Can New Jersey Courts Reach a “Meeting of the Minds” With the Federal Arbitration Act?

Three recent decisions in New Jersey shed new light on the ongoing tension between the Federal Arbitration Act (“FAA”) and the standard of review utilized by the New Jersey courts concerning the enforceability of arbitration agreements.  Congress passed the FAA almost a century ago to address the hostility courts had towards private arbitration and put arbitration agreements “on equal footing” with other contracts.  In New Jersey, however, courts have been reaching decisions that appear to be at odds with the FAA and are increasing their focus on “mutual assent” – whether or not parties have reached a “meeting of the minds.”

Can Mutual Assent Be Found in an Email?

          Two recent decisions by the United States District Court for the District of New Jersey, Schmell v. Morgan Stanley & Co., Inc. and AT&T Mobility Services LLC v. Jean-Baptiste, address mutual assent where the company’s arbitration agreement was presented to employees by email.

Facts in Schmell

Mr. Schmell was employed as a Senior Vice President with Morgan Stanley from January 2006, until his termination in October 2017.  Schmell filed a complaint in the Superior Court of New Jersey, Monmouth County alleging wrongful termination.  Morgan Stanley subsequently removed the case to federal court and moved to compel arbitration pursuant to its Convenient Access to Resolutions for Employees (“CARE”) Arbitration Agreement.

Morgan Stanley’s CARE Agreement was sent out to employees through their work email address.  In relevant part, the email informed employees “that the program was mandatory unless they opted out and that their continued employment without opting out constituted acceptance” of the arbitration agreement (emphasis added).  The CARE Agreement was also available on Morgan Stanley’s internal human resources portal.  Schmell continued his employment without opting out and, in opposing the motion to compel arbitration, claimed that he never read the email and did not recall reviewing it, stating that he could receive possibly hundreds of emails in a given day.

The District Court’s Decision in Schmell

In the first of three separate decisions (Schmell I), the District Court Judge found that there was an unresolved question as to whether Schmell had notice of the CARE Agreement and denied Morgan Stanley’s initial motion to compel arbitration.  In particular, the Court noted that the notice question raised a genuine issue as to whether “there was a meeting of the minds [so that Schmell] could mutually assent to the terms of the CARE program.”  In a second decision (Schmell II), the Court ordered limited discovery to address this notice question, the goal being to “properly evaluate whether there was a meeting of the minds on the agreement to arbitrate.”  In the third-and-final decision (Schmell III), the Court ruled that the limited discovery had established that Schmell did indeed have notice of the email and, consequently, the CARE Agreement.  Therefore, although Schmell failed to opt out or otherwise respond to the email, such notice, particularly that the CARE program was mandatory, combined with his continuing employment without opting out, constituted his assent to be bound by the arbitration agreement.

Facts in Jean-Baptiste

          Ms. Jean-Baptiste was employed as an Assistant Store Manager for AT&T at the time she filed her complaint in the Superior Court of New Jersey, Union County alleging gender and race discrimination in violation of the New Jersey Law Against Discrimination.  AT&T removed the case to federal court and filed a motion to compel arbitration, pursuant to an agreement that had been presented to Jean-Baptiste by email in March 2016.  The email informed Jean-Baptiste that participation in the arbitration program was optional and also established a deadline for employees to opt out of the agreement, stating “[i]f you do not opt out by the deadline, you are agreeing to the arbitration process as set forth in the Agreement.” (emphasis added). Prior to the opt-out deadline, Jean-Baptiste accessed the arbitration agreement and clicked on a button that read “Review Completed.”  In opposing AT&T’s motion to compel arbitration, Jean-Baptiste argued that she never affirmatively agreed to be bound by the arbitration agreement and that her mere silence could not be construed as her assent to the terms.

The District Court’s Decision in Jean-Baptiste

The District Court, in considering whether Jean-Baptiste’s silence constituted her assent to the arbitration agreement, applied New Jersey contract principles, particularly that the enforceability of such an agreement could only result from an “explicit, affirmative agreement that unmistakably reflects the employee’s assent.”  The Court also cited the opinion in Schmell I, that such affirmation “need not be an actual signature, but must demonstrate a willingness and intent to be bound by the arbitration provision.”

