Puerto Rico Employment Arbitration Law 2026, Act No. 37‑2025 Practical Guide for Employers, HR & Unions

Puerto Rico employment arbitration law 2026 is being reshaped by two statutes signed in July 2025, Act No. 37‑2025 (which amends the rules governing arbitration of employment disputes) and Act No. 26‑2025 (which introduces hiring‑preference obligations). A January 2026 Puerto Rico Supreme Court ruling has since confirmed that private employment arbitration clauses can compel arbitration of discrimination claims under Act 100 when the Federal Arbitration Act (FAA) applies. Together, these developments require every employer, HR department and union operating on the island to revisit existing contracts, handbooks and collective bargaining agreements before the next round of renewals and audits.

Key takeaways

• Arbitration clauses remain enforceable, but Act No. 37‑2025 adds new procedural safeguards, disclosure duties for arbitrators and consent requirements that existing clause language may not satisfy.
• Act 100 discrimination claims can be sent to arbitration, the Puerto Rico Supreme Court confirmed this in early 2026 where the FAA governs the agreement.
• Public‑sector employers face additional complexity, Act No. 26‑2025 hiring preferences and public‑policy carveouts may limit the scope of arbitrable disputes.
• Collective bargaining agreements need renegotiation, unilateral insertion of new arbitration language into an existing CBA carries serious legal risk.
• Immediate action is required, employers should audit every arbitration clause and dispute‑resolution policy now to confirm compliance with the 2025 statutory amendments and the court’s 2026 guidance.

Executive Summary, What Employers Must Do Now

Act No. 37‑2025, signed in July 2025, amends the procedural and substantive framework for employment arbitration in Puerto Rico. It builds on the broader Arbitration Act of 2024 (Act 147‑2024), which took effect on February 5, 2025, and modernised the island’s general arbitration regime. At the same time, Act No. 26‑2025 introduced hiring‑preference requirements that affect public‑sector and government‑contract employers. The practical effect is that dispute‑resolution language drafted before mid‑2025 is almost certainly out of date.

Employers, in‑house counsel, HR directors and union negotiators should take the following immediate steps:

• Conduct a full contract audit. Identify every employment agreement, offer letter and handbook that contains an arbitration clause and flag language that does not reflect the Act No. 37‑2025 procedural requirements.
• Review all active collective bargaining agreements. Determine whether grievance and arbitration provisions align with the new statutory framework and schedule discussion with union counterparts.
• Confirm FAA applicability. Analyse whether each arbitration agreement involves interstate commerce, if so, the FAA governs, strengthening enforceability as confirmed by the Puerto Rico Supreme Court.
• Update employee notice and consent procedures. Ensure that new and existing employees receive clear written disclosure about the arbitration process, their rights and any waiver of judicial forums.
• Engage local employment counsel. Given the interplay between local statute, federal law and fresh case law, a jurisdiction‑specific legal review is essential before rolling out updated clauses. The Global Law Experts lawyer directory connects employers with qualified Puerto Rico labour practitioners.

Background and Legislative Timeline

Understanding Puerto Rico employment arbitration law 2026 requires context on three overlapping legislative events. The timeline below summarises the key milestones.

Act 147‑2024 established the structural foundation, consolidating scattered provisions, clarifying the relationship between local arbitration law and the FAA, and setting baseline procedural requirements. Act No. 37‑2025 then layered employment‑specific safeguards on top of that foundation, ensuring that the power imbalance inherent in employer‑drafted arbitration clauses is partially offset by enhanced disclosure and consent rules.

What Act No. 37‑2025 Changes About Employment Arbitration

Act No. 37‑2025 does not abolish or prohibit employment arbitration. Instead, it regulates the conditions under which arbitration agreements in the employment context are formed, administered and enforced. The core changes fall into four categories.

