By Joe Jankowski, Armatus Dealer Uplift

For too many years, dealerships have been at the mercy of their manufacturers, especially in regard to warranty compensation. However, the enactment of laws in this area has helped level the playing field for dealers to earn a fair market rate for their warranty claims. Notably, all fifty states have automotive franchise laws, but they vary in terms of content and strength.

Specifically, forty-five states have laws that require retail compensation for both parts and labor. In thirty-six states, the laws are fairly strong; in nine, they are somewhat favorable; and in five, there is no retail requirement, although two of these remaining states have submitted bills in the most current legislative session. To further complicate matters, no two state laws are exactly alike—some statutes dedicate an entire section to retail compensation, while others might only briefly mention it. Because those factories dedicated to resistance will exploit every nook and cranny in a statute, the “less-is-more” paradox holds no sway here. The superior law will be the product of a thorough knowledge of each factory’s present, and a keen anticipation of its future behaviors, and thus will spare no text in plugging the gaps through which such behaviors would otherwise gain traction so as to frustrate the statute’s fundamental purpose.

Regardless of whether a state has statutory retail labor requirements, a dealer can perform a factory submission for an increased labor rate in all fifty states. This does not, however, mean that the latter, hamstrung by definition with self-serving limitations and conditions, will produce a result on a par with that achievable pursuant to a well-crafted statute. Parts, however, are another matter. In the absence of a statutory retail mark-up directive, or the absence of a dealer’s availing itself of such a directive, it is relegated to a paltry forty percent on warranty parts (or, in the case of a few factories, MSRP, which is in reality an effective combined mark-up far short of what such factories contend that it is). By contrast, on a national basis, the average retail mark-up is at least double this percentage.

Why the Laws Are Necessary

The relationship between dealership and manufacturer can be uncertain at best and often downright contentious. While dealers envision an equal partnership with their respective manufacturers, many quickly discover that it is a one-way street with lop-sided bargaining power. This is, to be perfectly candid, because the franchise agreement and its off-shoots are basically a contract of adhesion. Distrust justifiably permeates both sides of the relationship—but these state laws seek to balance this power, so dealerships get a fairer shot at receiving market rate compensation on warranty claims, rather than being forced to run this segment of their fixed operations at a loss that must be absorbed internally or subsidized by their retail customers.

Taking Advantage of State Compensation Laws

When you stop to consider the tense relationship between dealer and manufacturer, you may be wondering if it makes sense to jump through the hoops of statutory submissions to experience a more equitable process, or possibly for the chance to earn more money. However, that reasoning is precisely why dealers should seek to take advantage of favorable state laws—there is a great probability that you will achieve a true market rate for your warranty claims.

Consider this: dealerships that perform statutory parts mark-up submissions increase their annual warranty parts gross profits by an average of $100,000. That significant uplift goes directly back to a dealership’s bottom line, all with no alteration to the existing process of presenting, and being paid for, individual claims.

However, the complex and frequently evolving state laws pose a significant challenge for dealerships that are not familiar with legal jargon or structure. While a dealer is certainly welcome to attempt to perform a statutory submission without expert assistance, it runs the risk of missing critical aspects of the submission package, which in turn directly affects its compensation rate. And if its submission is approved at a lower rate or rejected altogether by the manufacturer, it almost assuredly will not know how to rebut the decision, or the alleged statutory rationale (genuine or fabricated) behind it.

Regardless of the scenario, a dealer never wants to be in the position where it is guessing at an answer to a question the manufacturer is asking or at a response to a position the manufacturer is taking. A dealer needs the context and framework in which to submit or rebut, which is not always possible unless there is full comprehension of the relevant statute mandating retail warranty compensation, as well as the manufacturer’s stated and unstated protocols and their historical behavior.