The District Court’s decision addressed the differences between Ms. Jean-Baptiste’s case and the facts in Schmell. Whereas Mr. Schmell was notified that participation in the CARE Agreement was mandatory and that his continued employment without opting out signified assent to the agreement, the email sent by AT&T to Ms. Jean-Baptiste contained no such notification.  The District Court highlighted the fact that AT&T specifically told Jean-Baptiste that the decision to participate was “entirely up to her” and that there would be “no adverse consequences” if she chose not to participate in the program.  As such, the District Court found that Jean-Baptiste’s decision to continue her employment had nothing to do with her assent (or lack thereof) to the optional arbitration program and emphasized that “the burden of obtaining affirmative acceptance . . .  rests with employers.”

Shed the Pounds and the Arbitration Provision

In Flanzman v. Jenny Craig Inc., the New Jersey Appellate Division found that an arbitration provision between weight loss company Jenny Craig and a former employee was unenforceable because the agreement failed to identify where or how the parties would arbitrate their dispute.

Facts in Flanzman

Ms. Flanzman was employed with Jenny Craig for 26 years as a weight loss counselor before she was terminated at the age of 86.  She filed a complaint in Superior Court of New Jersey, Bergen County alleging age discrimination and discriminatory discharge in violation of the New Jersey Law Against Discrimination.  Jenny Craig moved to compel arbitration pursuant to an agreement that Ms. Flanzman had signed in 2011 – 20 years after she had been hired – as a condition of her continued employment.  The problem with Jenny Craig’s arbitration agreement, however, was that it failed to specify the forum in which the parties could bring their claims.

Trial and Appellate Decisions

The trial court found that the absence of a specified arbitration forum did not render the agreement unenforceable, instead it allowed Ms. Flanzman to choose the body that would conduct the arbitration.  The Appellate Division, however, reversed this decision, holding that the parties could not have reached a “meeting of the minds” without knowing what rights would replace their right to judicial resolution of their dispute and, therefore, the agreement lacked mutual assent.  The basis for the Appellate Division’s decision was adapted from the New Jersey Supreme Court’s decision in Atalese v. United States Legal Services Group, L.P., which instructed the lower courts to “take particular care in assuring the knowing assent of both parties to arbitrate, and a clear mutual understanding of the ramifications of that assent.”

Thus, since Jenny Craig’s arbitration agreement did not identify where and how the parties would arbitrate the dispute (such as, through the American Arbitration Association, or by creating a process for the selection of an arbitrator), this failure doomed the agreement.  Jenny Craig may still seek review by the New Jersey Supreme Court, which has as recently as September 2018 taken up cases to clarify the interplay between New Jersey contract law and the FAA.

Bottom Line

Courts applying New Jersey’s contract-principle approach to arbitration agreements have made it clear that courts will not assume that employees have intended to waive their right to a jury trial unless the agreements reflect their assent in unambiguous terms.  Likewise, employers should not assume that the bare existence of an arbitration agreement will be sufficient to compel arbitration.  As the Court noted in Schmell and Jean-Baptiste, employers bear the burden of obtaining their employee’s affirmative assent.  While, in some circumstances, an employee’s silence may be construed to signify assent, the better approach is to use the most unambiguous means possible – such as a signature.  As you can see, ambiguity on this issue leads to consequences that cut against the benefits of arbitration – such as speed in resolving disputes, relative informality, and cost-effectiveness.  Furthermore, Flanzman instructs that, in addition to requiring mutual assent to arbitrate, the parties must also have a mutual understanding as to the rights that will be afforded in arbitration, to replace those that have been waived.

