Following a recent trend of court decisions upholding broad application and enforceability of arbitration agreements, the Massachusetts Supreme Judicial Court has held that Wage Act claims may be subject to arbitration if agreed to by the employer and employee through a binding mandatory arbitration agreement. In so doing, the SJC noted that Massachusetts courts generally permit arbitration agreements that shorten the statute of limitations period to raise a claim. Specifically, the SJC held that the arbitration agreement’s clause shortening the three year limitations period within which an employee could raise a claim under the Wage to one year or eighteen months was not unreasonable or unconscionable.
As an arbitration agreement can be viewed as a waiver of the rights to raise claims through the courts, in order to be enforceable in the wage and employment context, the arbitration agreement must be very and understandable to the employee. And while not necessarily required for enforcement, the employer should consider including specific reference to Wage Act, and other specific laws and matters intended to be covered by the arbitration agreement.
As arbitration can offer a more efficient and affordable alternative to court proceedings, particularly if coupled with an agreement to shorten the limitations periods for claims, mandatory arbitration agreement may present a beneficial risk management option for employers. However, such agreements do not alter the employer’s responsibility to comply with its Wage Act obligations. It is important to note that an arbitration agreement would not limit the statutory penalties under the Massachusetts Wage Act, namely mandatory treble damages, costs and attorney fees, that an prevailing employee is entitled when a violation of the law is determined.
Please note that the arbitration agreements should be carefully tailored and reviewed for the specific circumstances and practices of your business. Should you require assistance or would like more information, please do not hesitate to contact us.