Outsource Advantages

Thankfully, there is a solution to this challenge: outsourcing the entire submission process to a trusted group of technical and automotive experts who guarantee optimized results, and an approval, in most cases in less than sixty days from start to finish.   These teams fundamentally understand what level of retail warranty compensation the dealer is entitled to. In order to optimize this number, they will put together a quality and timely submission on the dealer’s behalf that is submitted at the rate that should be earned, based on the universe of factors to be considered. And if, for whatever reason, the manufacturer rejects the initial submission, they will work closely with the dealer to ensure that a rebuttal is appropriately responsive and statutorily and factually sound.

The key part of this submission process is that the outsourced team does all of this work, so the dealer does not have to prepare it. After all, dealership employees are busy getting business in the door and taking care of customers’ needs; every moment they spend away from these critical missions means less revenue. If a dealership allows a trusted third party to complete this complex project on its behalf, the dealer is set up for optimal results and can focus on its own core competencies.

Final Thoughts

In addition to the multiplicity of provisions, and the relative strengths and weaknesses, among the various state statutes, as alluded to above, to make matters even more confusing, a manufacturer may approve submissions in certain states requiring retail but not in others. The manufacturers’ behavior and protocols are constantly in flux, so it is advisable to consult a professional rather than just look to largely unqualified in-house personnel. Since third parties are constantly engaged in the process of submitting to all manufacturers across all jurisdictions, they can give dealers expert answers on the spot.

In fact, clients are constantly amazed at how easily and efficiently they can begin to enjoy their newfound profits. And, unlike other revenue-generating initiatives, retail warranty compensation means you do the same work you do today; it does not require an investment in bricks and mortar, inventory, technology, processes, advertising, or personnel.

Joe Jankowski is Managing Partner of Armatus Dealer Uplift, a Hunt Valley, Maryland-based firm specializing in retail warranty compensation submissions. Joe has been personally involved in consulting on 10 retail warranty statutes and is widely recognized as an expert in this highly-technical subject matter. Previously, Joe spent more than 20 years as CFO, COO, and CEO of a large automotive group in Maryland.

The Kentucky Court of Appeals just held that non-lawyers may no longer represent employers in unemployment proceedings, ruling that such a practice is unconstitutional. As a result, you must immediately adjust any business practice that involves human resources managers, supervisors, or other non-lawyers handling such administrative proceedings.

Quick Factual Background

The facts of the Nichols v. Kentucky Unemployment Insurance Commission case are straightforward. Michael Nichols worked for Norton Healthcare as a clinical engineering specialist, until Systems Director of Clinical Engineering, Scott Skinner, fired Nichols, claiming that he failed to comply with instructions, falsified records, and committed misfeasance with company records. Nichols immediately applied for unemployment benefits.

Norton opposed Nichol’s application, stating that it had discharged Nichols for misconduct. The Kentucky Unemployment Insurance Commission’s (KUIC’s) Unemployment Division initially determined that Norton had fired Nichols for misconduct and that he had made intentional misrepresentations in his application, which warranted his disqualification from unemployment benefits. Thereafter, Nichols appealed this decision to a referee.

The referee conducted two evidentiary hearings. Nichols was represented by counsel, and following the state’s long-standing practice of allowing non-lawyers to represent parties, Skinner appeared for the company. Skinner also testified at the hearings and offered several critical facts. While the referee conducted most of the questioning during Nichols’ testimony, he allowed Skinner to cross-examine and ask several questions of Nichols.

The referee affirmed the Unemployment Division and ruled in the company’s favor, and the KUIC, after conducting a de novo review of the record, also affirmed the decision. Nichols then filed a petition for judicial review in Jefferson Circuit Court, asserting multiple errors by the KUIC. One of those errors he alleged was that the proceedings before the referee and the KUIC were unconstitutional due to Skinner’s appearance as a non-lawyer representative on behalf of Norton. The circuit court affirmed the KUIC’s decision in all respects, and Nichols appealed to the Kentucky Court of Appeals.

State Court Of Appeals Upends Common Practice

In a short opinion released on Friday, April 26, the Court of Appeals concluded that Skinner was not authorized to represent Norton during the proceedings, because Kentucky Revised Statute (KRS) § 341.470(3)—the statutory provision allowing corporate or partnership employers to appear pro se through non-lawyers in unemployment proceedings—violates the separation-of-powers provisions of the Kentucky Constitution. The court said that it “encroached on the exclusive power of the judiciary to establish rules relating to the practice of law.” 

