Aflac Waives Problematic Clause to Ensure Arbitration

Aflac recently avoided an attempt by several former employees to invalidate an arbitration agreement on the ground that it constituted an impermissible prospective waiver of the employees’ statutory rights by waiving the purportedly problematic provision in the arbitration agreement.

Several former Aflac sales associates sought to sue Aflac under ERISA and other federal statutes. Aflac filed a petition to compel arbitration. The sales associates opposed the petition on the ground that the arbitration agreement at issue was unconscionable and unenforceable because it constituted a prospective waiver of their right to pursue statutory remedies.

The sales associates specifically cited two provisions in the arbitration agreements between the parties. The first provided that the agreements required “arbitration of ‘any dispute’ between a sales associate and” Aflac. The associates argued that prevented them from bringing their claims in a judicial forum. Another provision in the arbitration agreement, however, limited “the scope of any arbitration to claims for breach of contract, fraud, or willfully tortious conduct.” According to the sales associates, that provision precluded them from asserting their ERISA and statutory claims in an arbitral forum, and the combination of these two provisions was a prospective waiver that precluded them from raising their ERISA and statutory claims at all.

To prevent the agreement from being found to be unenforceable because it contained a prospective waiver, Aflac waived the provision limiting the scope of arbitral claims.

The district court granted Aflac’s petition as a result of Aflac’s agreement to waive the provision limiting the claims that could be arbitrated and the Second Circuit affirmed.

The Second Circuit agreed that Aflac’s waiver removed any prospective waiver problem and noted, in the alternative, that even if Aflac had not waived that provision, the proper remedy under New York law would be to sever the provision and enforce the rest of the agreement.

American Family Life Assurance Company of New York v. Baker, No. 20-1435 (2d Cir. Mar. 1, 2021).