By: Marimar Seda, Senior articles Editor

Employment arbitration is a method of resolving issues between an employer and an employee in an out-of-court setting. Arbitration has been around for a long time but was first codified in 1925 with the passage of the Federal Arbitration Act (FAA). Congress passed the FAA, to establish a foundation as an alternative for litigation and expedite the settlement of disputes. Since 1991, an increasing number of employers mandate that their employees sign mandatory arbitration agreements. According to the Economic Policy Institute, 53.9 percent of private-sector employers have mandatory arbitration clauses, and 30.1 percent of those include a class action waiver.

Even though arbitration reduces litigation costs and quickens settlements, there have been different opinions about mandatory employment arbitration. The Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) have stated that they disagree with mandatory arbitration clauses. The DOL continues prosecuting employment organizations on behalf of employees, such as in Security of Labor v. C.E. Security, L.L.C., even though their employee contracts contain a mandatory arbitration clause. On the other hand, there have been cases in the U.S. Supreme Court that enforced individualized arbitration agreements. Furthermore, the Puerto Rico Supreme Court defined some aspects of implicit consent to arbitration agreements in enforcing the agreements. In Aponte Valentín v. Pfizer Pharmaceuticals, the Puerto Rico Supreme Court held that continued employment generates tacit approval to arbitration clauses.

The DOL has filed multiple lawsuits against companies that force their employees into arbitration, even when dealing with wage theft and discrimination issues. Applicants agree to these arbitration conditions now frequently buried in the documentation. They forbid employees from initiating lawsuits against employers for violations of federal law before a judge or jury. Instead, an employee must use a private arbitrator to settle disagreements. Employees waive their ability to file class or collective lawsuits under these agreements. Many low-wage workers need help to afford the substantial costs of pursuing individual claims when each employee’s anticipated return cannot cover the litigation’s expenses. Consequently, employees subject to forced arbitration file 98 percent fewer claims under the Fair Labor Standards Act than those not. Additionally, since many mandatory arbitration clauses demand anonymity, other employees may not realize the availability of labor law protections when a worker files a claim.

Since its passage, the Supreme Court has decided that the FAA, which governs disputes between employers and workers, permits the enforcement of arbitration agreements relating to employment.  The Court dismissed objections to using the arbitral arena in numerous arbitration-related matters it has handled since 1997, both inside and outside the context of employment discrimination claims.  The EEOC remains accessible to employees as a means of claiming EEO rights and conducting investigations in the public interest, regardless of whether the parties have signed into an enforceable arbitration agreement.

Continued employment is implicit consent only if the employee knows exactly what the arbitration clause dictates. Many employers hide the arbitration clause throughout a contract, consisting of multiple pages and different required portions of the agreement.

Marimar Seda

In Epic Sys. Corp. v. Lewis, the Supreme Court prohibited employees from bringing class or collective actions in federal court to assert Fair Labor Standards Act or related state-law claims against employers who agreed to individual arbitration proceedings to settle employment disputes. The Court decided to enforce the arbitration agreements between employers and employees that called for individualized proceedings as written. Courts must consider state contract law when determining whether a legitimate arbitration agreement is in place under the FAA. In Puerto Rico, the autonomy and liberty of the parties to settle on the terms and conditions of their choice is the foundation of contract law if they do not contravene any laws, morals, or societal norms. A legitimate agreement requires both consent and consideration. The court emphasized that Puerto Rico accepts implicit or tacit permission for contracts and that the critical component of determining implied consent is the person’s actions.

Because governmental agencies have opposed judicial rulings, the future of mandatory arbitration clauses in employment contracts is in flux.  Continued employment is implicit consent only if the employee knows exactly what the arbitration clause dictates. Many employers hide the arbitration clause throughout a contract, consisting of multiple pages and different required portions of the agreement. To promote fairness in the workplace, DOL and EEOC’s policies should reign, and an employee should not be able to waive their right to a class action or to sue in a court when it comes to wage theft, discrimination, and violations of federal laws. Regardless of the contradicting opinions, the answers can only be found when governmental and judicial agencies come together and formulate a resolution.