The court recognized that Kentucky Rule of the Supreme Court (SCR) 3.020 holds that representation of a corporate or non-natural entity by a non-attorney amounts to the unauthorized practice of law. Accordingly, since KRS § 341.470(3) provides differently, it infringes upon the separation-of-powers provisions of the Kentucky Constitution and is, therefore, unconstitutional. In support of its decision, the Court relied on the Kentucky Supreme Court’s 1998 decision in Turner v. Kentucky Bar Association, which held a similar statute authorizing non-lawyers to represent and advise workers’ compensation claimants was unconstitutional.   

Since Norton was represented by a non-attorney in the proceedings before the KUIC, the court vacated the circuit court’s order and remanded the matter to the KUIC for a new administrative hearing at which Norton is entitled to be represented by an attorney.

Fallout

So what does this mean for Kentucky employers? Given this opinion, employers operating in Kentucky should immediately cease the practice of sending managers, human resources representatives, or any other non-lawyer third parties to represent them at unemployment proceedings. Doing so could be the unauthorized practice of law and any decision obtained in your favor might not be enforceable. 

There is, of course, a possibility that the KUIC and/or Norton will ask the Kentucky Supreme Court to grant discretionary review of the decision. We will continue to monitor the situation and provide updates, so you should ensure you are subscribed to Fisher Phillips’ alert system to gather the most up-to-date information. Until then, if you have any questions, please contact your Fisher Phillips attorney or any attorney in our Louisville office.

This Legal Alert provides an overview of a specific state court decision. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.

By Pat Skilliter

As with all industries looking to communicate with current and potential customers, auto dealers need a robust and well-vetted compliance program to ensure their engagement initiatives comply with federal and state consumer protection laws.

Unaware businesses can easily run into issues involving the Telephone Consumer Protection Act (“TCPA”), a complex regulation which applies to dialing and texting equipment, and which comes with significant and automatic penalty provisions. Court dockets have exploded in recent years with TCPA claims. Multi-million dollar class action lawsuits and government enforcement actions pose substantial risks to dealerships that communicate with consumers. Marketing messages, service communications such as recall notices, appointment confirmations, and other important notifications all serve as potential TCPA risks for auto dealers.

Since 2012, TCPA class action lawsuits against car dealers have resulted in settlements ranging between $2.5 million and $5.7 million. In a recent case, a Fort Lauderdale Ford dealership allegedly hired a third-party marketing firm to run a “buyback campaign” by calling and texting over 27,000 cell phones in the dealership’s database.  One call recipient filed a federal lawsuit that resulted in a settlement of $4.8 million in late 2018.

Now, at least one plaintiff is looking to extend TCPA liability from dealerships to manufacturers. Earlier this week, a proposed class action suit was filed against a California car dealer and Hyundai Motor America Inc., (“Hyundai”) alleging violations of the TCPA. The complaint states that the dealer sent an automated text message simply asking the consumer how her car shopping was going, and alleges that Hyundai is liable because it encouraged its franchise dealerships to send text messages promoting the sale of their goods and services to consumers. This marks an attempt to drastically expand TCPA liability in this industry (and, perhaps, any industry with independent franchises).

Compounding these issues is the current uncertainty in the law. Last year, the D.C. Court of Appeals overturned several components of the Federal Communications Commission’s (“FCC”) overly broad interpretation of the TCPA’s scope. Subsequent court decisions have provided conflicting interpretations and enforcement that continue to muddle an already challenging regulatory landscape. Petitions asking the FCC to revisit the issue are pending and the Commission is expected to rule again later this year.

In the meantime, the risk to dealerships (and possibly manufacturers) is real. Having an audited communications platform and compliance practices – whether the campaign is managed in-house or outsourced to a vendor – is the best way to ensure marketing campaigns and other customer communications are conducted within the confines of the law.

