By: Ryan C. Higgins and Ashley A. Holtzman
It is common for employers to include arbitration agreements in employee handbooks and contracts. In general, arbitration agreements are enforceable and require employees to arbitrate most claims against employers instead of filing a lawsuit in state or federal court.
Arbitration agreements usually identify the location for the arbitration proceeding and may also dictate the law that will govern the employee’s claims. These are commonly referred to as “choice of forum” and “choice of law” provisions. More sophisticated arbitration agreements will incorporate the provisions of the Federal Arbitration Act (“FAA”) into the agreement so that the FAA will apply to the arbitration between the employee and employer.
Impact on Louisiana Wage Claims
Arbitration agreements impact almost all claims employees have against employers, including wage claims brought under state law. This article focuses on the specific issues that arbitration agreements create for employees with wage claims in Louisiana. In addition to the expenses associated with the arbitration process, arbitration may deprive employees of certain procedural rights they usually enjoy under the provisions of the Louisiana Wage Payment Act, La. R.S. 23:631, et seq. (the “LWPA”).
The LWPA allows employees to file a “summary proceeding” to recover unpaid wages. Unlike ordinary proceedings, summary proceedings are conducted with rapidity and allow the employee to have a hearing or trial set immediately upon filing a lawsuit in court.
If the employee agrees to arbitrate the wage claim and is unable to file an action in state or federal court, the employee will not be able to obtain a summary proceeding. Instead, the employee will be required to arbitrate his or her wage claim and will be subject to the deadlines and hearing dates determined by the parties and the arbitrator. As a result, it may take longer to obtain an award for the wages owed to the employee.
Choice of Law and Choice of Forum
In addition to the delays that may be experienced with arbitration, employees may also find themselves litigating the substantive law that applies to their wage claims. A dispute regarding the applicable law may occur even if the employee lives and works in Louisiana. The prevalence of remote work and transient workers has made choice of law disputes more common in the employment context. A choice of law provision in the context of a wage claim is significant for at least two reasons.
First, the LWPA provides that an employer who fails to pay the wages owed after receiving a demand from the employee is liable to the employee either for 90 days wages at the employee’s
daily rate of pay, or else for full wages from the time the employee’s demand for payment is made until the employer pays or tenders the amount of unpaid wages due to such employee, whichever is the lesser amount of penalty wages. The penalty wages will be imposed unless the employer can establish a “good faith defense.” Furthermore, the employer is liable for the employee’s reasonable attorney fees in the event a well-founded suit for any unpaid wages is filed by the employee. If Louisiana law does not apply to the wage claim, the employee may not be able to recover penalty wages or attorney fees and the value of the claim is significantly reduced. It may even be difficult to find counsel willing to take on the claim.
Second, if the choice of forum provision in the arbitration agreement is valid, the employee may have to arbitrate the claims in another jurisdiction or state outside of Louisiana. Among other things, this could require the employee to have to retain counsel located or licensed in another state. Attorneys in other states, such as California or New York, typically charge higher rates than Louisiana attorneys. It may also require the employee to travel to another state for the arbitration hearing and bear the expense of the travel.
FAA Preemption
Under Louisiana law, choice of forum and choice of law provisions in an employee’s contract are null and void, unless agreed to and ratified by the employee after the occurrence of the incident which is the subject of the civil or administrative action. See La. R.S. 23:921(A)(2). Thus, employees have argued in Louisiana courts that La. R.S. 23:921(A)(2) invalidates arbitration agreements with Louisiana employees because the arbitration provision constitutes a “choice of forum” provision. While this appears on its face to be sound argument, it has failed when the arbitration agreement incorporates the FAA. Courts have found that the FAA, a federal law, preempts or controls over the Louisiana state statutes restricting the use of contractual forum selection clauses, and does not render the arbitration agreement null and void.
Key Takeaways
- Arbitration significantly impacts claims under the LWPA by potentially increasing litigation expenses and depriving employees of procedural advantages like the expedited summary proceedings available in state court.
- Arbitration agreements may include “choice of law” provisions preventing Louisiana law from applying to the claim, thus precluding an award of penalty wages and attorney fees.
- Although Louisiana law typically invalidates choice of law and forum provisions in employment contracts, some courts have found that the FAA preempts state law, making arbitration agreements incorporating the FAA enforceable as written. Consequently, Louisiana employees may even be required to arbitrate their wage claims in another jurisdiction.
Recent Comments