Labor & Employment Law Daily Invalid contract terms severed, arbitration of USERRA claims compelled
Wednesday, August 3, 2016

Invalid contract terms severed, arbitration of USERRA claims compelled

By Joy P. Waltemath, J.D. Agreeing with a district court that arbitration of a fired employee’s USERRA claims could be compelled by severing two of the agreement’s terms that were invalid under USERRA, the Eleventh Circuit ruled that USERRA’s non-waiver provision, Sec. 4302(b), meant only that the invalid terms would be replaced with USERRA terms, while all other terms that did not offend USERRA—including the arbitration agreement itself—should be maintained. But even though, as Judge Martin’s dissent pointed out, the employer conceded that the fee and cost-splitting provision in its arbitration agreement, as well as a six-month statute of limitations, were invalid under USERRA, the majority ruled that the arbitrator, not the district court, must determine the validity of the terms of the arbitration agreement here (Bodine v. Cook’s Pest Control Inc., July 29, 2016, Wilson, C.). Arbitration terms invalid under USERRA. The U.S. Army reserve member worked for a pest control company for two years, during which time his supervisor allegedly made negative comments about his military obligations, encouraged him to leave the Army Reserve, took work away from him while he was at drills and training, and eventually fired him in retaliation for continued military service. After he was fired, he sued under USERRA, and his employer moved to compel arbitration under his employment contract. He argued before the district court that the arbitration agreement was unenforceable because it contained two terms that violated USERRA: (1) a fee term that required the employee to pay up to $150 in arbitration costs, any fees and costs the arbitrator apportions to him, as well as the costs associated with mandatory mediation; and (2) a six-month statute of limitations. USERRA states there is no statute of limitations for bringing a USERRA claim and no imposition of court costs or fees may be charged to a USERRA plaintiff. After concluding Alabama law favored severability, the district court struck the two terms that violated USERRA from the agreement, dismissed the suit without prejudice, and compelled arbitration. The lower court opinion did not address the role or scope of USERRA’s non-waiver provision or its relationship to the FAA, however, which the Eleventh Circuit addressed on appeal. Court determined enforceability. The appeals court first made short work of who determined whether the arbitration agreement was enforceable—the court or an arbitrator because here, whether or not the agreement contained a delegation clause (which was disputed), the company had failed to properly raise it. The district court based its ruling on its own construction of the arbitration agreement, and the company’s appellate brief defended that ruling without arguing that the arbitrator should have reached that conclusion. Because the employer had not argued consistently that the enforceability of the agreement was for the arbitrator, its failure to do so prejudiced the employee "by causing him to suffer the cost of litigating an issue that arbitration was designed to alleviate." Severability. After determining that the FAA applied to the non-transportation employment agreement, the appeals court pointed out that the FAA requires that state law determine whether a contract’s severability clause may be used to remove the offending terms in the arbitration agreement. Because the severability clause was enforceable under the relevant state law—Alabama—then any invalid provisions in the arbitration agreement were severable, which is what the district court found in compelling arbitration. USERRA non-waiver provision. Here, the employee’s argument was that USERRA’s non-waiver provision and the FAA were incompatible as applied to an arbitration agreement with USERRA-offending terms, and USERRA alone should govern this dispute. He relied on USERRA Sec. 4302(b), which states: "This chapter supersedes any State law (including any local law or ordinance), contract, agreement, policy, plan, practice, or other matter that reduces, limits, or eliminates in any manner any right or benefit provided by this chapter, including the establishment of additional prerequisites to the exercise of any such right or the receipt of any such benefit." Focusing on the word "supersedes," the Eleventh Circuit relied on the dictionary to conclude that the word involves replacing one thing with another, rather than causing something to be cancelled or invalidated without replacement. That meant to the court that the substantive terms set forth in USERRA would "take the place of" those in a contract or agreement that reduced, limited, or eliminated USERRA rights. That way, all invalid terms would be replaced with USERRA terms, while all other terms of employment would be maintained. Since the "plain language of § 4302(b) contemplates modification of an agreement by replacing USERRA-offending terms with those set forth by USERRA," the appeals court concluded, there was no conflict with the FAA. Arbitrator to determine terms’ validity. But while the appeals court found the district court correctly concluded that the severability clause in the contract could be used to "surgically lance the unlawful portions of the arbitration clause," it went on to find that the district court "should not have performed that surgery itself. The arbitrator, not the district court, must determine the validity of the terms of the arbitration agreement," the Eleventh Circuit ruled, even though the appeals court had earlier explicitly stated the "defendants conceded that these two terms ran afoul of USERRA." Thus, it gave the parties "an opportunity to present their arguments regarding the validity of the terms of the arbitration agreement, and the arbitrator will be tasked with determining their validity." Dissent. Dissenting, Judge Martin said the plain text of USERRA Sec. 4302(b) was not ambiguous and did not require "a more reasonable reading of the statute." She noted that "By its plain language, the statute supersedes ‘any . . . contract [or] agreement,’ not merely the illegal pieces of a contract or agreement, as the majority says. Nowhere does the statute include the limitation found by the majority." Judge Martin went on to stress that although the employer acknowledged that certain provisions of the arbitration agreement violate USERRA, the majority opinion gave it "an unrequested second chance to apply these admitted illegal contract terms" by arguing their validity before an arbitrator. Said the dissent: "I say the terms’ illegality under USERRA was not disputed before, and cannot seriously be disputed now."

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