For more information please contact Pat Skilliter, Senior Attorney at MacMurray & Schuster, at pskilliter@mslawgroup.com or 614-939-9955.

By Thomas B. Hudson

Someone at your dealership is in charge of advertising. Is that someone committing advertising malpractice?

I frequently see (and receiving the mail) ads from car dealers with content that might as well say, “C’mon, Federal Trade Commission, sue us!” The ads contain problems that the FTC has been targeting for the last few years, but these dealers apparently haven’t gotten the memo.

The FTC has mounted two major efforts to clean up dealer advertising. Operation Steer clear and Operation Ruse Control are the noisiest and most-publicized efforts, but they are just the tip of the FTC’s iceberg of advertising enforcement actions against dealers. The FTC has announced several dozen other advertising enforcement efforts over the last few years. Although it is admittedly a rough measurement, as search of Spot Delivery articles using the search term “Federal Trade Commission AND advertising” yields a staggering 426 articles.

The FTC actions have focused on a number of practices that the FTC believes violate the law. Some examples include “we’ll pay off your trade, no matter what you owe,” “nothing down” big print followed by the revelation the “you will need to stroke us a check when you pick up the car,” use of prices that reflect various discounts that a buyer cannot (or is very unlikely to be able to) use, discount claims, non-compliant email advertising, false green marketing claims, non-compliant Internet advertising, satisfaction guarantees, offers of “free” items with a purchase, and use of trigger terms without using the required disclosures triggered by those terms.

And it’s not like there isn’t a lot of help available for avoiding common advertising violations. The National Automobile Dealers Association has a publication that assists new car dealers in complying with federal advertising requirements on the sale, financing, and leasing of automotive products and services. A Dealer Guide to Federal Advertising Requirements provides examples of “bad” ads and “good” ads and chapters on 41 different federal advertising topics. The publication is available to both NADA members and non-members.

Many state auto dealer associations and independent auto dealer associations offer similar guidance. The FTC’s own website is a treasure trove advertising compliance help.

The FTC claims cited above, as well as a number of other advertising “gotchas,” have received so much publicity and attention that any dealership running those types of ads is committing advertising malpractice. If I were a dealer principal and the FTC nailed my dealership for these or similar violations, I’d be looking for someone to fire because there’s really no fighting these FTC enforcement actions. The advertisements say that they say, so there’s not a lot of argument about facts.

And I wouldn’t take as an excuse a response like, “We bought this ad program from a vendor and assumed the vendor knew what it was doing.” The FTC will say, correctly, that the advertisements, and the problems, are all yours. There isn’t even any assurance that the FTC will include the ad company in its enforcement action.

I also wouldn’t take as an excuse a response like, ” I didn’t know about these developments.” Not when you consider those 426 articles, all the noise, and all the resources on government and dealership association websites. You’d have to be intentionally looking the other way not to know about dealership advertising practices.

So, unless you plan to fire the compliance officer, hand this article to him or her with instructions to get to work.

By Tyler Henderson, Senior Advisor, Oxford Financial Partners

As some of the uncertainty from back in the Winter has faded away, there has been quite a rally in markets both domestically and globally so far in 2019. With that, we wanted to provide an update on market performance across various asset classes, provide a preview of what might lie ahead, and also highlight some key principles to always live by when it comes to investing.

Part One: Market Recap

Source:  J.P. Morgan Weekly Market Recap, April 8^th, 2019

Part Two: Current Observations

Several uncertainties are still weighing on the minds of investors, and these will be key areas to watch in the months ahead.