Territorial Scope and Retroactivity

The Act applies to all employment relationships governed by Puerto Rico law. Industry observers expect courts to interpret the statute as applying prospectively to agreements executed or renewed after its effective date, although existing agreements that meet the new requirements are unlikely to face challenge solely on timing grounds. Where an employment agreement explicitly invokes the FAA, and the underlying relationship involves interstate commerce, the FAA continues to preempt any conflicting local restriction, as the U.S. Supreme Court established in AT&T Mobility LLC v. Concepcion and reinforced in Epic Systems Corp. v. Lewis.

Key Procedural Changes Affecting Employment Disputes

• Written consent and plain‑language disclosure. Employers must provide employees with a clear, written explanation, in the employee’s preferred language, of what rights are being waived, the arbitration process and available remedies before the employee signs an arbitration agreement.
• Arbitrator disclosure requirements. Arbitrators must disclose any financial or professional relationship with either party, prior service as arbitrator for the same employer and any other conflict of interest. Failure to disclose is a ground for vacating an award.
• Confidentiality provisions. The Act introduces default confidentiality for arbitration proceedings unless waived by both parties or overridden by law. However, employees retain the right to discuss their claims with governmental agencies and legal counsel.
• Preservation of non‑waivable statutory rights. Certain employment protections, including minimum‑wage and overtime entitlements, cannot be waived through an arbitration agreement. The arbitration clause may direct the forum, but it may not reduce the substantive remedy.
• Costs and fees allocation. Act No. 37‑2025 requires employers to bear the arbitration administrative costs and arbitrator fees beyond what an employee would have paid as court filing fees, preventing cost‑based deterrence of claims.

The likely practical effect of these provisions is that employers must overhaul template arbitration clauses. Language that was acceptable under the pre‑2025 regime, broad, boilerplate clauses buried in onboarding packets, will face heightened scrutiny and may be voided if the disclosure and consent requirements are not met.

Recent Case Law and Enforcement Signals, Early 2026 Rulings

The most significant judicial development for employment arbitration in Puerto Rico 2026 arrived on January 27, 2026, when the Puerto Rico Supreme Court issued its opinion in the Money Group, LLC matter involving Kendall Hope Tucker.

The decision resolves a long‑standing uncertainty. Before this ruling, lower courts and practitioners were divided on whether Puerto Rico’s strong public‑policy protections against workplace discrimination rendered Act 100 claims non‑arbitrable. The Supreme Court’s answer is clear: the forum may be arbitration, provided the employee’s substantive rights under Act 100 are fully preserved.

Early indications suggest that employers are moving quickly to enforce existing arbitration agreements. Practitioner commentary from Jackson Lewis and Littler Mendelson highlights that the ruling incentivises employers to ensure their arbitration clauses are properly drafted and consented to, because a procedurally deficient clause will still fail, even if the underlying claim is otherwise arbitrable.

Interaction with Act No. 26‑2025 and Public‑Sector Implications

Act No. 26‑2025, signed alongside Act No. 37‑2025 in July 2025, creates hiring‑preference obligations primarily affecting public‑sector employers and entities that operate under government contracts. While its primary focus is workforce composition rather than dispute resolution, it interacts with the arbitration framework in important ways.

Public Sector Versus Private Sector Practical Differences

Public employers in Puerto Rico face constraints that private employers do not. Certain government employees hold statutory or constitutional protections, including due process rights in disciplinary proceedings, that may be considered non‑waivable. The likely practical effect of the combined statutes is that public‑sector arbitration clauses will require more carefully circumscribed language, expressly preserving rights that cannot be channelled into a private forum.

Act No. 26‑2025’s hiring preferences also raise the prospect of disputes about whether a hiring decision complied with the statutory preferences. Industry observers expect these disputes to be litigated initially in administrative and judicial forums rather than through arbitration, unless the employment contract or CBA specifically includes preference‑related disputes within the arbitration clause’s scope. Employers that receive government contracts should review whether their arbitration clauses inadvertently cover, or exclude, preference‑compliance disputes.

