Mandatory Arbitration of Workers’ Compensation Retaliation Claims: An Evolving Trend?

    I have always thought that the Federal Arbitration Act would make its first systemic appearance in workers’ compensation cases in highly proceduralized (and non-medical) contexts. Cases turning exclusively on notice or statute of limitations issues seem likely candidates. And from the perspective of an employer, I would think that cases alleging an employee was fired for claiming workers’ compensation benefits or exercising workers’ compensation rights are also well-suited for arbitration. After all, 53.9% of nonunion, private-sector employers already have mandatory arbitration procedures (governed de jure by the Federal Arbitration Act) pursuant to which all other employment law discrimination cases are decided. What’s so different about a workers’ compensation retaliation suit?

    My blog mate David Torrey alerted me a while back to a decision of the West Virginia Supreme Court in Rent-A-Center v. Ellis. A simplified summary of the case is that Rent-A-Center moved to compel arbitration of a lawsuit by an employee alleging that she was unlawfully fired from her job for pursuing workers’ compensation benefits. The employee had signed a standard, pre-hire arbitration agreement which contained a delegation clause instructing that the arbitrator possessed exclusive authority to resolve any challenge to the enforceability or formation of the arbitration agreement. The employee unsuccessfully attempted to avoid the agreement by arguing that the clause was ambiguous as to whether arbitrability issues were for the arbitrator, was unconscionable under state common law, and was invalid for violating West Virginia statutory law. Reversing a lower-court determination that the delegation clause was procedurally and substantively unconscionable, and that there was no mutual agreement to arbitrate, the West Virginia Supreme Court unsurprisingly compelled arbitration of the claim. (It is not likely the Court would risk running afoul of the FAA following its dressing down at the hands of the U.S. Supreme Court in Marmet Health Care Center, Inc. v. Brown).  In a nutshell, the Court concluded that the delegation clause clearly expressed an intent to arbitrate and was not substantively or procedurally unconscionable (unequal bargaining power, “take it or leave it” adhesion, and etc.).

    More recently, in Hobby Lobby Stores v. Cole (opinion issued on 1/3/20), a Florida appellate court reversed a decision of a trial court refusing to enforce an arbitration agreement in a workers’ compensation retaliation claim. The trial court found the arbitration agreement unconscionable, but the appellate court concluded “that the Agreement was binding, enforceable, and not unconscionable . . .” The appellate court discussed the agreement as follows,

The Agreement is a two-page, single-spaced document Hobby Lobby and Mr. Cole signed on July 27, 2015. The Agreement conditioned Mr. Cole’s employment on his acceptance of its terms. The parties agreed that any employment-related dispute Mr. Cole had with Hobby Lobby, including “[d]isputes involving interference and/or retaliation relating to workers’ compensation,” would be submitted to and settled by final and binding arbitration. Mr. Cole could select from two sets of arbitration rules, and Hobby Lobby agreed to pay all arbitration fees and costs. The parties acknowledged they had each read the agreement, gave up any right to sue one another, waived any right to a jury trial, and “knowingly and voluntarily consent[ed] to all terms and conditions set forth in this Agreement.”

    The readership of this blog, being an especially astute and sophisticated group, will know that, whatever the eventual arbitral decisions in these cases, they will not as a practical matter be subject to judicial review. If the arbitrator, for example, “screws up” the state legal standard applicable to workers’ compensation retaliatory discharges—perhaps it derives from the McDonnell Douglas v. Green burden shifting standard in Title VII cases—neither party could have the award set aside on that basis. Awards may only be set aside where procured by corruption, fraud, or undue means; arbitrator misconduct in refusing to postpone a hearing, refusing to hear material evidence; or of any other “misbehavior;” or where “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” Spend a few days reading cases and you may understand why this former trial and appellate lawyer claims there is no real judicial review of an arbitration award.

    The cases demonstrate that there is nothing that would prevent an employer from compelling arbitration in any workers’ compensation case, and one should take special note when an impact litigation employer rolls out new lines of legal argument (though the Hobby Lobby agreement was executed in 2015 it seems interesting that the probable boiler plate language is being enforced now). For now, the risk and unpredictability of having non-specialist arbitrators involved in medico-legal controversies may exceed the benefit of the liability savings that would almost certainly result from widespread use of arbitration in workers’ compensation cases. But I doubt that would remain the case if the economy were to go into a serious tailspin. Yet I also think that the attempted extension of the FAA into such a traditional police power, state-law enclave as workers’ compensation may ultimately trigger the reaction that I know is coming – the FAA has already gone too far, as the #MeToo controversy has revealed. There is a reason, after all, that workers’ compensation was generally carved out even from ERISA, the mother of all employment-preemptive statutes.   

Michael C. Duff