Arbitration Agreements Are A Must

It is well known that the plaintiff’s bar in New York, Connecticut and elsewhere continues to pursue claims arising under the Fair Labor Standards Act and parallel state law with great enthusiasm. To cite a few examples of these claims, workers may argue that they worked over 40 hours per week but were not paid an overtime rate for that work. Or New York workers may argue that their start and finish time extended longer than 10 hours and were therefore owed spread-of-hour wages that they did not receive. Or workers may argue that they were misclassified as salaried, exempt employees when they were not in fact and therefore all hours worked over 40 hours per week should have been paid at an overtime rate. Faced with these sorts of claims, employers are likely to feel very threatened because damages can become outsized very quickly. The statute of limitations under New York Labor Law relates back six years. The statute of limitations for Connecticut wage claims relates back two years. Further, any monies owed could be subject to what is called liquidated damages, which operates as a penalty equivalent to 100% of the money allegedly owed under most scenarios. In New York, an employer might be subject to double liquidated damages, as many courts have ruled that a violation of wage and hour provisions entitles the plaintiff to liquidated damages under both federal and New York State labor laws. To this threat of outsized liability, add the fact that employers, especially smaller companies, do not staff full-time Human Resources departments, which means that often employers do not maintain sophisticated records to support their contention that they paid their employees properly and the correct amount. If an employer is hit with a misclassification claim, there would be no record of overtime hours worked because the employer would have operated under the assumption that there was no need to track such hours. Therefore, employers with imperfect or no records are confronted with a classic “he said, she said,” scenario, with a presumption that operates in favor of the employee. In short, wage and hour claims are a nightmare for employers and their management teams who might find themselves personally liable for any wages owed.

All of which begs the question, why don’t more employers implement arbitration agreements with respect to employees’ or ex-employees’ claims against them? It is a simple and elegant solution to the continued drumbeat of FLSA, NYLL and Connecticut labor law claims that continue to be brought against employers. By way of example, New York employers can distribute to their employees an arbitration agreement that is memorialized in writing and that is stand alone, i.e., not a part of an employee manual. Or, New York employers can incorporate an arbitration requirement into an employment manual that already exists or that is being introduced for the first time. In most instances, all that the employer needs to do is to reduce the arbitration requirement to writing in one form or another. If the employee continues to work for the employer after being made aware of the arbitration requirement, then the requirement to arbitrate is enforceable. In Connecticut, courts are a bit more suspicious of arbitration requirements implemented in the workplace. They appear to look for clear indications that employees agreed to the arbitration requirement as a condition of their employment. In New York, employers will nonetheless want to guard against factual disputes as to whether each employee was made aware of the arbitration agreement and/or requirement by having each employee sign an acknowledgment of having received the agreement or the manual of which it is a part. While this is not strictly necessary it may spare a New York employer any litigation as to whether a specific employee was made aware of the agreement/requirement to arbitrate. In Connecticut, because of courts’ suspicions of arbitration requirements employers need to implement them with much more care. At the risk of sounding like I am drumming up business, Connecticut employers wishing to implement an arbitration requirement should consult with an attorney.

While an enforceable arbitration agreement/requirement may not discourage all attorneys from representing employees with alleged FLSA and state labor claims, it is likely to discourage quite a few. Further, arbitration agreements/requirements can also include a provision that requires the arbitration of class and collective actions, both of which can get expensive awfully quick.

So employers – consider including arbitration agreements/requirements in your employment manual or as stand-alone agreements with your employees. Just make sure you note that the agreement does not affect the otherwise “at will” status of your employees.

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