For more information please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group, at  jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com, or 973-533-0777

Appellate Division Rules Independent Contractor Agreements Signed by Driver’s Corporation Not Bullet Proof Against Class Action Overtime and Wage Deduction Claims

On October 29, 2018 a N.J. Appellate Division panel reversed a dismissal of class action overtime pay claims brought against a freight-forwarding company that convinced the lower court that the company’s drivers and deliverers lacked standing to sue because they signed independent contractor agreements to provide services through their separate corporations. In an unpublished opinion, the Appellate Division found that the court below prematurely ended its inquiry into whether the plaintiff was an employee or an independent contractor, and directed the lower court to look beyond the terms of the contract to consider the totality of the circumstances surrounding the relationship between the drivers and the company.  Veras v. Interglobo North America, Inc., et al., Docket No. A-3313-16T1 (Oct. 29, 2018).

In 2014, Raymond Veras, through his corporation J&K Trucking Solution, signed a “Contractor Lease Agreement” (CLA) with Interglobo and then provided driver services to Interglobo.  He claimed that he routinely worked in excess of 40 hours each week but received no overtime pay, and that Interglobo took illegal deductions from his pay. In 2015 he filed a class action under the N.J. Wage and Hour Law (WHL) and the Wage Payment Law (WPL) against two Interglobo entities. The CLA clearly stated that J&K was an independent delivery operator. However, Veras’s complaint alleged that, despite the CLA which his corporation signed, he was an employee protected by the WHL and WPL since he took direction from Interglobo and its employees, wore its uniforms, dealt with its customers’ invoices, and was subject to discipline and termination by Interglobo.

The lower court dismissed Veras’s complaint on the grounds that he lacked standing to bring the action. The Appellate Division reversed and held that the A-B-C test articulated by the N.J. Supreme Court’s 2015 decision in Hargrove v. Sleepy’s applied to determine whether Veras’ relationship with Interglobo was that of an employee as opposed to an independent contractor. The Appellate Division held that “a court is not limited to the terms of the contract between the parties” and the court should review “the substance, not the form of the relationship … to determine if [the relationship] is exempt from the WPL and WHL.”

The A-B-C test presumes that a service provider is an employee, unless the service recipient can prove A, B and C: (A) the service provider is free from direction or control by the service recipient, (B) the services rendered to the recipient are outside the recipient’s usual course of business, or are performed outside all places of the recipient’s business, and (C) the service provider is customarily engaged in an independently established trade, occupation, profession, or business.

Interglobo argued that the A-B-C test did not apply because Veras’s employer was his own corporation, J&K Trucking Solution, and under the economic realities test, Interglobo was not the employer. The court rejected this argument, too, and held that the economic realities test does not apply to WHL and WPL claims.

The Appellate Division held that the A-B-C test applied to Veras regardless of whether the CLA was signed by Veras as an individual or by his corporation, and stated that the A-B-C test presumes that Veras was an employee, not an independent contractor. The Appellate Division reasoned that even if the economic realities test did apply, dismissal of the complaint at the motion to dismiss stage was not warranted solely because of the CLA, because this test is fact-intensive, and courts rarely decide a worker’s status on a summary judgment motion, let alone on a motion to dismiss before discovery is taken.

Ultimately, this Appellate Division panel decided that the mere fact that the service provider’s corporation, and not the driver himself, signed an independent contractor agreement with the service recipient was not dispositive of the issue of employee versus independent contractor status at the motion to dismiss stage, and the underlying facts must be examined to determine whether, despite the contract, the service provider is an employee and has standing to sue the service recipient under the WHL or the WPL.  As businesses attempt to create more separateness between themselves and their service providers, this court cautions that employee status will not depend on the existence of a contract alone, but will be analyzed under the rigorous A-B-C test.

For more information on this court development, wage and hour law compliance, or independent contractor agreements, please contact Patrick W. McGovern, Esq., Partner in the firm’s Labor Law, Employee Benefits and Executive Compensation, Immigration Law and Wage and Hour Compliance Practice Groups, at PMcGovern@nullgenovaburns.com.

Appellate Court Expands Rice Notice Requirements

Following the February 8, 2017 Appellate Division decision in Kean Federation of Teachers v. Morell, public bodies must review their processes for issuing Rice notices and making available meeting minutes to the public.

