Employers often require employees to sign agreements with arbitration provisions. Arbitration can provide a more efficient venue to resolve disputes, and it can keep particularly sensitive disputes out of the public record. But, as the Tennessee Court of Appeals recently reminded us, an arbitration provision is only going to require arbitration of those disputes that fall within the four corners of that agreement. In other words, just because an employee signs an agreement with an arbitration provision does not mean that the employee’s claims are subject to the provision. If the claims are outside the scope of the agreement, then the claims are likely not subject to arbitration. The Middle Section of the Tennessee Court of Appeals outlines this helpful lesson in its recent opinion, Collier Engineering Co. Inc. v. Martin.¹

The Dispute

Timothy Martin worked for Collier Engineering for 20 years. Sometime after he was hired, he signed an Employee Confidentiality, Non-Compete and Non-Solicitation Agreement. In 2022, Collier Engineering discovered that Martin was overbilling clients. The company gave him the option to resign or be terminated. He chose the former.

But the separation was not without incident. Thereafter, Martin allegedly made disparaging comments about the company and disclosed confidential information, all in violation of the agreement he signed. Collier Engineering sought temporary and permanent injunctive relief in addition to compensatory damages and attorney fees in the Chancery Court for Davidson County. The agreement contained an arbitration provision, but in what has become fairly typical, it allowed Collier Engineering to seek equitable relief in “any court of competent jurisdiction” if Martin breached.

The trial court issued a limited temporary injunction and then Martin filed an answer and a counterclaim. In the counterclaim, Martin alleged that he had been retaliatorily discharged in violation of the Tennessee Public Protection Act.² Here’s the rub: Collier Engineering then moved to dismiss the retaliatory discharge claim, arguing that such a claim had to be brought in arbitration.

The trial court determined that the arbitration provision was valid. However, the trial court reasoned that the parties only agreed to arbitrate those disputes “arising out of or related to” the agreement and held that Martin’s retaliatory discharge claim was not within the scope of the Employee Confidentiality, Non-Compete and Non-Solicitation Agreement.³

The Decision

The Court of Appeals was tasked with determining whether the Employee Confidentiality, Non-Compete and Non-Solicitation Agreement — and more particularly its arbitration provision — was broad enough to force arbitration of Martin’s retaliatory discharge claim. Importantly, it was undisputed that Martin was not terminated because he violated any of the restrictive covenants in the agreement.

The court opened its discussion of by recognizing that while arbitration agreements in Tennessee are favored, “parties cannot be forced to arbitrate claims that they did not agree to arbitrate.”⁴ The arbitration provision stated “[a]ny dispute, controversy or claim arising out of or related to this agreement or any breach of this agreement shall be submitted to and decided by binding arbitration.”⁵

Collier Engineering took the approach that the agreement was an employment agreement, and thus Martin’s retaliatory discharge claim fell squarely within the scope of the agreement. But the agreement’s title and some of its carve-out language allowed the court to summarily reject this argument. Indeed, the agreement’s title (Employee Confidentiality, Non-Compete and Non-Solicitation Agreement) indicates that it focused more on restrictive covenants (which is what the company’s original lawsuit was about) than terms of employment. Moreover, the body of the agreement further undercut this argument, stating that it “is not a contract of employment and shall not be construed as a commitment by either of the parties to continue an employment relationship for any certain period of time.⁶ The fact that the consideration for the agreement was Martin’s continued employment did not sway the court when it was clear that he was an employee at-will.

A comma in the agreement’s integration clause gave Collier Engineering a little more ground to stake its claim, but this wasn’t enough when the agreement was read as a whole. The integration clause provided that the agreement “supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such Employment, Confidentiality, Non-Competition, Non-Solicitation, Noon-Disparaging [sic] and damages and remedies agreement.” Note the comma between “Employment” and “Confidentiality.” While this comma wasn’t found in the agreement’s actual title, Collier Engineering seized upon what was likely a drafting error in arguing that the agreement governed Martin’s overall employment, rather than just restrictive covenants. But the comma was not convincing to the court. Although the agreement referenced a separate “Employment Agreement” that didn’t exist, the agreement made clear that Martin was an employee at-will, which signals the absence of an employment agreement for a specified term.

In somewhat of a last-ditch effort, Collier Engineering argued that Martin’s retaliatory discharge counterclaim was based on confidential information and included information that was disparaging to the company, both topics governed by the agreement. But, as the court pointed out, Martin’s retaliatory discharge claim did not depend on the agreement itself — he could’ve pursued it even in the absence of the agreement. The fact that Martin’s allegations in the counterclaim allegedly amounted to yet another breach of the agreement did not bring his retaliatory discharge claim within the scope of the agreement itself. The Court of Appeals made clear that it was unwilling to shoehorn a retaliation claim into an agreement that did not govern all aspects of the employee-employer relationship.

The Takeaway

Just because an employee has signed an agreement with an arbitration provision does not mean that any claim that the employee later brings against his or her employer will be subject to arbitration. As we saw in the Martin case, an arbitration provision in a restrictive covenant agreement is going to be insufficient to compel arbitration of discrimination and retaliation claims. If the intent is to have all employment-related claims subject to arbitration, then the employer should draft a stand-alone arbitration agreement that makes clear that all claims arising out of an individual’s employment are subject to arbitration. As is the case when drafting any employment-related agreement, it is imperative that this stand-alone agreement does not conflict in any way with other agreements that may apply to an individual’s employment, like, for example, a restrictive covenant agreement. |||

EDWARD G. PHILLIPS is a lawyer with Kramer Rayson LLP in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section.

BRANDON L. MORROW is a lawyer with Kramer Rayson LLP in Knoxville. He represents businesses, educational institutions and religious institutions in employment- and civil rights-related matters. He holds a bachelor’s degree from the University of Tennessee and a law degree from the University of Tennessee College of Law.

NOTES
1. M2022-01641-COA-R3-CV, 2024 WL 4262972 (Tenn. Ct. App. Sept. 23, 2024).
2. Tenn. Code Ann. § 50-1-304.
3. 2024 WL 4262972, at *1.
4. Id. at *2 (quoting  Frizzell Constr. Co. v. Gatlinburg LLC, 9 S.W.3d 79, 84 (Tenn. 1999)).
5. Id.
6. Id. at *3.