Mandatory individual arbitration clauses in employee contracts and handbooks are potentially illegal according to the National Labor Relations Board. The NLRB filed a complaint against one California-based business this past week when it discovered that the employees’ employment contracts required them to give away their rights to sue the company as a condition of their employment.
The complaint, filed against 24 Hour Fitness, says that the company forces employees to give up their rights to future class litigation or arbitration of employment-related disputes (potentially including disputes involving overtime, off-the-clock work, and misclassification) through the inclusion of a binding arbitration clause. According to the NLRB complaint, 24 Hour Fitness included an arbitration clause in their handbook that requires employees to bring their work-related grievances through individual arbitration. The clause thus prevents employees from bringing claims on a class wide basis, either in court or through arbitration. If the employees wish to opt-out of individual arbitration, they have only a small opportunity to do so. Within 30 days of receiving the handbook they must contact HR and complete opt-out paperwork within that time span. The NLRB alleged that this requirement “violates protections guaranteed by the National Labor Relations Act.”
Many employees only give their employer’s employee handbooks a cursory glance before “signing on the dotted line” and agreeing to abide various terms and clauses in the handbook. Unfortunately, if employees fail to opt out of these sorts of arbitration clauses either because they failed to notice them or they miss the deadline, the clauses may be legally binding and employees may be left with only the unappealing option of challenging their employer’s practices through costly individual arbitration. In many instances the costs of pursuing arbitration on your own may outweigh any potential recovery an employee might receive. As a result, many employees will choose not to go through the time and cost of individual arbitration, allowing the employer to continue practices that may violate state labor laws and the Fair Labor Standards Act (FLSA) without having the legality of those practices addressed by a court.
The complaint against 24 Hour Fitness is just the latest in a series of complaints filed against employers who are trying to limit or restrict the legal rights of their employees through the use of individual arbitration clauses. In January of this year, in a different case called D.R. Horton, Inc. the NLRB also struck down an employer’s use of individual arbitration clauses because these agreements restrict the employees’ rights to engage in “concerted action for mutual aid or protection.” In other words, the NLRB determined that individual arbitration clauses in employment contracts prevent the employees from coming together to protect their rights in the workplace. For example, in the case of 24 Hour Fitness, the clause has allowed the company to attempt to move class action lawsuits filed against it into individual arbitration in seven different instances.
While the NLRB didn’t decide whether 24 Hour Fitness had violated any existing employment laws or whether the employees will ultimately prevail, it’s clear that the NLRB is taking a more active interest in how arbitration clauses affect employees and their rights.
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