• Fed Policy in Relation to Interest Rates/Inflation
  • Markets expect one rate cut by year-end
  • Six months ago, the market expected 1-2 rate increases this year
  • The Fed will likely continue to be slower than market wants

• Trade Policy and Progress
  • Lack of trade resolution is slowing global growth, particularly China
  • U.S – China: Expect a deal in 2^nd quarter
  • Brexit outcome in Europe is highly uncertain

However, while these uncertainties remain, it’s important to not lose sight of the major metrics of the economy which blazed ahead in 2018, many of which have continued into 2019:

• Worker productivity, a long-run key to economic growth, has surged
• Wage growth accelerated in response to a rapidly falling unemployment rate
• Household net worth rose above $100 trillion for the first time
• Earnings of the S&P 500 companies leaped upward by more than 20%

Part Three: General Investing Principles

Despite all of the noise out there, especially in the media, we leave you today with several guiding principles that we invite you to follow:

• Investment advice should be goal-focused and planning-driven, as sharply distinguished from an approach that is market-focused and current-events-driven

• We at Oxford neither forecast the economy, nor attempt to time the markets. In a sentence that always bears repeating: We are planners rather than prognosticators.  We believe that portfolios should be built in anticipation of volatility, rather than in reaction to it.

• Once you have a plan in place – and have funded it with what have historically been the most appropriate types of investments – you should not change it so long as your long-term goals or cash withdrawal needs haven’t changed.

The general principles above, along with some others, are all delivered via our proprietary investing system called Power of 5 Investing®.  This system has served our clients well for 25+ years and will continue to guide how we serve clients well into the future. If you are interested in learning more or would like to put a plan together of your own, please don’t hesitate to reach out to us at 513-469-7014 or staff@oxfordfp.com.

 As we say in Power of 5 Investing, “It’s never different this time”.  Markets rise and fall, but eventually continue their inexorable long-term climb upwards.

On behalf of the entire Oxford Financial Partners team, we wish you a happy, healthy and prosperous remainder 2019!

Under a new law just signed into effect by Governor Matt Bevin yesterday, many Kentucky employers will need to change their human resources practices and provide reasonable accommodations to workers for pregnancy, childbirth, and related conditions. The new law went into effect upon signature, so employers will need to make adjustments immediately in order to stay in compliance. What exactly must Kentucky employers do?

Background And Summary Of New Law

Pursuant to federal law, most employers are already prohibited from discriminating against their pregnant workers based on pregnancy, childbirth, or related medical conditions. However, there are still some accommodations that may not be contemplated by federal law. Early in 2019, the Kentucky legislature introduced Senate Bill 18—also known as the Kentucky Pregnant Workers Act—to fill in some of those gaps. The bill was passed by the legislature in March and signed into law on April 9.

The Pregnant Workers Act amends the Kentucky Civil Rights Act as it relates to pregnant employees by requiring companies with 15 or more employees to provide “reasonable accommodations” for pregnancy, childbirth, and related conditions. Under the Pregnant Workers Act, employers will be liable if they fail to make reasonable accommodations for an employee who requests an accommodation for pregnancy, childbirth, or a related medical condition. The Act designates the following requirements:

1. An employee shall not be required to take leave from work if another reasonable accommodation can be provided;
2. The employer and employee shall engage in a timely, good faith, and interactive process to determine effective reasonable accommodations; and
3. If the employer has a policy to provide, would be required to provide, is currently providing, or has provided a similar accommodation to other classes of employees, then a rebuttable presumption is created that the accommodation does not impose an undue hardship on the employer.

As for what specific accommodation should be considered in each situation, the Act expands the definition of “reasonable accommodation” to include a number of specific accommodations not specifically enumerated in federal law. These include, but are not limited to:

• more frequent or longer breaks;
• time off to recover from childbirth;
• acquisition or modification of equipment;
• appropriate seating;
• temporary transfer to a less strenuous or less hazardous position;
• job restructuring;
• light duty;
• modified work schedule; and
• private space that is not a bathroom for expressing breast milk.

Lactation Accommodation Also Included

The Pregnant Workers Act also creates the first lactation accommodation requirement in Kentucky, defining “related medical condition” to include lactation or the need to express breast milk.” As noted above, the new law requires employers to provide space, other than a bathroom, for their nursing employees to express breast milk.

What Should Kentucky Employers Do Now?

You must begin complying with these requirements immediately. Besides altering your human resources policies and practices, the law requires you to post a notice regarding the Pregnant Workers Act in a conspicuous place, provide existing employees written notice of the new requirements within 30 days, and provide written notice about the law to new employees at the start of their employment.

