Mandatory Arbitration of Employment-Related Claims (TN)

Resource ID: W-004-9402

This Standard Clause provides sample language for a Tennessee-

compliant mandatory arbitration provision of employment-related

claims that can be incorporated into a written employment

agreement or employee handbook. This Standard Clause has an

integrated drafting note with explanations and drafting tips.

An arbitration clause, whether in a stand-

alone agreement or contained within an

employment contract, is generally governed

by the Federal Arbitration Act (Frizzell

Constr. Co. v. Gatlinburg, L.L.C., 9S.W.3d

79, 82-84 (Tenn. 1999)). However, when

contract formation is at issue, state law

applies to determine whether there is a

valid contract (Mid-South Maint., Inc. v.

Paychex Inc., 2015 WL 4880855, at *15

(Tenn. Ct. App., Aug. 14, 2015)). For more

information on the FAA, see Practice Note,

Understanding the Federal Arbitration Act

(0-500-9284).

Employers can use mandatory arbitration

provisions where they wish to resolve

employment-related disputes by binding

arbitration, rather than in court. Mandatory

arbitration provisions of employment-

related claims, including statutory claims

for discrimination, are enforceable in

Tennessee if the provisions are part of a valid

and enforceable agreement (Allen v. Tenet

Healthcare Corp., 370 F. Supp. 2d 682, 686

(M.D. Tenn. 2005) and Davis v. Reliance Elec.,

104 S.W.3d 57, 58-59 (Tenn. Ct. App. 2002)).

Parties may contemplate enforcement of their

arbitration agreement under state procedural

statutory or common law (also referred

to as arbitration law) (see Hall St. Assocs.,

L.L.C. v. Mattel, Inc., 552 U.S. 576, 590 (U.S.

2008)). However, the intent to replace the

FAA with state law must be clearly expressed

(Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 52, 59-60 (U.S. 1995)).

In Tennessee, arbitration clauses must

also comply with the Tennessee Uniform

Arbitration Act (TUAA) (T.C.A. §§ 29-5-301

through 29-5-320). Arbitration agreements

are presumptively valid, enforceable, and

irrevocable in Tennessee (T.C.A. § 29-5-

302(a)). Courts, not arbitrators, resolve

disputes regarding whether:

 A valid agreement to arbitrate exists.

 The dispute falls within the scope of the

agreement.

(Tanner v. Am. Bondholder Found, LLC, 2013

WL 6384543, at *2 (M.D. Tenn. Dec. 6, 2013).)

For more information on the relationship

between federal and state arbitration

DRAFTING NOTE: READ THIS BEFORE USING DOCUMENT

PRACTICAL LAW LABOR & EMPLOYMENT AND PRACTICAL LAW ARBITRATION WITH ROBERT W.

HORTON AND KIMBERLY S. VEIRS, BASS BERRY & SIMS PLC

Mandatory Arbitration of Employment-

Related Claims (TN)

Search the Resource ID numbers in blue on Westlaw for more.

Mandatory Arbitration of Employment-Related Claims (TN)

law, see Practice Note, Understanding US

Arbitration Law (4-500-4468).

Key differences between federal and

Tennessee arbitration law include that:

 Under the FAA, the court decides matters

of arbitrability unless the parties agree

that the arbitrators should resolve those

matters. Under the TUAA, courts always

decide issues of arbitrability. (Barclay v.

Kindred Healthcare Operating, Inc., 2009

WL 2615821, at *3 (Tenn. Ct. App. 2009).)

 Tennessee strictly construes the grounds

for vacatur as being limited to the criteria

in T.C.A. § 29-5-313 (Warbington Const.,

Inc. v. Franklin Landmark, L.L.C., 66 S.W.3d

853, 858 (Tenn. Ct. App. 2001)).

 The TUAA permits vacatur of an award

only where the arbitrators exceeded

their powers (T.C.A. § 29-5-313(a)(1)(C)).

The FAA permits vacatur on the broader

grounds that the arbitrators either:

z

exceeded their powers; or

z

so imperfectly executed their powers

that a mutual, final, and definite award

on the subject matter submitted was

not made.

(9 U.S.C. 10(a)(4) and Khan v. Regions

Bank, 461 S.W.3d 505, 510-11 (Tenn. Ct.

