Puerto Rico Supreme Court Holds Arbitration Clauses in Employment Contracts—Including Those Governing Unjust Dismissal Claims—are Valid and Enforceable

The Puerto Rico Supreme Court (PRSC) recently issued a judgment in José Méndez et al v. Carso Construction, 2019 TSPR 99 (May 22, 2019), validating an arbitration clause that covers a claim under the Puerto Rico Unjust Dismissal statute, Local Act No. 80 of May 30, 1976 (Act 80).  The effect of the PRSC’s holding is that an arbitrator will have original jurisdiction to hear unjust dismissal disputes if the contract between the employer and the employee or contractor includes a valid arbitration clause.  

The plaintiffs executed contracts that contained the following arbitration clause:

Any dispute about the interpretation, validity, compliance or termination of this Contract that have not been resolved by the parties, should be submitted to compulsory arbitration in the city of San Juan, Puerto Rico, in accordance with the rules of the American Arbitration Association. The costs of arbitration, including the arbitrator’s fees, will be paid in equal parts by the Contractor and [defendant]. Each party will pay their own attorney’s fees and the costs associated to the preparation and presentation of evidence.1

Following their terminations, the plaintiffs bypassed the arbitration clause and filed an unjust dismissal suit pursuant to Act 80 before the Puerto Rico Court of First Instance (CFI). The CFI dismissed the plaintiffs’ claims on summary judgment, holding that it lacked jurisdiction due to the arbitration clauses. The plaintiffs appealed, and the appellate court reversed the CFI’s judgment.   

The case made its way to the PRSC, which answered in the affirmative whether compulsory arbitration clauses apply to unjust dismissal claims brought under Act 80. The plurality opinion issued by Justice Martinez Torres acknowledged the application of the principles of freedom of contract and accorded weight to the recognized liberty of the parties to agree to the clauses and conditions they deem convenient, as long as they do not contravene the law, moral and public order. If the arbitration clause is sufficiently broad, the PRSC held, arbitrators will have the authority to hear practically all types of controversies, including those related to the validity of the contract of which the arbitration clause is a part.2

The PRSC decision clears the way for employers to submit to arbitration disputes of unjust dismissal under Act 80. The language of the arbitration clause will be decisive when ascertaining which disputes will be arbitrable. As such, it is recommended that employers review their arbitration clauses in light of the PRSC decision.

See Footnotes

1 See 2019 TSPR at 3.

2 In a dissent, joined by three other justices, Justice Luis Estrella noted that plaintiffs’ consent to the arbitration clause was questionable because it amounted to a contract of adhesion.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.