For more information on how to comply with this new law, please contact your Fisher Phillips attorney or any attorney in our Louisville office.

This Legal Alert provides information about a specific state law. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.

By Melissa Dials

Cincinnati City Council has passed Ordinance No. 0083-2019 barring employers from asking applicants for their salary history. The city becomes the latest of a growing number of jurisdictions to adopt a salary history ban on employers. In addition to Cincinnati, salary history bans exist in the cities of Atlanta, Chicago, Kansas City, Louisville, New Orleans, New York City, Philadelphia, Pittsburgh, and San Francisco. Several counties have also passed similar bans.

Cincinnati’s ordinance, titled “Prohibited Salary History Inquiry and Use,” (the Ordinance) prohibits employers from asking about or relying on the prior salary history of prospective employees in setting starting pay. The purpose of this ordinance is to “ensure that Cincinnati residents’ rights are protected and that job applicants in Cincinnati are offered employment positions and subsequently compensated based on their job responsibilities and level of experience, rather than on prior work histories, which actions can serve to perpetuate existing discrimination against women in the workforce.”

The ordinance will take effect in March 2020 and applies to employers located within the City of Cincinnati that have 15 or more employees located within the city limits.

What Does the Salary History Inquiry and Use Ordinance Prohibit?

Under the Prohibited Salary History Inquiry and Use ordinance, employers cannot:

• inquire about an applicant’s salary history or request reports or other information to determine or verify salary history;
• screen job applicants based on their current or prior compensation or their salary history;
• rely on salary history when deciding to offer employment, when determining salary or other compensation, or when negotiating an employment contract; or
• refuse to hire, otherwise disfavor, or retaliate against an applicant for not disclosing their salary history.

Notwithstanding these prohibitions, an employer may engage in discussions with the applicant about their expectations with respect to salary, benefits, and other compensation. The ordinance defines “applicant” as any person applying for employment to be performed within the geographic boundaries of the City of Cincinnati and whose application will be solicited, received, processed, or considered in the City of Cincinnati. The term “salary history” is defined as current or prior wages, benefits, or other compensation, but does not include any objective measure of productivity such as revenue, sales, or other production reports.

What Does the Salary History Inquiry and Use Ordinance Permit?

The ordinance does not apply to:

• actions taken by an employer pursuant to a law that authorizes the reliance on salary history to determine compensation;
• applicants for internal transfer or promotion with their current employer;
• a voluntary and unprompted disclosure of salary history information by an applicant;
• an attempt by an employer to verify an applicant’s disclosure of non-salary related information in which may reveal salary history information, so long as such salary history information is not used to determine compensation or negotiations of a contract;
• applicants who are rehired by the employer within five years of the applicant’s most recent date of termination from employment by the employer, so long as the employer already has past salary history for the prior period of employment;
• employee positions for which compensation is determined pursuant to procedures established by collective bargaining;
• any employer who, within the previous three years and before the action is filed against it, received and made publicly available an external review and certification that the employer’s practices do not include salary history in the hiring process; and
• federal, state, and local subdivisions, other than the City of Cincinnati.

Remedies for Non-Compliance

The ordinance creates a private cause of action and provides applicants the right to bring a claim against an employer in court within two years after the cause of action accrued. If found in violation of this ordinance, employers may be liable for compensatory damages, reasonable attorney’s fees, the costs of the action, and legal and equitable relief.

What Does this Mean for Employers?

The trend of jurisdictions adopting ordinances that prohibit employers from asking about salary history does not appear to be slowing down. Therefore, employers—especially those with multistate operations—should consider whether it makes sense to employ a patchwork system of asking for salary history where it is permitted (and refraining from doing so where it is not), or simply eliminating the inquiry altogether for ease of compliance and administration. 

