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Can your employment agreement require individual arbitration?

Found in the fine print of a contract that you probably signed shortly before you started work or on your first day, could be an arbitration clause. These have recently proliferated.

In the employment context, collective actions have long allowed you and co-workers to band together when the individual amounts are small in wage and hour claims. Failing to pay for prep work before you punch the clock might only amount to a couple thousand dollars for you. Combine your case with 100s of others who also completed off-the-clock work and you get your employer’s attention. But an arbitration clause requires you to resolve employment issues individually.

Arbitration clauses: Why are they in the interest of an employer?

The short answer is that they can reduce litigation expenses. The scope is impressive and these clauses are a part of employment agreements covering 25 million people across the country.

The validity of these arbitration clauses was the issue on the first day of the U.S. Supreme Court’s new term. Two federal laws conflict – the National Labor Relations Act (NLRA) and the Federal Arbitration Act (FAA). The first arose out of the New Deal era and gives employees the right to “concerted activities” design to achieve “mutual aid or protection,” collective actions. The second came into effect in the 1920s and it says arbitration agreements “shall be valid, irrevocable and enforceable.”

Justice Ruth Bader Ginsburg pointed out that in one of the consolidated cases; the employee’s claim was worth $1,800 – the costs of arbitration outweighed the individual claim. She suggested that the NLRA corrected the imbalance between employers and employees by allowing employees to band together in bringing claims.

An interesting line of questioning by the chief judge included a hypothetical about the validity of an arbitration agreement requiring an arbitration forum that allowed collective arbitration when at least 50 employees joined the arbitration. This might not violate the NLRA, but it is probably not common.

Pro-Arbitration Court

The court in recent years has favored arbitration. A ruling for the employers does not mean wage and hour cases would no longer be enforced.

The Department of Labor or Michigan’s Department of Licensing and Regulatory Affairs (LARA) Wage and Hour Division could still pursue wage law violators. Employees covered by arbitration clauses could also bring their claims individually – these would probably only be in the more egregious cases.

Collective actions, however, accounted for $467 million in wage law violations in 2013. This was much more than the federal or state agencies collected through enforcement actions. Depending on how the court rules, it could become more difficult to fight wage and hour violations.

At Nacht Law, we stand up against injustice and inequality in the workplace. If you are concerned you have not been paid fairly, seek legal advice from one of our experienced employment law attorneys. There will remain avenues to seek relief when an employer acts unfairly regardless of how the high court rules.

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