Private employers are not directly affected by Act No. 26‑2025’s preference requirements. However, private companies that subcontract to the government or participate in public procurement should confirm whether their contracts incorporate government‑style employment terms that could trigger preference obligations indirectly.

Practical Steps for Employers and HR, 10‑Point Compliance Checklist

Updating employment contracts in Puerto Rico after Act No. 37‑2025 requires a structured approach. The following ten‑point HR compliance checklist, designed for Puerto Rico 2026, assigns specific tasks to responsible parties with indicative deadlines.

Contract and Clause Audit

1. Inventory all arbitration clauses. Compile every employment agreement, offer letter, employee handbook provision and standalone arbitration agreement that references dispute resolution. Owner: Legal / HR. Deadline: 30 days.
2. Classify by FAA applicability. For each agreement, determine whether the employee’s role involves interstate commerce. Document the analysis. Owner: Legal. Deadline: 45 days.
3. Identify non‑compliant language. Flag clauses that lack plain‑language disclosure, fail to address cost allocation or contain prohibited waivers of non‑waivable rights. Owner: Legal. Deadline: 60 days.

Handbook and Policy Updates

4. Revise employee handbooks. Update dispute‑resolution sections to reflect the Act No. 37‑2025 consent and disclosure process. Owner: HR / Legal. Deadline: 90 days.
5. Create a model notice form. Draft a standalone disclosure document in English and Spanish that explains the arbitration process, the employee’s rights and what is being waived. Owner: Legal. Deadline: 60 days.

Employee Notice and Consent Strategy

6. Roll out revised clauses to new hires. Integrate the updated arbitration agreement and notice form into the onboarding workflow. Owner: HR. Deadline: 90 days.
7. Address existing employees. Determine whether existing arbitration agreements need to be re‑executed. Where they do, prepare a re‑signing campaign with adequate consideration. Owner: Legal / HR. Deadline: 120 days.

Training and Dispute Resolution Flowcharts

8. Train managers and supervisors. Brief front‑line managers on the new requirements so they do not inadvertently misrepresent the arbitration process to employees. Owner: HR / Training. Deadline: 90 days.
9. Build an internal dispute‑resolution flowchart. Map the path from informal complaint through internal grievance to formal arbitration, including deadlines and escalation triggers. Owner: Legal / Compliance. Deadline: 120 days.
10. Engage external counsel for audit sign‑off. Have a Puerto Rico employment lawyer review the updated suite of documents before distribution. Owner: General Counsel. Deadline: 60 days.

The table below summarises employer obligations under Puerto Rico labour law by entity type and the immediate action required.

Collective Bargaining and Union Considerations

Collective bargaining arbitration in Puerto Rico occupies a unique space because the grievance‑arbitration procedures embedded in CBAs are the product of bilateral negotiation, not unilateral employer drafting. Act No. 37‑2025 does not override this principle. An employer that attempts to insert new arbitration clauses into an existing CBA without bargaining commits an unfair labour practice under principles analogous to those enforced by the National Labor Relations Board on the mainland.

Unions and employers approaching CBA renewal in 2026 should address the following negotiation points:

• Scope of arbitrable disputes. Clarify whether the CBA’s grievance procedure covers statutory claims (e.g., Act 100 discrimination) in addition to contractual grievances. The Money Group decision makes this question critical.
• Arbitrator selection and disclosure. Align the CBA’s arbitrator‑selection mechanism with Act No. 37‑2025’s disclosure requirements to avoid challenges to awards.
• Cost allocation. Specify who pays arbitration costs. While Act No. 37‑2025 imposes cost‑allocation rules for individual employment agreements, the parties to a CBA have greater flexibility to negotiate their own terms, provided the arrangement does not effectively deter meritorious claims.
• Class and collective action waivers. Exercise extreme caution with waivers of class or collective action rights in the CBA context. The intersection of labour‑law protections for concerted activity and federal arbitration jurisprudence creates litigation risk on both sides.
• Retroactivity. Address whether the updated arbitration provisions apply to disputes that arose before the new CBA’s effective date.

