Labor & Employment Law Daily Employee could not rely on federal whistleblower statute to escape arbitration agreement
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Wednesday, October 7, 2020

Employee could not rely on federal whistleblower statute to escape arbitration agreement

By Kathleen Kapusta, J.D.

The party opposing arbitration, and urging a congressional command contrary to the FAA, faces a high bar, said the court, and the employee could not hurdle that bar with the whistleblower statute.

A federal whistleblower statute did not render unenforceable an arbitration agreement between an employee and his former employer, the Fifth Circuit ruled, in an issue of first impression in the Circuit. And while the court below correctly enforced the agreement between the parties, it erred in compelling arbitration between the employee and a nonparty to the agreement, said the court, affirming in part and reversing in part the lower court’s decision (Robertson v. Intratek Computer, Inc., October 2, 2020, Oldham, A.).

After signing an arbitration agreement that covered “[a]ny controversy, dispute or claim between any employee and the Company, or its officers, agents or other employees related to employment,” the employee began working for Intratek in July 2011, providing various information and services to the VA. Four years later, he was fired. Shortly after that, he filed a whistleblower complaint with the Office of the Inspector General for the VA alleging that Intratek’s CEO bribed VA officials to secure lucrative government contracts. His whistleblower complaint named a VA official who purportedly accepted the bribes from the CEO.

Lower court proceedings. While an investigation into his complaint was ongoing, the employee sued Intratek, the CEO, and the VA official alleging that Intratek violated 41 U.S.C. § 4712 by firing him for reporting misconduct and that the defendants tortiously interfered with his business relationships. Intraket and the CEO moved to compel arbitration and the district court, adopting the report and recommendation of a magistrate judge, denied the employee’s motion to amend his complaint, finding his proposal to add his alter ego, his company, was a tactical maneuver to avoid arbitration; granted the motion to compel all of his claims; and dismissed the case without prejudice.

Issue of first impression. On appeal, the court first noted that the principal issue before it was “one of first impression in our Circuit: whether [the employee] can use 41 U.S.C. § 4712 to escape the arbitration agreement he signed.” Noting that “the party opposing arbitration – and urging a congressional command contrary to the FAA – faces a high bar,” the court found he could not “hurdle it with 41 U.S.C. § 4712.”

Statutory text. Section 4712, the court explained, requires a complainant to exhaust administrative remedies before filing suit and specifies that administrative remedies are exhausted when the agency acts or fails to act for specified time periods. The employee relied on one sentence of the statutory section stating that “[s]uch an action shall, at the request of either party to the action, be tried by the court with a jury” to assert it provided him a freestanding “right” or “remedy” to a jury trial. Citing further to Section 4712(c)(7), which provides that “The rights and remedies provided for in this section may not be waived by any agreement, policy, form, or condition of employment,” he argued that his “right” or “remedy” of a jury trial could not be waived in an employment agreement.

Noting that the employee confused the rights and remedies created by Section 4712 with the means it provides to secure them, the court explained that “the text and structure of § 4712 make clear that a jury trial is one way to vindicate a whistleblower’s statutory rights after the whistleblower exhausts administrative remedies; the jury trial is not itself a ‘right’ or ‘remedy’ created by § 4712.”

Supreme Court precedent. Turning next to a “long line” of Supreme Court precedent confirming its interpretation of Section 4712, the appeals court noted that these cases not only “reflect the Supreme Court’s dogged insistence that Congress speak with great clarity when overriding the FAA,” they also have given “Congress even more reason to use pellucid language in antiwaiver provisions.” As the Court observed in Epic Systems, said the court, “Congress has ‘shown that it knows how to override the Arbitration Act when it wishes.’”

Legislative history. As to legislative history, both parties cited to a prior Senate draft version of the antiwaiver provision, which stated: “The rights and remedies provided for in this section may not be waived by any agreement, policy, form, or condition of employment, including by any predispute arbitration agreement, other than an arbitration provision in a collective bargaining agreement.” Observing that the House rejected the italicized language, the court reasoned that “whatever that deletion might (or might not) mean, this wee snippet of legislative history can’t provide anything like the clarity needed to override the FAA.”

Claims against Intratek. And while the employee next argued that because the policy applied to “any employee,” it did not apply to him as Intratek had fired him, the court pointed out the policy expressly mentioned claims for unemployment insurance benefits and if it only covered claims by current employees, it wouldn’t need to mention unemployment. Also rejected was the employee’s contention that the arbitration policy expressly applied to specified claims and made no mention of the wrongful-termination and tortious-interference claims he brought against Intratek. However, not only did the policy explicitly cover claims under any federal or state law, as well as torts, it also applied to “[a]ny controversy, dispute or claim between any employee and the Company, or its officers, agents or other employees related to employment.” Thus, it clearly applied to his claims against Intratek.

Claims against VA official. As to the employee’s claims against the VA official, he was not a party to any employment contract with Intratek, much less an employment-related arbitration agreement, said the court, and the employee never moved to arbitrate his claims against him. Nor did the district court explain any basis for compelling arbitration of the employee’s claims against him. Thus, the court reversed the lower’s court’s decision to compel arbitration of these claims.

Motion to amend. The district court, however, did not err in denying the employee leave to add his company as a co-plaintiff. He was obviously aware of the company’s existence and potential interest in the case and of the risk that a federal court would enforce the arbitration agreement. Yet, the court pointed out, he waited nine months, and until after the magistrate recommended compelling arbitration, to move for leave to amend to add the company, which led the court below to conclude that his motion was an untimely “tactical maneuver” meant to “challenge the effect of the Report and Recommendation” by preventing arbitration of the claims against Intratek and the CEO. “That was not an abuse of discretion.”

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