Can an employer compel arbitration in accordance with an arbitration clause in a contract that

has terminated? The U.S. Court of Appeals for the Sixth Circuit recently answered this question
in the affirmative.
In Huffman v. The Hilltop Cos., LLC, a group of plaintiffs filed a class and collective action
under the Fair Labor Standards Act (FLSA) and Ohios wage and hour law for allegedly unpaid
overtime due to their misclassification as independent contractors. Each plaintiff had signed a
professional services contract agreement that contained an arbitration clause. The agreement
ended upon termination of the independent contractor relationship, which preceded their lawsuit.
The agreement contained a survival clause that specifically identified a number of provisions
that survived its expiration. Although the arbitration clause was not included in the list of
provisions in the survival clause, the defendant moved to compel arbitration, arguing that the
arbitration clause survived the termination of the agreement. The district court disagreed and
denied the motion, holding that the survival clause was limited to those provisions specifically
listed.
On appeal, the Sixth Circuit overruled the district court, determining that the arbitration clause
survived the termination of the agreement. The court held that, despite the specific list of
provisions in the survival clause, the language did not constitute a sufficiently clear intention
that the list was exclusive. The court noted that other non-enumerated clauses, such as the non-
competition, severability, and integration clauses, survived contract termination. Without a cl ear
intention to the contrary, the strong federal presumption favoring arbitration embodied in the
Federal Arbitration Act resulted in resolving the doubt as to the parties intentions in favor of
arbitration.
As the Sixth Circuit noted, its decision was consistent with the Supreme Courts decision
in Litton Fin. Printing Div. v. NLRB. The 1991 opinion held, in the context of a collective
bargaining agreement, that the duty to arbitrate does not automatically expire upon the
termination of the agreement and that broadly worded arbitration clauses contain a presumption
of arbitrability if the dispute arose under the agreement. Other circuit and district courts have
reached similar results, finding that arbitration clauses survive contract termination.
Although the Huffman case is a welcome result for employers and consumer financial services
companies that seek broad application of their arbitration agreements, it is not certain that other
courts would reach the same outcome in considering the parties intenti ons in light of a specific
survival clause that fails to mention the arbitration agreement. We recommend that employers
and other companies review their contracts to confirm that any survivor provisions specifically
reference mandatory arbitration.


Court Finds Restrictive Arbitration Clause
Unenforceable
By Jessica B. Summers, Associate
For the many companies that utilize arbitration clauses in their independent contractor
agreements or employment agreements, a recent decision from the U.S. District Court for
the Eastern District of Virginia serves as an important reminder of the care that must be
taken in crafting these provisions. Otherwise, what was meant to provide a cost-savings
mechanism for dispute resolution may end up actually increasing litigation expenses
significantly. As this case demonstrates, the litigants spent substantial time (and no doubt
expense) litigating the enforceability of the arbitration provision even before getting to the
merits of the case.
In the case of Winston v. Academi Training Center, Inc. (2013 WL 989999)
(memorandum opinion available here ), the District Court refused to enforce an arbitration
clause contained in the independent contractor agreements between the defendant and the
two plaintiffs. The District Court concluded that, because the arbitration clauses barred any
discovery and required the plaintiffs to pay the costs regardless of the outcome, the clauses
were both counter to federal statute and unconscionable.
This appears to be the first case in which a court within the Fourth Circuit has considered
the enforceability of an arbitration clause containing such a discovery prohibition and a fee
shifting provision. However, it is not the first time that a court within the circuit has declined
to enforce an arbitration clause on the basis that it overly favors the employer and impedes
the legal rights of an employee or independent contractor. The Fourth Circuit itself has
declined to enforce arbitration clauses which require that the arbitrator be selected from a
list produced by the employer or that the arbitration proceed under broad rules set by the
employer.
The ongoing Winston case centers on Fair Claims Act (the FCA) and state law retaliation
claims brought by two independent contractors against Academi Training Center, Inc
(Academi), a government contractor. Both plaintiffs entered into independent contractor
agreements with Academi to provide firearm instruction in relation to a security contract
between Academi and the U.S. Department of State. The plaintiffs and other firearm
instructors were responsible for observing shooters performances and preparing reports
which Academi submitted to the State Department.
Plaintiffs claim to have witnessed other Academi contractors submitting false records and
one of the plaintiffs claims to have been asked to complete a report using made-up
numbers. The plaintiffs reported these incidents to their supervisor and were terminated the
next day with the explanation that they had failed to report the fraud sooner and had
allegedly participated in the fraud. The plaintiffs filed suit in the District Court claiming
retaliation in violation of the FCA and state law.
In determining whether to enforce the arbitration clauses of the plaintiffs independent
contractor agreements, the Court distinguished between the plaintiffs FCA claims and their
state law claims. The Court recognized that, because FCA claims are subject to the Federal
Arbitration Act, doubts about the enforceability of an arbitration clause as to FCA claims are
generally resolved in favor of arbitration. The Court emphasized however, that an
arbitration clause should not be enforced if such arbitration would deny the plaintiff his or
her rights under the FCA.
The Court identified just such a situation in the Winston case. The Court was particularly
troubled that the arbitration clause did not allow discovery, particularly in light of the fact
that the plaintiffs would need the allegedly falsified documents to prove their claims and
that these documents would be difficult, if not impossible, to obtain in the absence of
discovery. Further, the Court also found that, as applied, the arbitration clause would
frustrate Congressional intent by placing the financial burden of the arbitration on the
plaintiff. Counter to the arbitration clauses provision, the FCA, like many of the federal
employment law statutes including Title VII and the ADA, contains a fee shifting provision
which awards attorney fees to successful plaintiffs.
In considering the application of the arbitration provisions to the plaintiffs state law
claims, the Court began by refusing to enforce the forum selection clauses also contained in
the independent contractor agreements. The Court made this decision on the basis that the
clauses called for the application of New York law despite the facts that Academi was a
Delaware corporation headquartered in Virginia, that neither plaintiff was from New York
and that the agreements were signed in North Carolina. Applying North Carolina law, the
Court concluded that the same aspects of the arbitration clause that rendered it
unenforceable as to FCA claims would also make the state law claims unfairly difficult to
pursue and thus make the enforcement of the arbitration clause unconscionable.
The Court refused to sever the problematic discovery and fee shifting provisions and
enforce the remainder of the arbitration clauses because both the Fourth Circuit and North
Carolina courts have taken the position that courts should not engage in rewriting
unconscionable contracts.
Winston presents yet another example of what Fourth Circuit courts consider to be
unenforceable arbitration provisions. Employers would be well advised to take this
opportunity to review and revise any of their own arbitration provisions that contain broad
restrictions or limits that could render the provision unenforceable.