NJ Employers May Need to Revisit Arbitration Clauses Following Appellate Division Ruling

On January 7, 2016, the New Jersey Appellate Division found that an arbitration provision contained in an Employee Handbook was unenforceable. This decision is of critical importance to New Jersey employers when it comes to reviewing their own arbitration agreements and Employee Handbook disclaimers.

In Morgan v. Raymours Furniture Company, Inc. et al., plaintiff-employee alleged that in response to a complaint of age discrimination, he was given an ultimatum by the defendant-company, sign an arbitration agreement or be terminated. Plaintiff-employee refused to sign the arbitration agreement and was subsequently terminated. Plaintiff-employee sued alleging violation of the New Jersey Law Against Discrimination (“LAD”), wrongful termination, and other similar claims.  Despite plaintiff-employee’s refusal to sign the arbitration agreement, defendant-company moved to compel arbitration on the basis of Employee Arbitration Program contained in the company’s Employee Handbook.  The at-will disclaimer contained in the company’s Employee Handbook, however, stated in pertinent part: “Nothing in this Handbook or any other Company practice or communication . . . creates a promise of continued employment, [an] employment contract, term or obligation of any kind on the part of the Company.”  Relying on the disclaimer language, the trial court denied the defendant-company’s motion to compel arbitration.

On appeal, the Appellate Division affirmed finding that despite plaintiff-employee  acknowledging receipt of the Employee Handbook and the Employee Arbitration Program contained in the Handbook in August 2011, February 2012 and April 2013, the acknowledgements only signify that the employee received a copy of the Employee Handbook, not that he or she necessarily read and/or understood the contents. Relying on the New Jersey Supreme Court’s 1985 decision in Woolley v. Hoffman-LaRoche, Inc., the Appellate Division also reiterated that a disclaimer advising an employee that the Employee Handbook does not create a contract of employment will prohibit an employer from enforcing an arbitration provision contained in the same handbook. The Appellate Division found that it would be inequitable for an employer to claim certain policies contained in an Employee Handbook are binding contracts while others are not. The Appellate Division found that the purported waiver of plaintiff-employee’s right to sue, clearly conveyed that its “rules, regulations, procedures and benefits . . . are not promissory or contractual in nature and are subject to change by the company.”  Thus, the Appellate Division agreed with the trial court that the plaintiff-employee did not clearly and unambiguously waive his right to sue defendant-employer in court.

This decision makes clear that a court will not enforce an arbitration provision when the Employee Handbook includes an at-will disclaimer.  Given this decision, employers should carefully check their Employee Handbook to ensure that arbitration agreements are not contained therein. Employers who seek to arbitrate claims and disputes with their employees arising from employment must utilize a separate, stand-alone arbitration agreement which employee’s must separately sign and acknowledge receipt.

For more information regarding this decision and how your company can craft binding and effective arbitration agreements and Employee Handbook disclaimers, please contact Dina M. Mastellone, Esq., Director of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com or 973-533-0777.

New Jersey Interest Arbitration Reform: Are You Prepared For Your Next Round of Negotiations?

New Jersey public employers are currently feeling the effects of Arbitration Reform Bill P.L. 2010 c.105 (“the legislation”), which applies to any collective negotiations agreement (“agreement”) expiring on or after January 1, 2011 to March 31, 2014. This legislation sunsets on April 1, 2014. But in the meantime, the legislation greatly impacts the role of arbitration in police and firefighter contract negotiations by establishing a 2 percent cap on the aggregate increase in “base salary” that can be provided to public employees in an interest arbitration award. The legislation’s 2 percent cap prohibits an arbitrator from issuing an award that, on an annual basis, increases “base salary” by more than 2 percent of the aggregate amount expended by the employer on “base salary” items for the members of the union in the 12 months immediately preceding expiration of the agreement. An arbitrator can distribute the aggregate monetary value over the term of the agreement in unequal annual percentages.

In negotiations and during interest arbitration, disputes often arise as to what qualifies as “base salary” and “non-salary economic issues”. The legislation provides that the 2 percent cap applies to all “base salary” items, such as step increment payments, longevity and cost of living increases. The legislation specifically prohibits an arbitrator from issuing an award that addresses “non-salary economic issues” unless already included in the existing contract. “Non-salary economic issues” encompass paid time off, pension costs, and health /medical insurance costs. The legislation’s exclusion of “non-salary economic issues” from an award is particularly important because it restricts an arbitrator’s ability to create new cost items in successor contracts.

There is currently no case law to provide further guidance on the legislation’s distinction between “base salary” and “non-salary economic issues,” but we will provide updates on any new developments.

Should you need assistance or have any questions regarding interpretation or implementation of the legislation, please contact Joseph Hannon, Esq. or Phillip Rofsky, Esq. in our Labor Law Group.