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Beware the Dangers of Arbitration Clauses in Employment Contracts

Beware the Dangers of Arbitration Clauses in Employment Contracts

It is always critical to read any employment agreement before signing it. While you might dismiss employment contracts as boilerplate legal jargon, such documents often contain language that affects your substantive legal rights. Employers know they are in a superior bargaining position, so they often draft employment agreements that are stacked against the employee.

NY Judge Enforces Agreement That Employee Could Not Read

If you think that a judge will refuse to enforce an employment agreement just because it is egregious or unfair, think again. Even though federal and New York laws protect a number of worker rights, it is all too easy to circumvent these protections using a carefully written employment agreement.

Here is one illustration of that sad truth from a recent case in New York City. The plaintiff works at a Chinese restaurant. He cannot read English-language test. Nevertheless, his employer asked him to sign an employment agreement written entirely in English.

The agreement contained a mandatory arbitrary provision. This means that in the event of a dispute arising from the employment relationship, the case must be heard by an arbitrator rather than a court. Employers often favor arbitration because any decisions are kept private and are nearly impossible to appeal. Arbitration also generally offers fewer due process protections for employees, who lose their right to have a case heard by a jury.

Sometime after signing his employment agreement, the employee here sued his employer for failing to pay him overtime wages, as required by New York and federal law. The employer quickly moved to stay (suspend) the lawsuit and refer the matter to arbitration, citing the terms of the employee agreement. The employee, in turn, argued the agreement was invalid since he could not read or understand its terms when he signed it.

Common sense might tell you the employee has a point, but the law does not always reflect common sense. A federal judge in Manhattan upheld the agreement and said the employee would have to present his overtime claims to an arbitrator. She said the employee failed to prove his signature on the employment agreement was the product of fraud or duress. To the contrary, the judge said the employer offered the employee the chance to ask him any questions about the terms of the agreement. He chose not to do so. The judge therefore concluded that, “Where, as here, Plaintiff failed to undertake further inquiry into the document that he signed, the Court cannot find that Plaintiff was fraudulently induced into signing the Agreement.”

The judge further said the arbitration requirement was retroactive. Although the employee did not sign the employment agreement until he had been working at the restaurant for several months, the arbitration provision states that it applies to any employment-related dispute “regardless of when the Claims arose.” In other words, all of the employee's demands for overtime pay must be decided by the arbitrator.

Get Help From a Long Island Employment Attorney

New York employers frequently manipulate employees into signing employment agreements containing these types of arbitration clauses. You need to be smarter then that. You should never sign any employment contract without reading and understanding every term that may affect your rights. If you have any questions, you should speak with an experienced New York employment law attorney, who will look out for your best interests. Contact the Law Offices of Mahir S. Nisar today in New York City and Long Island if you need help with a wage or overtime dispute today.

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