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An Arbitration Clause May Survive The Termination Of An Employment Agreement Even If It Is Not Mentioned In The Agreement's Survival Clause

By Nitya S. Lohitsa / Apr 10, 2014

On March 27, 2014, the Sixth Circuit ("the Court") held, in Huffman v. Hilltop Cos., LLC ., that an arbitration clause in an employment agreement may survive the termination of the contract, despite the fact that it is not listed in the survival clause in the employment agreement which explicitly identifies the clauses that survive the termination of the contract.

In Huffman , Plaintiffs were employed by Hilltop under an employment agreement which contained both an arbitration clause and a survival clause. The survival clause specifically listed several clauses stating that those clauses "survive[d] the expiration or earlier termination" of the agreement. However, several clauses were not listed in the survival clause - most notably, the arbitration clause, the non-compete clause, the severability clause and the integration clause. Upon Plaintiffs' suit for work-related grievances in federal court, Hilltop sought to have the case dismissed and compel arbitration based on the arbitration clause contained in Plaintiffs' employment agreements. The District Court denied Hilltop's motion and the Court reversed.

In its decision, the Court reiterated the strong federal policy in favor of arbitration. It indicated that based on controlling Supreme Court precedent, Plaintiffs had the burden of rebutting the presumption by demonstrating "by clear implication" that the arbitration clause was not meant to have effect after the expiration of the contract or by demonstrating with "positive assurance" that the arbitration clause does not cover the asserted dispute. Although this burden is difficult, the Court emphasized that it would "not override the clear intent of the parties or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated."

The Court rejected Plaintiff's argument that it should resolve any contractual ambiguities against the contract's drafter, Hilltop. The Court said that where ambiguities exists in an agreement involving arbitration, the strong presumption in favor of arbitration overshadowed the doctrine that courts should resolve ambiguities in a contract against the drafter of the contract.

The Court also rejected Plaintiff's argument that the court infer that the parties did not intend the arbitration clause to have post-expiration effect because they did not specifically mention it among the other clauses included in the survival clause. After considering the contract as a whole, the Court found that the parties did not mean for the survival clause to be an exhaustive list of the clauses that survived termination of the contract. The Court reasoned that if the parties had meant the survival clause to be exhaustive, the parties would have also included the non-compete clause (which had an express duration of 12 months past the termination of the contract), the severability clause and the integration clause. The Court concluded that it was illogical to suppose that the parties did not intend these three omitted clauses to extend beyond the termination of the agreement.

Although the Court emphasized the strong federal policy in favor of arbitration through this decision enforcing the arbitration clause, the Court clearly stated that future plaintiffs in other situations may be able to show that an arbitration clause was not meant to survive expiration of the agreement and prevent an arbitration clause's enforcement. In light of this decision, employers should review their employment agreements carefully to ensure that the survival clause contained in its employment agreements expressly includes all of the clauses the parties intend to survive termination of the agreement, including the arbitration clause.

If you have any questions about the survival of arbitration clauses in expired employment agreements, you may contact Nitya S. Lohitsa, at (313) 965-8260 or nlohitsa@clarkhill.com , or another member of Clark Hill's Labor and Employment Practice Group.