Although the ordinance doesn’t go into effect until one year from now, employers with operations in Cincinnati should take steps now to ensure compliance. For example, employers are encouraged to amend their employment applications now or within the near future.  This will help to lessen the risk of liability for considering an application with salary information that was completed before March 2020 as part of a process that occurs or continues past the deadline. Employers also should update their procedures for conducting reference and background checks to ensure they do not request salary history. Additionally, all human resources personnel as well as any other employees involved in the interviewing and hiring process must be educated and trained on the new law to avoid violations.

If you have questions about compliance with this new ordinance, please contact your Fisher Phillips attorney or any attorney in our Cleveland or Columbus offices. 

The authors would like to thank Joseph Nelson for his contributions to this legal alert.

This Legal Alert provides information about a specific ordinance. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.

By Thomas Birchfield

Kentucky Governor Matt Bevin signed into law Senate Bill 7 which brings Kentucky back in line with every other state by allowing employers to require employees to arbitrate claims as a condition of employment.  The new law, signed yesterday, also allows employers and employees to contractually limit the time period in which employees must file employment-related claims and specifically allows an employer to require, as a condition of employment, a background check.  This is all very good news for Kentucky employers.

Law Nullifies Recent Supreme Court Decision While Safeguarding Employee Rights

The law is a direct response to a recent Kentucky Supreme Court decision that significantly restricted the practice of arbitration for employment disputes. The 2018 ruling in Northern Kentucky Area Development Dist. v. Snydersent shockwaves through the state and caused many employers to immediately change a very common business practice by outlawing mandatory arbitration agreements that require applicants or employees to sign if they want to be hired or remain employed. That controversial decision made Kentucky the first and only state in the nation to implement such a restriction.

The Snyder decision held Kentucky Revised Statute (KRS) 336.700 prohibited employers from making arbitration of disputes a condition of employment. The state Supreme Court ruled that the statute was not preempted by the Federal Arbitration Act (FAA), a federal statute that, among other things, broadly protects arbitration agreements from state statutes such as these. The new law makes it clear that an employer may require an employee or applicant to execute an “agreement for arbitration, mediation, or other form of alternative dispute resolution as a condition or precondition of employment.” 

While the law permits arbitration as a condition of employment, it also provides that arbitration agreements shall be subject to general contract defenses such as fraud, duress and unconscionability.  Further, the law mandates certain specific safeguards for employees who are subject to arbitration, in accordance with the FAA.

First, the arbitration agreement must provide for a reasonable location for the arbitration.  Second, the agreement to arbitrate must have mutuality of obligation sufficient to support the agreement to arbitrate.  Third, there must be procedural fairness for the parties to access arbitration, including a fair process for selecting an impartial arbitrator and the equitable allocation of costs between the parties.  Fourth, the agreement must ensure that the parties have at least one channel for the pursuit of a legal claim, either by requiring the claim to be arbitrated individually pursuant to the agreement or otherwise.  Finally, the arbitrator must be empowered to award all types of relief for a particular claim that would otherwise be available in court, including punitive damages if applicable.

Law Allows Agreements to Limit the Statute of Limitations

The law also provides Kentucky employers with several additional significant rights, including confirming that employers may require:

• a former employee to waive existing claims as a condition for rehiring as part of a settlement of pending litigation;
• as a condition of employment, that an employee or applicant agree to a reduced limitations period for filing claims against the employer, provided that such an agreement does not reduce the period of limitations by more than 50 percent of the time that is provided under the law applicable to the claim. This is significant given the default five-year statute of limitations for many employment related causes of action in Kentucky may now be reduced by half; and
• an employee or applicant to agree to allow the employer to conduct a background check. 

These additional rights are a welcome salve to long-festering thorns in the sides of many Kentucky employers. 

The key takeaway is that Kentucky is no longer an outlier when it comes to mandatory arbitration.  Kentucky employers are again free to institute mandatory arbitration as a condition of employment.  In addition, Kentucky employers have more leeway in structuring limitations on future employee claims.  This all good news.

For more information, of if you have questions about this new law, please contact your Fisher Phillips attorney or any attorney in our Louisville office.

This Legal Alert provides information about a specific state law. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.