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October 2020

Victory Before the Fifth Circuit Court of Appeals Compels Arbitration of Whistleblower Claims

A team of Houston attorneys comprised of Heidi Gumienny, Kristina Brar and Laura De Santos obtained a significant victory before the Fifth Circuit Court of Appeals on behalf of a federal contractor sued by a former employee in an issue of first impression.

The employee sued his former employer in Austin federal court, alleging a federal whistleblower claim under 41 US.C. § 4712 and a state law tortious interference claim. At the District Court, De Santos and Brar moved to compel arbitration of the claims against the federal contractor based on the parties’ arbitration agreement and opposed the employee’s attempt to add his non-signatory company as a plaintiff in order to avoid the arbitration agreement.

In response to the motion to compel arbitration, the employee argued that certain non-waiver language in § 4712, including language ensuring the right to trial by jury and language stating that the rights and remedies under the statute “may not be waived by any agreement, policy, form, or condition of employment,” precluded arbitration of the federal whistleblower claim and that both claims were outside the scope of the arbitration agreement.

The district court recognized in its ruling that the issue of whether arbitration could be compelled for claims under 41 U.S.C. § 4712 had not been decided by the Fifth Circuit Court of Appeals or any other federal court.

The district court granted the motion to compel, finding that all of the employee’s claims were arbitrable, and denied the employee’s motion to amend his complaint, concluding that the attempt to circumvent arbitration by seeking to add a non-signatory party, under the circumstances, was a “tactical maneuver” to avoid arbitration.

The case was appealed and at oral argument before the Fifth Circuit Court of Appeals, Gumienny argued on behalf of the federal contractor. In a complete victory for the federal contractor, the Fifth Circuit affirmed the district court’s order compelling the employee’s federal whistleblower and state-law claim against his former employer to arbitration and denied his motion to amend.

In resolving the issue of first impression—the arbitrability of the federal whistleblower claim—the Court held that the specific statutory text of § 4712, despite containing a no-waiver provision, did not allow the employee to escape the arbitration agreement and that Supreme Court precedent reflects the “Court’s dogged insistence that Congress speak with great clarity” when overriding the Federal Arbitration Act (“FAA”).

Regarding the scope of the arbitration agreement, which by its terms covered all claims related to the plaintiff’s “employment”, the Court held that, in addition to the employee’s federal whistleblower claim based on his alleged wrongful termination, his state-law claim based on alleged, post-termination interference were also subject to arbitration. Finally, the Court held that the district court did not abuse its discretion in refusing to allow the employee to try to avoid his arbitration agreement by adding his non-signatory company as a party to the suit.

The Fifth Circuit awarded costs on appeal to our client and certified its decision for publication. This case further supports the long-standing rule that a party opposing arbitration of a federal claim—and arguing that there exists a congressional command contrary to the FAA—faces a high hurdle to clear.

Laura E. De Santos