force sexual harassment and whistleblower claims into arbitration for every business and agency in Kentucky,” said McGarvey. “Aside from being wrong, it will place a huge financial cost on plaintiffs that isn’t there under our current system.”

Testifying for SB 7 on Tuesday in committee, Stivers noted that state and federal labor regulators could still file criminal charges and penalties if laws were broken. He also said that the bill would have no effect on collective bargaining contracts signed by labor unions.

Speaking in opposition to the bill, Rep. Tom Burch, D-Louisville, made another reference to the scandals rocking Frankfort in recent years, saying “there’s no protection that I can see for women who have been sexually harassed or any of those other things that we know go on in the workplace, because they go on here.”

Rep. Jason Nemes, R-Louisville, who voted for SB 7, said that while employees waived their right to a civil trial, they could still take any claim of mistreatment to an arbiter, including sexual harassment.

When Rep. Patti Minter, D-Bowling Green, argued that SB 7 would create an unlevel playing field due to the inequality in bargaining power between an employer and employee, Stivers rejected that notion on the basis that workers could simply take another job without an arbitration requirement, citing a large number of unfilled jobs throughout the state.

“That assumes that everybody that is looking for a job has to have a job and there is a closed market,” said Stivers. “In the Bowling Green area — as I understand statistics — there’s over 6,000 unfilled jobs. So, from that perspective, if you don’t like the terms and conditions or relations that are set up by that employer, it would seem that there would be other opportunities for employment.”

Minter countered that Stivers assumptions were troubling, as many unfilled jobs do not pay a living wage and many jobs are unfilled because of the lack of sufficient training in the workforce.

Ben Carter, an attorney with the Kentucky Equal Justice Center, compared arbitration requirements for workers to suddenly being asked to sign a prenuptial agreement at the altar, as employers usually unveil the requirement after the worker has already agreed to take a job.

Carter asked legislators in the committee to add a provision requiring employers to give a meaningful notice of any arbitration mandate, in addition to carving out exemptions for sexual harassment or discrimination.

While Stivers and several Republican legislators decried that Kentucky is now an outlier among states due to the Supreme Court ruling, Rep. Rick Rand, D-Bedford, embraced that difference, saying “if we’re still No. 1 in workers’ rights, then let me give a big ‘Amen’ to that.”

“All we’re doing is creating a parallel system of justice that’s controlled by the employer,” said Rand. “Let’s not pretend that an employee has any sort of power in this … none whatsoever. They don’t negotiate the arbitration agreement, they sign it.”

Stivers noted in committee that he had discussed a possible amendment to SB 7 with Bill Londrigan, the president of the Kentucky AFL-CIO, which he expected to be filed by a member when the bill reaches the House floor.

Londrigan told Insider on Wednesday that he expects the amendment to be filed by Nemes, which would explicitly exempt the collective bargaining contracts of labor union workers from the scope of the legislation.

Senate Bill 7 could now be voted by the full House at any time throughout the rest of the session, though if passed there it would be sent back to the Senate for passage again due to the bill being amended in that chamber.