App. 2014).)

 The TUAA expressly disallows vacatur of

an award on the ground that the relief

could not or would not be granted by

a court. The FAA does not include that

limiting language. (T.C.A. § 29-5-313(2)

and Khan, 461 S.W.3d at 511.)

 Federal courts allow arbitration of

fraudulent inducement claims under

the FAA while Tennessee courts do not

(Taylorv. Butler, 142 S.W.3d 277, 283

(Tenn. 2004)).

 Under Tennessee law, an arbitration

clause is not enforceable unless the

parties sign or initial it if the arbitration

agreement relates to:

z

farm property;

z

structures or goods; or

z

a party’s structures or property used as

a residence.

(T.C.A. § 29-5-302(a).)

Employers may view certain aspects of the

Tennessee law as advantageous or may

wish to preserve the FAA’s approach. The

agreement should therefore specify the

precise scope of authority granted to the

arbitrator and any limits on that authority.

UNCONSCIONABILITY

Mandatory provisions are often attacked

on grounds of unconscionability, that is,

that the procedure in which an agreement

to arbitrate was obtained and the

substantive terms of the agreement are

inherently unfair and should invalidate

the agreement. Tennessee law does not

distinguish procedural from substantive

unconscionability. An agreement is

unconscionable where both:

 The inequality of the bargain is so

manifest that it is likely to shock the

judgment of a person of common sense.

 The terms are so oppressive that no

reasonable person is likely to make them

and where no honest and fair person is

likely to accept them.

(Trinity Indus., Inc. V. McKinnon Bridge Co.,

Inc., 77 S.W.3d 159, 170-71 (Tenn. Ct. App.

2001).)

SEVERABILITY

Where an arbitration agreement contains

both enforceable and unenforceable

provisions, Tennessee courts may either:

 Refuse to enforce the contract.

 Enforce the remainder of the contract

without the unenforceable term.

(Taylor, 142 S.W.3d at 285.)

Employers should provide for severance of

unenforceable provisions to ensure that the

agreement to arbitrate is preserved.

WAIVER OF CLASS AND

REPRESENTATIVE ACTIONS

Several recent decisions by the US Supreme

Court and the Sixth Circuit have upheld

the use of class action waivers in individual

arbitration agreements. In 2011, the US

Supreme Court held that a California state

rule prohibiting class action waivers was

preempted by the FAA (AT&T Mobility LLCv.

Concepcion, 131 S. Ct. 1740, 1742 (U.S. 2011)).

In American Express Co. v. Italian Colors

Restaurant, the Court held that an arbitration

Mandatory Arbitration of Employment-Related Claims (TN)

agreement that waives the right to proceed

on a class basis is enforceable even if the

plaintiff’s cost of individually arbitrating the

claim exceeds the potential recovery (133 S.

Ct. 2304 (U.S. 2013); see also, Reed Elsevier,

Inc. ex rel. LexisNexis Div. v. Crockett, 734 F.3d

594, 600 (6th Cir. 2013)).

Therefore, a waiver of the right to proceed

collectively in arbitration should be provided

for in the separation agreement. However,

employees cannot waive their right to

proceed collectively unless the agreement

contains an enforceable arbitration provision

(see Legal Update, Collective Action Waiver

Not Permitted in Separation Agreement

Outside of Arbitration Context: Sixth Circuit

(1-577-0545)). For more information on class

arbitration waivers, see Standard Clause,

Class Arbitration Waiver (US) (3-518-9047).

ARBITRABILITY

In Rent-A-Center West v. Jackson, the Supreme

Court considered whether courts must

hear claims that an arbitration agreement

is unconscionable, even when the parties

have clearly and unmistakably assigned that

authority to the arbitrator (130 S. Ct. 2772

(U.S. 2010)). The court held that a challenge

to the validity of an arbitration agreement

containing a provision delegating that

authority to the arbitrator must be decided by

the arbitrator and not a court. Clauses that

refer to the rules clearly and unmistakably

assigned issues of arbitrability to the

arbitrator because the AAA rules provide

that arbitrators have jurisdiction to decide

arbitrability (see Employment Arbitration

Rules & Mediation Procedures, Rule 6).