Sample CBA arbitration clause language:

“All grievances arising under this Agreement, including but not limited to claims of statutory employment discrimination, shall be resolved through binding arbitration administered under the rules of [named institution]. The arbitrator shall be selected from a panel of three neutrals provided by [institution], with each party striking one name. The arbitrator shall make the disclosures required by the Puerto Rico Arbitration Act (Act 147‑2024) and Act No. 37‑2025. Arbitration costs and arbitrator fees shall be borne equally by the Employer and the Union, except that individual grievants shall not be required to pay any amount exceeding the applicable court filing fee.”

Drafting and Updating Arbitration Clauses, Redlines and Sample Language

Existing arbitration clauses in Puerto Rico employment contracts will need targeted redlining to satisfy Act No. 37‑2025. Below are two illustrative before‑and‑after comparisons: one for individual employment agreements and one for model notice language.

Individual Employment Agreement, Arbitration Clause Redline

Model Employee Notice, Key Elements

A compliant notice form should include, at minimum:

• Description of the arbitration process, how the arbitrator is selected, where proceedings occur and the applicable rules.
• Rights being waived, the right to file suit in court, the right to a jury trial and (if applicable) the right to participate in class or collective actions.
• Rights preserved, the right to file charges with government agencies, the right to all substantive statutory remedies and the right to consult legal counsel.
• Cost allocation, confirmation that the employer covers arbitration costs beyond normal court filing fees.
• Voluntary acknowledgment signature block, a separate, dated signature line (not embedded in the offer letter) confirming the employee has read, understood and agreed.

For arbitration clauses in Puerto Rico to remain enforceable, the updated language must address every element that Act No. 37‑2025 requires. Omitting a single disclosure element creates a vulnerability that an employee’s counsel will exploit in a motion to compel litigation rather than arbitration.

Implementation Timeline and Sample Project Plan

Sample internal communication (email template):

Subject: Updated Dispute Resolution Policy, Action Required

Dear [Employee Name],

As part of our commitment to fair and transparent workplace practices, we have updated our dispute resolution procedures to comply with recent changes to Puerto Rico employment law. Attached you will find: (1) a revised Arbitration Agreement; and (2) a Disclosure Notice explaining the arbitration process, your rights and cost arrangements. Please review both documents carefully. You are encouraged to consult with an attorney before signing. Return the signed acknowledgment to HR by [Date]. If you have questions, please contact [HR Contact].

Conclusion and Next Steps

Puerto Rico employment arbitration law 2026 demands immediate attention from every stakeholder in the employment relationship. The combined force of Act No. 37‑2025’s procedural safeguards, Act No. 26‑2025’s public‑sector hiring preferences and the Puerto Rico Supreme Court’s January 2026 confirmation that Act 100 claims are arbitrable creates both opportunity and risk. Employers that move quickly to audit, redline and redistribute compliant arbitration clauses will strengthen their dispute‑resolution framework. Those that delay face the prospect of unenforceable agreements, costly litigation and regulatory scrutiny. Whether you are an employer, an HR director or a union representative, the time to act on employment arbitration in Puerto Rico 2026 is now.

Sources

1. Jackson Lewis, “PR Act 100 Discrimination Claims: Puerto Rico SC Confirms Compulsory Arbitration”
2. Littler Mendelson, Puerto Rico Supreme Court Enforces Private Employment Arbitration Clauses
3. McConnell Valdés, Puerto Rico’s New Arbitration Act
4. Chambers & Partners, Litigation 2026: Puerto Rico Trends and Developments
5. JD Supra, Puerto Rico Governor Signs Two New Acts
6. U.S. Supreme Court, Federal Arbitration Act Precedent