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Eleventh Circuit: USERRA's Non-Waiver Provision Does Not Conflict with FAA
Practical Law Legal Update w-002-9114 (Approx. 5 pages)
Eleventh Circuit: USERRA's Non-Waiver Provision Does Not Conflict with FAA
by Practical Law Labor & Employment
| Published on 02 Aug 2016 • USA (National/Federal) |
In Bodine v. Cooks Pest Control, Inc., the US Court of Appeals for the Eleventh Circuit held that the non-waiver provision of the Uniform Services Employment and Reemployment Rights Act of 1994 (USERRA) does not conflict with the Federal Arbitration Act (FAA).
On July 29, 2016, in Bodine v. Cooks Pest Control, Inc., the US Court of Appeals for the Eleventh Circuit held that the Uniform Services Employment and Reemployment Rights Act of 1994's (USERRA) non-waiver provision did not conflict with the Federal Arbitration Act (FAA). A severability clause in a contract which was deemed valid allowed for the removal of several arbitration agreement terms that violated USERRA's non-waiver provision rather than the invalidation of the entire agreement. ( (11th Cir. July 29, 2016).)
Background
Bodine was an employee of Cooks Pest Control (Cooks), while also serving in the US Army Reserve. Bodine alleged that his supervisor discriminated against him for his military service by making negative comments, taking work from him when he took periodic leave for training and drills, and eventually terminating his employment in retaliation for Bodine's service.
Bodine sued Cooks and his supervisor under USERRA and Alabama state law. The defendants argued that Bodine's contract contained a clause that required disputes to be settled by arbitration. Bodine asserted that the arbitration agreement was unenforceable because it contained two terms that violated USERRA.
The defendants agreed that the terms violated USERRA, but argued that, pursuant to the FAA, the contract's severability clause allowed for the removal of those invalid agreement terms while enforcing the rest of the agreement. Bodine asserted that the plain language of USERRA's non-waiver provision prevents the enforcement of any agreement that reduces USERRA rights (which the unenforceable terms did).
The district court:
- Concluded that Alabama law favored severability.
- Struck the two invalid terms that violated USERRA.
- Dismissed Bodine's suit and ordered him to submit his claims for arbitration.
Bodine appealed to the Eleventh Circuit, arguing that the arbitration agreement was unenforceable because USERRA's non-waiver provision states that USERRA supersedes any agreement that limits the rights and benefits that USERRA provides.
Outcome
The Eleventh Circuit affirmed the district court's decision and held that:
- The FAA and USERRA's non-waiver provision are not in conflict. USERRA's non-waiver provision should not be read to automatically invalidate an entire agreement with USERRA-offending terms.
- The district court properly determined that the arbitration agreement was enforceable.
- The arbitrator, not the district court, must determine whether the arbitration agreement's terms are valid.
The Eleventh Circuit noted that:
- Under the FAA, courts are obligated to enforce arbitration agreements unless the FAA's mandate is overridden by a "contrary congressional command" (Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2309 (2013)). When two statutes are capable of co-existing, courts must regard each as effective unless there is a "clearly expressed congressional intention to the contrary" (Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 533 (1995)).
- If an arbitration agreement has invalid terms but the overarching contract has a severability clause, the FAA requires an examination of state law to determine whether the severability clause "may be used to remove the offending terms in the arbitration agreement" (Jackson v. Cintas Corp., 425 F.3d 1313, 1317 (11th Cir. 2005)).
- USERRA's non-waiver provision states that it "supersedes" any state law or agreement that reduces "any right or benefit provided by this chapter" (38 U.S.C. § 4302(b)).
The Eleventh Circuit found that:
- Bodine should not have read USERRA's non-waiver provision to automatically invalidate the entire agreement because of USERRA-offending terms.
- The word "supersedes" does not mean that § 4302(b) invalidates the entire agreement, as Bodine argued; rather, the word involves replacing one thing with another (see Black's Law Dictionary (10th ed. 2014)).
- Congress likely intended for substantive terms of USERRA to modify or take place of those terms that limit or eliminate rights or benefits under the statute.
- To read "supersede" in § 4302(b) as invalidating an entire agreement based on terms that violate USERRA would conflict with § 4302(a), which requires that no USERRA provision be read to supersede, diminish, or nullify any agreement that provides a right or benefit that is more beneficial to, or adds to, a right provided by USERRA.
- The district court did not err in looking to Alabama law to determine whether the arbitration agreement could be enforced with the invalid terms being removed. The contract contained a severability clause and Alabama law "gives full force and effect to severability clauses" (Anders v. Hometown Mortg. Servs., 346 F.3d 1024, 1032 (11th Cir. 2003)).
Practical Implications
The Eleventh Circuit's decision in Bodine helps employers that want to enforce an arbitration agreement rather than face litigation. The ability to remove the few terms that violated USERRA allowed the agreement to be enforced rather than completely invalidated. Employers should make sure that agreements do not contain invalid or violative terms, but if the contract has a severability clause, state law may allow offending terms to be severed.
The Eleventh Circuit held that an arbitrator must determine the validity of an arbitration agreement's terms, but employers must remember that if the contract contains a delegation clause directing the enforceability of the arbitration agreement to be determined by an arbitrator rather than a court, an employer must raise it as a defense.