Arbitration Clause Remains in Effect, Even When Omitted from Employment Contract Survival Clause: Huffman, et al. v. Hilltop Companies (6th Cir., March 27, 2014)
July 10, 2014
(July 10, 2014) - Failure to include an express reference to an arbitration clause in a contract’s survival clause does not necessarily cause the agreement to arbitrate to terminate with the underlying contract. In Huffman, et al. v. Hilltop Companies, the Court of Appeals for the Sixth Circuit reversed a district court decision denying defendant Hilltop’s Motion to Dismiss and Compel Arbitration. The plaintiffs were seeking unpaid overtime under the Fair Labor Standards Act, (“FLSA”), 29 U.S.C. § 201, arguing that defendant had misclassified
them as “independent contractors” to avoid paying overtime. The plaintiff’s employment contracts provided for arbitration of disputes arising thereunder, but the arbitration clause was not expressly listed in the contracts’ survival clause. While the district court applied the
doctrine of expressio unius est exclusio alterius to conclude that the more specific survival clause that excluded arbitration from survival trumped the more general arbitration clause in the contract, the Sixth Circuit found that the omission of the reference to the arbitration clause in the survival clause of an expired employment agreement did not “clearly” imply that the parties intended for the arbitration clause to expire with it.
The appellate court relied on the strong “presumption” in favor of arbitration, rejecting the argument that the parties intended the arbitration clause to expire with the agreement, and citing its earlier decision in Zucker v. After Six, Inc., 174 F. App’x 944, 947–48 (6th Cir. 2006), that the need for an arbitration provision to have post expiration effect is intuitive, because if “the duty to arbitrate automatically terminated upon expiration of the contract, a party could avoid his contractual duty to arbitrate by simply waiting until the day after the contract expired to bring an action regarding a dispute that arose while the contract was in effect.” The Sixth Circuit also noted the US Supreme Court’s presumption in favor of arbitration when a dispute arises under an expired collective bargaining agreement (Litton Financial Printing Division v. NLRB, 501 U.S. 190 (1991).
In Huffman, the Sixth Circuit found the arbitration clause to be fairly broadly-worded and similar to other arbitration clauses that it had previously described as “broad,” It noted that “considering the contract as a whole . . . –the survival clause and its relationship to the other clauses in the agreement–is the correct way to determine whether the parties unambiguously intended for the arbitration clause to expire with the contract.”
Although the survival clause listed half of the agreement’s twenty-four provisions, the court observed that the parties did not clearly intend for the survival clause to serve as an exhaustive list of the provisions that would survive expiration of the agreement, since also missing from it were express references to the contract’s non-compete, severability, and integration clauses. Although the non-compete clause expressly provided for a twelve-month term after expiration of the contract, the court noted that “it would be illogical that upon expiration of the contract, the parties no longer intended the agreement to be severable or that the parties intended the ban on extrinsic evidence to be in effect only prior to the agreement’s expiration.”
Because the Sixth Circuit essentially found the contract language ambiguous, it examined it in light of the strong federal policy in favor of arbitration, resolving “any doubts as to the parties’ intentions in favor of arbitration” (citations omitted; emphasis added). It rejected the plaintiffs’ argument for application of the contra proferentum doctrine, whereby provides that ambiguous contract terms are interpreted against the drafter (in this case, defendant. Hilltop), finding that in cases of ambiguity concerning an arbitration provision, the strong presumption in favor of arbitration applies instead.
While this decision is in line with the trend upholding arbitration clauses and class action waivers in FLSA classification cases, it also highlights the need for careful drafting, to avoid ambiguities and the need for judicial interpretation.
- Lia Iannetti, CPR Institute