Arbitration Clause Survives Contract Termination, Sixth Circuit Holds

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 Ohio’s 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 clear 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 Court’s 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’ intentions 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.

Topics:  Arbitration, Contract Term, Employment Contract, Mandatory Arbitration Clauses

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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