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Hospital’s arbitration agreements were not unenforceable pre-dispute jury-trial waivers

By Wayne D. Garris Jr., J.D.

The class of nurses and mental health technicians alleged their employer required them to clock out for a 30-minute break every day, but they were frequently required to work through their breaks.

The Supreme Court of Arkansas, reversing a circuit court’s order denying a hospital’s motion to compel arbitration of the unpaid wage claims of a putative class of hourly employees, found that the employer’s arbitration agreement was governed by the FAA and thus was an acceptable “manner prescribed by law” in which the employees could waive their right to a jury trial under the Arkansas Constitution. Further, the Arkansas Minimum Wage Act’s prohibition on additional procedural requirements did not apply to the employer’s three-step dispute resolution process because the employer was a private entity, not an administrative agency. Dissenting, Justice Hart argued that Arkansas law prohibits enforcement of the arbitration agreements, and the FAA did not preempt or otherwise impact this conclusion in any way (BHC Pinnacle Pointe Hospital, LLC v. Nelson, February 20, 2020, Fox, T.).

The registered nurses and mental health technicians alleged that under the employer’s break policy, they were required to clock out for a 30-minute break each shift, even if they were unable to take their break. Claiming they were regularly required to work during their breaks without pay, and that this practice violated the minimum wage and overtime requirements of the Arkansas Minimum Wage Act (AMWA), they sued the hospital.

Arbitration agreement. The employer moved to dismiss and compel arbitration, or in the alternative, to stay litigation and discovery pending arbitration. It asserted that many members of the proposed class, including the named plaintiffs, entered into voluntary arbitration agreements, the Alternative Resolution for Conflicts (ARC) Agreements. The ARC agreements are governed by the FAA and include a three-step resolution process which includes direct resolution with the employer, mediation, and arbitration. The circuit court denied the employer’s motion and the employer appealed.

Employee’s objections. Unlike many challenges to arbitration agreements, the employees here did not challenge the validity of the scope of the ARC Agreements. Nor did they argue that the contracts were unenforceable based on general contract defenses. Rather, they argued that the ARC agreements were unenforceable because they are predispute jury trial waivers that violate the right to a jury trial under the Arkansas Constitution. They also argued that the arbitration agreements were unenforceable because the three-step dispute resolution process violated the AMWA’s prohibition on implementing additional procedural requirements before an employee can assert his or her rights under the Act.

Predispute jury trial waiver. The Arkansas Constitution prohibits infringements on the right to trial by jury but allows the right to be waived by the parties “in the manner prescribed by law.” In Tilley v. Malvern National Bank, the court rejected a bank’s argument that a jury-waiver clause in a consumer-loan contract was similar to an arbitration clause. Arbitration agreements, the court explained, are governed by the Arkansas Arbitration Act and there is no such statute governing jury-waiver clauses.

Citing Tilley, the employees argued that because the ARC Agreement is governed by the FAA, not an Arkansas law, the FAA cannot be a “manner prescribed by law” in which the parties could waive the right to a jury trial. The court rejected this argument, holding that neither the Arkansas Constitution nor Tilley limit a waiver of jury trial to a manner prescribed by Arkansas law. The Tilley court was merely referencing Arkansas law because the contract at issue in the case was governed by state law. Thus, the court held that the arbitration agreements governed by the FAA “constitute ‘a manner prescribed by law’ in which one may waive the right to a jury trial.”

AMWA. Under the AMWA, employees asserting their rights under the Act “shall not be required to exhaust administrative remedies before bringing an action.” In addition, the statute states that “there shall be no procedural, pleading, or burden of proof requirements beyond those that apply generally to civil suits in order to maintain the action.” The employees argued that the ARC Agreements are unenforceable because the three-step dispute resolution process imposed additional procedural burdens that are prohibited by the AMWA.

The court, however, was not persuaded. It referred to the definition of administrative remedy provided by Black’s Law Dictionary: “a nonjudicial remedy provided by an administrative agency.” The court then examined the definition of administrative agency: an official body, esp. within the government, with the authority to implement and administer particular legislation.”

Based on the plain meanings of these terms, the court found the employer’s internal procedure did not constitute a requirement that the employees exhaust administrative remedies as defined by the AMWA because only administrative agencies, not a private employer, can establish administrative remedies.

Thus, the court found that the ARC Agreements were valid and enforceable and reversed and remanded the circuit court’s denial of the employer’s motion to compel arbitration.

Dissent. In a dissenting opinion, Justice Hart argued that Arkansas law, irrespective of the FAA, prohibited enforcement of the ARC agreements. The dissenting Justice cited a section of the state’s minimum wage law that prohibits “procedural, pleading, or burden of proof requirements beyond those that apply generally to civil suits” in order for an employee to bring an action to recover unpaid wages. Further while the Arkansas Uniform Arbitration Act provides that arbitration agreements are valid and enforceable as a general matter, Justice Hart argued that those statutes expressly do not apply to employment disputes.

Next, Justice Hart argued that the FAA has no application in this context because Section 1 of the FAA explicitly states that “nothing [in the FAA] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In a footnote, she argued that to the extent the employees are not engaged in interstate commerce, then applying the FAA to this dispute would exceed the scope of Congress’ power under the Commerce Clause.

Lastly, Justice Hart argued that the ARC Agreements are not valid contracts because they lack mutual consideration. The ARC Agreement is a voluntary agreement that does not change any of the terms and conditions of the employees’ employment. According to the dissent, the employer “simply presented the ARC agreements to the workers, and the ARC agreements provided that if the workers did not ‘opt out’ within the time limit, they were bound to whatever was contained in those documents.” There was no mutual exchange of promises; thus no valid contract was formed.