In its decision, the Appellate Division expanded the application of the Rice notice requirements to include all situations in which the public body intends to take action on an agenda item which will affect an employee’s “employment appointment, termination of employment, terms and conditions of employment, evaluation of the performance of, promotion or [discipline]” of its employees. This requirement attaches to all agenda items, regardless of whether the public body intends to hold a discussion about the matter.  The Court reasoned that presenting a Rice notice for all employees on a particular agenda allows the public body to have “flexibility to discuss matters in executive session when necessary and affords the affected employees the opportunity” to request a public discussion.

In the same decision, the Court also evaluated the timeframe required for a public body to release its meeting minutes so that it meets the OMPA’s requirement of making them “promptly available”.  At issue was a set of minutes from the September 15, 2014 meeting, which took 94 days to release.  A second set, from the December 6, 2014 meeting took 58 days to release.  Although the Court did not expressly define a timeline to comply with making minutes “promptly available,” it suggested that a reasonable timeframe for release is within 30-45 days.  Even without a clear rule, the Court makes it clear that a 2 or 3 month delay is not justifiable, and mandates public bodies to “adopt a protocol that makes the availability of its meeting minutes a priority.”

The Court’s clear directive to the parties is applicable to all public bodies effective immediately.  Public bodies should review their protocols to ensure that Rice notices be issued in advance of taking action on agenda items involving employment matters.  Public bodies must also review its processes to ensure an efficient method of producing required meeting minutes (including those which are subject to redaction) relatively soon after receipt of a request.

For additional guidance regarding compliance with the Court’s mandate, please contact Jennifer Roselle at 973-646-3324 or jroselle@nullgevnoaburns.com. Ms. Roselle is Counsel in the Firm’s Labor Law and Education Law Practice Groups.

Appellate Division Finds c.78 Health Benefits Contributions Requirements Do Not Apply to Public Sector Disability Retirees

Last month, in Brick Twp. PBA Local 230 v. Twp. of Brick, the Appellate Division of the Superior Court of New Jersey confirmed that N.J.S.A. 40A:10-21.1, P.L. 2011, c. 78, § 42, more commonly known as Chapter 78, does not require ordinary disability or accidental disability retirees of public employers to make premium payments for health insurance benefits.

Chapter 78, concerning public employee pension and health care benefits, was passed in recognition of “serious fiscal issues” confronting the State and the underfunding of the pension system. It implemented various changes to pension and health care benefits such as increased required contributions from public employees and suspension of cost-of-living adjustments.  Among these reforms included requirements for certain retirees to pay contributions toward their health benefits in retirement.

In Brick, the Township had required a former police employee, who had retired due to a disability he had sustained while on duty in 2011, to continue making health insurance premium contributions in order to maintain his retiree health benefits coverage. The trial court concluded that Chapter 78 exempted only those employees with 20 or more years of service on its effective date from having to make contributions toward health benefits in retirement. Due to the fact that the employee had served only 19 years, the trial court believed that his obligation to make contributions was required by Chapter 78.

On appeal, the Appellate Division considered “whether Chapter 78 applies to government employees who receive disability retirement benefits.” The Appellate Division opined that the clear language of Chapter 78 does not require that contributions be made by those who retire on disability pensions even if they have less than 20 years of pensionable service. The Court found support for its conclusion based on the fact that the Legislature had designated different statutory sections for employees disabled while at work, which was further supported by the legislative history of Chapter 78. Thus, the Court reasoned that while ordinary retirement is linked to a member’s age or years of service, disability retirement is not predicated on length of service or age, but awarded because of an employee’s disability.

Thus, the opinion suggests that Chapter 78 contributions requirements apply with respect to active public employees and those who retire based on meeting the service requirements. In contrast, those who are forced to retire on an ordinary disability or accidental disability retirement are exempt from making premium payments for health insurance benefits.

If you have any questions or for more information regarding Chapter 78 health benefits or the impact of other laws affecting public employers, please contact Joseph M. Hannon, Esq., jhannon@nullgenovaburns.com or Brett M. Pugach, Esq., bpugach@nullgenovaburns.com in the Firm’s Labor Law Practice Group.