Why it matters: In a victory for employers, the 6th U.S. Circuit Court of Appeals held that an arbitration clause survived the termination of an underlying agreement even though the clause was not specifically included in the agreement’s survival clause. Several other paragraphs were listed in the survival clause, the employee told the court, implying that the arbitration clause was specifically excluded. But the unanimous three-judge panel disagreed, noting that other sections of the agreement that were not mentioned in the survival clause had a life after the contract. Therefore, the court said, the plaintiff failed to prove that the arbitration clause was meant to expire. While the employer eked out a win before the 6th Circuit, employers may want to play it safe and explicitly include an arbitration provision in the survival clause, avoiding the issue altogether.

Detailed Discussion

Cynthia Huffman was hired by The Hilltop Companies to review mortgage loan files to ensure that lawful procedures were followed during foreclosures and other proceedings. Huffman’s employment relationship was governed by a Professional Services Contract Agreement, which stated that she was an independent contractor.

When her employment ended, Huffman sued Hilltop alleging violations of the Fair Labor Standards Act and Ohio state law, contending that she was wrongly classified as an independent contractor and was entitled to overtime.

Hilltop sought to compel arbitration in the case pursuant to the contract. The agreement contained 24 clauses, including an arbitration clause and a survival clause. The survival clause delineated 12 paragraphs that would survive termination of the agreement – such as client confidentiality and compensation – but did not list the arbitration clause.

A federal district court agreed with Huffman that the exclusion of the arbitration clause from the survival clause meant it had no post-expiration effect.

But on appeal, the 6th Circuit reversed in the employer’s favor.

Noting that it was the first federal appellate court to consider the issue, the panel emphasized the “strong federal policy in favor of arbitration” and rejected two arguments from Huffman.

First, the court said the agreement did not have to be construed in favor of Huffman because Hilltop drafted it. Even if the court found ambiguity in the contract, “the strong presumption in favor of arbitration applies instead,” the panel wrote. “Therefore, all doubts are resolved in favor of arbitration, and the plaintiffs must present ‘the most forceful evidence of a purpose to exclude the claim from arbitration [in order to] prevail.’”

The omission of the arbitration clause from the survival clause was not a clear implication that the paragraph was not meant to have post-expiration effect, the court then determined. Other clauses that were not included in the survival clause remained in effect after the contract’s expiration, the panel said, such as the non-compete provision and the severability clause.

“We believe 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,” the court said. “We observe 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. Indeed, the non-compete clause remains in effect for twelve months after expiration, yet it is not listed in the survival clause.”

Further, “neither the agreement’s severability clause nor its integration clause is listed in the survival clause,” the court added. “However, it is illogical to conclude that upon expiration of the contract, the parties no longer intended the agreement to be severable. It is similarly illogical to conclude that the parties intended the ban on extrinsic evidence to be in effect only prior to the agreement’s expiration. The difficulty in the plaintiff’s position is that it is just as plausible that the parties also intended the arbitration clause to survive.”

The panel noted that a different outcome could be possible if the evidence established a “clear implication” – say, 23 of the 24 clauses were all listed in the survival clause, leaving arbitration as the sole exclusion – but such facts were not present.

“The omission of the arbitration clause from the survival clause in this case did not clearly imply that the parties did not intend for the arbitration clause to have post-termination effect,” the court concluded.

To read the opinion in Huffman v. Hilltop LLC, click here.