The Expiration of a Contract and Its Effect on an Arbitration Provision

The Expiration of a Contract and Its Effect on an Arbitration Provision

 In Huffman v. The Hilltop Companies [an enhanced version of this opinion is available to lexis.com subscribers], the 6th Circuit addressed an issue of first impression:  the application of the strong presumption in favor of arbitration in a post expiration setting when the arbitration clause is not listed in a survival clause. The employer had individual employment contracts with its employees which contained an arbitration clause and a survival clause. The survival clause did not list the arbitration clause.

The employer considered the employees to be independent contractors and did not pay them overtime. The employees filed a class action in federal court. The employer moved to dismiss and to compel arbitration on an individual basis because the agreement did not provide for class wide arbitration. The district court held that the arbitration clause had no post expiration effect because the more specific survival clause excluding arbitration "trumps" the more general arbitration clause. It did not reach the issue of the class wide arbitration.

The 6th Circuit reversed. The court stated that at the heart of the dispute is whether the strong presumption in favor of arbitration controls or whether the omission from the survival clause constitutes a clear implication that the parties intended the arbitration clause to expire with the agreement. The court held that when the ambiguity in an agreement involves whether arbitration exists, the strong presumption in favor of arbitration applies instead of a presumption in favor of the employees.

The court stated that the parties did not clearly intend for the survival clause to be exhaustive, noting that a non compete requirement of 12 months remained in effect but was also not listed. The omission of the non compete clause "invites" ambiguity as to which of the additional provisions the parties believed should survive. The court noted that neither the severability clause nor the integration clause were listed in the survival clause. Since it is just as plausible that the parties meant for the arbitration clause to survive, that possibility coupled with the presumption in favor of arbitration supports the employer's position. The court also held that since the agreement did not mention class wide arbitration, the provision did not authorize it and that the employees must proceed on an individual basis.

Obviously employers do not want to find themselves in a position where their arbitration agreement has to be saved by an appellate court. The case is another example of the need to say what you want to say.

It is also interesting to note that had the employees decided to first go to the NLRB and to file an unfair labor practice charge before filing suit, it is likely that the NLRB would have found the arbitration provision to have violated the Act.

 For additional Labor and Employment law insights from John Holmquist, visit the Michigan Employment Law Connection.

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