May 29, 2014

Sixth Circuit Rules on Mandatory Arbitration of Whistleblower Retaliation Claims

whistleblower_successesBy Gordon Schnell

Mandatory arbitration clauses are all the rage these days with more and more companies insisting on these provisions in their dealings with customers and employees. It is no wonder why. Arbitrations are typically much less expensive, intrusive and protracted than litigating through the courts. Perhaps even more importantly, they can be used to bar class actions and discourage lawsuits altogether by imposing fee shifting and other conditions which significantly increase the risk and burden for those bringing suit. Good for companies. Not so good for their customers or employees who may have a legal claim against them.

While the use and reach of these mandatory arbitration provisions seem to be increasing at an exponential rate, the courts seem to be doing very little to keep them in check. Instead, they are for the most part holding tight to the principle that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” But when it comes to mandatory arbitration and whistleblower retaliation claims under the False Claims Act, at least one appeals court has drawn a line (albeit a thin one) in the sand. In its decision last week in Paige v. BAE Systems, the Sixth Circuit reversed the district court and refused to compel arbitration. It found the whistleblower retaliation claims were “completely separate” from and not “contemplated” by the whistleblowers’ employment contracts and thus outside the reach of the arbitration clause contained in those contracts.

Central to the court’s decision was the plain language of the arbitration provision in the contracts — it applied to “any dispute arising from this Agreement.” The court reasoned that the whistleblowers’ retaliation claims were not based on any alleged violations of the “terms and conditions” of the whistleblowers’ employment contracts. Instead, the claims were based on the mistreatment the whistleblowers received for engaging in statutorily protected conduct. The court further noted that the employment agreements made no reference to the False Claims Act or any claims of retaliation that might arise there under.

In the court’s view, the limiting language at issue was very different from the more “broadly-worded” arbitration clauses that cover claims “related” to the employment agreement or that “arise out of” the employment relationship. The court concluded that to extend the arbitration agreement to cover False Claims Act retaliation claims “would have effectively rewritten the parties’ agreement from ‘any dispute arising under the terms of the Agreement’ to ‘any dispute arising from your employment.'” This it refused to do.

While certainly a win for the whistleblowers at issue, the ramifications of this decision for future whistleblowers remains unclear. If the court’s decision was merely limited to the precise language of the arbitration clause, this is any easy fix for employers looking to keep whistleblower retaliation claims out of the courts. If, on the other hand, the court was equally swayed by the policy implications of limiting judicial review of the critical protections afforded under the False Claims Act, then this may be the first of many cases reining in the reach of arbitration provisions in the whistleblower context.

Wherever this may go, one thing is for sure, there will be more decisions to come on the interplay between forced arbitration and whistleblower retaliation. In fact, only two days ago KBR Inc. moved to force arbitration of a whistleblower retaliation suit, claiming the whistleblower agreed to resolve all employment-related claims under the Halliburton Dispute Resolution Program when he joined the company. Stay tuned . . . .

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