Appeals Court Poised to Decide Whether State Requirements for Enforceability of Employment Arbitration Clauses Are Pre-empted by FAA

The Massachusetts Appeals Court is faced with deciding whether the Federal Arbitration Act (FAA) pre-empts state law requirements for waiver of employment discrimination claims.

In Rosencranz v. iAnthus, an employee brought employment discrimination claims against his former employer and affiliated parties. The Trial Court granted the employer’s motion to compel arbitration and dismissed the employee’s claims, finding that the employment agreement’s arbitration provisions were enforceable. To understand the matter at issue in the Appeals Court, one must understand two important cases: one a Massachusetts Supreme Judicial Court ruling and one a U.S. Supreme Court decision.

First, under Massachusetts law, an agreement by an employee to limit or waive any rights or remedies conferred by Massachusetts anti-discrimination laws is enforceable only if the agreement is stated in “clear and unmistakable terms.” This standard was set forth in a 2009 Massachusetts Supreme Judicial Court ruling in Warfield v. Beth Israel Deaconess Medical Center

Second, two years later, the U.S. Supreme Court analyzed whether a California law disallowing waiver of class action arbitration procedures was pre-empted by the FAA in AT&T Mobility v. Concepcion. The Supreme Court, in an opinion written by Justice Scalia, explained that, “When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” However, it noted that the question was more difficult where – as in Concepcion – arbitration is restricted through generally applicable doctrines of contract law, namely, when the doctrine of unconscionability is used to restrict arbitration provisions.

The Supreme Court explained that it was “beyond dispute that the FAA was designed to promote arbitration.” In rejecting California’s prohibition on certain types of class-action arbitration waivers, the Concepcion Court emphasized that, “Arbitration is a matter of contract, and the FAA requires courts to honor parties’ expectations,” noting that “states cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”

In Rosencranz, the Appeals Court is currently presented with the question of whether the Concepcion ruling has abrogated Warfield’s requirements. In that case, the employee argued that his employment agreement’s arbitration provision did not meet Massachusetts state requirements that such waiver of employment discrimination plans be clear and unmistakable. The employer disagreed, arguing, in relevant part, that the Supreme Court’s Concepcion ruling mandates the pre-emption of any Massachusetts state requirements limiting the enforceability of arbitration provisions by the FAA’s policy of favoring broad enforcement of such provisions.

Oral argument was held on March 12, 2024, and the Appeals Court is poised to issue its ruling. While it is possible the Appeals Court will sidestep the question altogether – through, for example, finding that the at-issue arbitration provision was, in fact, clear and unmistakable – the Court could issue a ruling that would upset the framework for enforceability of employment discrimination arbitration provisions that has existed in Massachusetts since 2009.

Categories

Fitch Law Partners LLP reports news and insights on complex litigation topics. Clients, colleagues and friends may receive The Fitch Briefs by signing up here.