DRAFTING CONSIDERATIONS

An arbitration provision can be used with

prospective, current, and separating

employees by including the provision

in a job application, employment

agreement, or separation agreement. To

minimize a potential claim of procedural

unconscionability, the employee signing the

agreement should be provided with a copy

of the arbitration rules or website address

or telephone number where the information

may be obtained.

Arbitration under the AAA’s Employment

Arbitration Rules & Mediation Procedures

adequately protects an employee’s rights

to discovery (see, for example, Tillman v.

Macy’s, Inc., 735 F.3d 453, 456 (6th Cir.

2013)). In choosing arbitral rules, employers

should ensure that the rules so enable the

arbitrator or specify that the arbitrator has

this power in the arbitration clause.

Employers should take special care to

ensure that the employee receives sufficient

notice of the arbitration policy and accepts

it. In Tennessee, an otherwise enforceable

written agreement containing an arbitration

clause does not have to be signed if

manifestation of assent can be established

(T.R. Mills Contractors, Inc. v. WRH Enters.,

LLC, 93 S.W.3d 861, 871 (Tenn. Ct. App.

2002)). However, the parties must sign or

initial the arbitration clause if the arbitration

agreement relates to either:

 Farm property.

 Structures or goods.

 A party’s structures or property used as a

residence.

(T.C.A. § 29-5-302(a).)

Employers should provide a space for

the individual to initial and specifically

acknowledge the mandatory arbitration

provision, especially where the provision is

contained in a multi-page agreement, to

reduce the chances of the provision being

successfully challenged by an employee.

If an employee handbook includes a

mandatory arbitration provision, employers

should place the provision apart from the

rest of the handbook together with the

at-will acknowledgment form that should

be signed by employees and given to

the employer (see Standard Document,

Employee Handbook Acknowledgment

(7-500-4363)).

Section 9 of the FAA permits the entry of

judgment on an arbitration award only if the

parties have agreed that a court judgment is

to be entered on the award. Some US courts

have held that this language is required

by Section 9 of the FAA (see, for example,

Phoenix Aktiengesellschaft v. Ecoplas, Inc.,

391 F.3d 433 (2d Cir. 2004)). Although

the agreement to enter judgment can be

implied from the facts and circumstances,

it is good practice to include the statement

“judgment on the award rendered by the

Mandatory Arbitration of Employment-Related Claims (TN)

[In the event that the [EMPLOYER NAME] hires you,] [the/The] Parties agree that any dispute,

controversy, or claim arising out of or related to in any way to the Parties’ employment

relationship or termination of that relationship, including this Agreement or any breach of

this agreement, shall be submitted to and decided by binding arbitration in [CITY/COUNTY/

STATE]. Arbitration shall be administered under the laws of the [NAME OF ARBITRATION

ORGANIZATION] in accordance with [NAME OF ORGANIZATION EMPLOYMENT RULES] in

effect at the time the arbitration is commenced. A copy of the current version of the [NAME

OF ORGANIZATION EMPLOYMENT RULES] is attached hereto as Exhibit A. The rules are also

available online at [WEBSITE ADDRESS]. You may also call the [NAME OF ORGANIZATION]

at [TELEPHONE NUMBER] if there are questions about the arbitration process. Discovery in

any arbitration proceeding shall be conducted according to the [NAME OF ORGANIZATION

EMPLOYMENT RULES]. [To the extent not provided for in the [NAME OF ORGANIZATION

EMPLOYMENT RULES], the Arbitrator has the power to order discovery upon a showing that

discovery is necessary for a party to have a fair opportunity to present a claim or defense.]

This Agreement to arbitrate covers all grievances, disputes, claims, or causes of action that

otherwise could be brought in a federal, state, or local court or agency under applicable federal,

state, or local laws, arising out of or relating to Employee’s employment with [EMPLOYER NAME]

and the termination thereof, including claims Employee may have against [EMPLOYER NAME]

or against its officers, directors, supervisors, managers, employees, or agents in their capacity as

such or otherwise, or that [EMPLOYER NAME] may have against Employee. The claims covered

by this Agreement include, but are not limited to, claims for breach of any contract or covenant

(express or implied), tort claims, claims for wages or other compensation due, claims for wrongful

termination (constructive or actual), claims for discrimination or harassment (including, but

not limited to, harassment or discrimination based on race, age, color, sex, gender, national

arbitrator may be entered in any court

having jurisdiction thereof.”

