- Arbitration Clause Survives Dodd-Frank Challenge
- June 6, 2014 | Author: W. David Paxton
- Law Firm: Gentry Locke Rakes & Moore, LLP - Roanoke Office
On May 5, 2014, the Fourth Circuit Court of Appeals held that the Dodd-Frank Act1 does not override and render unenforceable an otherwise enforceable arbitration agreement where the plaintiff is not pursuing a Dodd-Frank whistleblower claim. In Santoro v. Accenture Federal Services, LLC, the court joined a number of other federal courts which have refused to allow Dodd-Frank to be used to make a broadside attack on the enforceability of pre-dispute arbitration agreements.
This case arose out of an employment agreement, which renewed annually for eight years and contained a provision that required that arbitration be used to resolve all disputes arising out of or relating to employment. A 66-year-old employee was terminated as part of a cost cutting initiative, but replaced shortly thereafter by a younger employee. The employee filed an action alleging violations of the Age Discrimination in Employment Act (ADEA), the Family and Medical Leave Act (FMLA) and the Employment Retirement Income Security Act (ERISA). Accenture moved to compel arbitration and the district court granted the motion. The district court rejected the former employee's argument that Dodd-Frank invalidated the pre-dispute arbitration agreement with this publicly-traded company even though it lacked a carve-out for Dodd-Frank whistleblower claims.
It was undisputed that the employment agreement contained a valid arbitration provision, that the federal claims filed under the ADEA, FMLA and ERISA fell within the broad "all disputes" language of the agreement, and the employee was not pursuing a Dodd-Frank whistleblower claim. Pointing to Dodd-Frank's amendment to the Commodities Exchange Act (7 U.S.C. § 26(n)(2)) [which provides that "no pre-dispute arbitration agreement shall be valid or enforceable if the agreement requires arbitration of a dispute arising under this section which prohibits retaliation by a covered employer against a whistleblower"] and a similar provision added to Sarbanes-Oxley (18 U.S.C. § 1514(A)(e)(2)), the employee argued on appeal that these statutory provisions invalidated any pre-dispute arbitration agreements unless there was an express carve-out for Dodd-Frank whistleblower claims. He argued that the comprehensive arbitration clause in his contract required the arbitration of "all claims," which would necessarily include whistleblower claims under CEA and/or SOX because they were not excluded.
The Fourth Circuit rejected this argument even though it agreed that Dodd-Frank clearly prohibits pre-dispute agreements to arbitrate whistleblower claims brought under these statutes. The court disagreed with the employee's logic because of the language and context of the enactment of this statute. The Fourth Circuit reached the opposite conclusion, and observed that to accept the employee's argument would provide a "windfall for non-whistleblower employees" when the meaning and context of statutory language is clear that only Dodd-Frank whistleblowers are to be protected. It concluded that nothing in Dodd-Frank suggests that Congress was seeking to bar arbitration of all claims if an arbitration agreement did not specifically exempt whistleblower claims. As a result, the Fourth Circuit affirmed the lower court's decision to compel arbitration of the employee's ADEA, FMLA and ERISA claims.
This decision gives employers who have existing employment agreements which require arbitration of all claims comfort that an amendment is not needed to make sure the arbitration provision remains enforceable on non-whistleblower claims. But it is also an important reminder that drafting arbitration clauses in employment agreements now requires care and attention in this evolving area of the law. Any effort to mandate arbitration of a Dodd-Frank whistleblower claim prior to the claim being asserted will be unsuccessful.
1 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"). Dodd-Frank, among other provisions, amended the Commodities Exchange Act (7 U.S.C. § 26) and the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1514A).