For additional provisions relating to

employment arbitration and more

detailed drafting notes, see Standard

Document, Mutual Agreement to Arbitrate

Employment-Related Disputes (TN)

EEOC CHALLENGES

The Equal Employment Opportunity

Commission (EEOC) has recently begun

challenging what it believes are overly broad

arbitration clauses. In Equal Employment

Opportunity Commission v. Doherty Enterprises,

now pending before the U.S. District Court

for the Southern District of Florida in West

Palm Beach, the EEOC alleges that the

employer violated Section 707 of Title VII

(42U.S.C. § 2000e-6), which makes unlawful

employer practices that amount to a pattern

or practice of resistance to Title VII rights (No.

9:14-cv-81184-KAM (S.D. Fla. Sept. 18, 2014)

and see EEOC Sues Doherty Enterprises

over Mandatory Arbitration Agreement).

Specifically, the complaint alleges that by

requiring all applicants and employees to

submit all employment-related claims to

binding arbitration, they effectively waive their

rights to file discrimination charges with the

EEOC. The EEOC has survived a motion to

dismiss in this case (Equal Emp’t Opportunity

Comm’n v. Doherty Enters., 126 F. Supp. 3d

1305, 1313 (S.D. Fla. 2015)).

The arbitration clause in this Standard

Document makes no mention of charges

filed with the EEOC or similar federal or

state agencies. Although any decision at the

district court level in this case is not likely to

be precedent setting, courts may look to it

for guidance on similar questions.

BRACKETED TEXT

Counsel should replace bracketed text in

ALL CAPS with information specific to the

particular circumstances. Bracketed text

in sentence case is optional or alternative

language that counsel should include,

modify, or delete, as appropriate. A forward

slash in bracketed text indicates that

counsel should choose from among two or

more alternative words or phrases.

Mandatory Arbitration of Employment-Related Claims (TN)

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08-17

origin, alienage or citizenship status, creed, religion, marital status, partnership status, military

status, predisposing genetic characteristics, medical condition, psychological condition, mental

condition, criminal accusations and convictions, disability, sexual orientation, or any other trait

or characteristic protected by federal, state, or local law), and claims for violation of any federal,

state, local, or other governmental law, statute, regulation, or ordinance.

Employee and Employer expressly intend and agree that: (a) class action and representative

action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this

Agreement; (b) each will not assert class action or representative action claims against the other

in arbitration or otherwise; and (c) Employee and Employer shall only submit their own, individual

claims in arbitration and will not seek to represent the interests of any other person. Further,

Employee and Employer expressly intend and agree that any claims by the Employee will not be

joined, consolidated, or heard together with claims of any other employee.

Any arbitral award determination shall be final and binding upon the Parties. Judgment on the

award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

If any provision of this agreement to arbitrate is adjudged to be void or otherwise unenforceable,

in whole or in part, the void or unenforceable provision shall be severed and such adjudication

shall not affect the validity of the remainder of this agreement to arbitrate.

This agreement to arbitrate shall survive the termination of Employee’s employment. It can

only be revoked or modified in writing signed by both Parties that specifically states an intent

to revoke or modify this agreement to arbitrate and is signed by [EMPLOYER’S DESIGNATED

PERSON OR TITLE].

By executing this Agreement the Parties represent that they have been given the opportunity to

fully review, and comprehend the terms of this Agreement. The Parties understand the terms of

this Agreement and freely and voluntarily sign this Agreement. Each party fully understands and

agrees that they are giving up certain rights otherwise afforded to them by civil court actions,

including but not limited to the right to a jury trial.

By initialing here, Employee acknowledges [he/she] has read this paragraph

and agrees with the arbitration provision herein.

Based in part on “Mutual Agreement to Arbitrate Employment-Related Disputes (CA)” by James A.

Goodman and Amy B. Messigian, Epstein Becker & Green, P.C.

Bob Horton and Kimberly S. Veirs of Bass, Berry & Sims, PLC also contributed to this Standard

Document.