New Jersey Courts Double-Down on Arbitration Enforcement

In late June 2018, New Jersey state and federal courts issued opinions on arbitration agreements that effectively reinforced the state’s rocky pro-arbitration bearings. The first opinion came from the Third Circuit Court of Appeals on June 20, 2018, in a case called Ace American Insurance Co. v. Guerriero. In Ace, the Third Circuit held that an employee must arbitrate his employment-related claims, despite his allegations that the company never provided him a full copy of the arbitration agreement. Only one day later, in Victory Entertainment, Inc., et al. v. Schibell, et al., the New Jersey Appellate Division held that strip club owner/managers must arbitrate an ownership dispute despite the employee’s argument that the arbitration agreement lacked clear and unambiguous language to do so.

An “Ace” In the Pocket for Arbitration Agreements In Federal Court

In Ace, after the employee and his counsel refused to arbitrate the employee’s employment claims, Ace filed a complaint in U.S. District Court in Newark, New Jersey, to compel arbitration under the Federal Arbitration Act (“FAA”). One day later, the employee filed a whistle-blower suit in New Jersey state court claiming that his employer illegally fired him after he reported to his supervisors that the company was destroying documents it was required to preserve in violation of the New Jersey Conscientious Employee Protection Act (“CEPA”). The employee alleged that he was never provided the company’s full three-page Employee Dispute Arbitration Policy and instead was only provided the signature page. The employer produced the signed acknowledgment page, which at the top read “Arbitration Agreement.” Moreover, the employee’s offer letter, which expressly referenced the Employment Dispute Arbitration Policy, was also signed by the employee.  Employees could also access the Employee Dispute Arbitration Policy using the company’s intranet site. The U.S. District Court enjoined the employee from pursuing his state court case and ruled in ACE’s favor, which was upheld on appeal to the Third Circuit.

Reinforcing the FAA’s “strong federal policy” of resolving parties’ disputes through arbitration by enforcing the parties’ arbitration agreements, the Third Circuit affirmed the District Court’s finding that the arbitration agreement was still enforceable, whether or not the employee actually read the agreement. The court found that the Employee Dispute Arbitration Policy unambiguously stated that the employee would “submit any employment-related legal claims to final and binding neutral third-party arbitration …” and specifically mentioned CEPA.  This decision confirms New Jersey’s strong pro-arbitration stance in federal court.

A “Victory” In State Court

In Victory Entertainment, employers also enjoyed a victory in the Appellate Division. The plaintiff was a manager part-owner of The Den, holding company for Delilah’s Den strip clubs throughout the state. His two business partners certified that plaintiff suffered spells of delusion that led him to mismanage the company, including brandishing a gun in the workplace, refusing to remit payment to vendors, and sexually harassing entertainers. After plaintiff was hospitalized for mental health issues, his two business partners, along with plaintiff and plaintiff’s counsel, executed a Sales Agreement whereby plaintiff’s trusted associate, as plaintiff’s agent, would purchase the two other owner’s shares of The Den over a 10-year period. The parties also drafted a separate Shareholder/Stakeholder (Deadlock) Agreement to resolve impasses between the shareholders and stakeholders, which created a 1/3 voting right between plaintiff’s agent/associate and the two part-owners. This Deadlock Agreement contained a binding arbitration clause. Although the shares in The Den were expressly subject to the terms and conditions of the Sales Agreement and the Deadlock Agreement, plaintiff and his trusted agent/associate were the only parties to the Deadlock Agreement.

When plaintiff’s mismanagement issues re-arose, the two part-owners executed their authority to remove plaintiff from managing the business. Plaintiff filed suit, claiming he was improperly removed.  The trial court dismissed his complaint and ordered that the parties arbitrate the dispute. Plaintiff appealed. In affirming the trial court’s decision, the Appellate Division found that although only the plaintiff and his trusted associate were parties to the arbitration clause, the two owners could enforce the arbitration clause since the Sales Agreement and the Deadlock Agreement arose from the same transaction. The two agreements were executed on the same day, pertain to the control and management of the same company, and contain numerous cross-references. Further, the Appellate Division determined the two part-owners could enforce the arbitration provision as either third-party beneficiaries or the trusted associate’s agents. Finally, the Appellate Division held the plaintiff claims were within the scope of the arbitration provision because they implicated the Deadlock Agreement explicitly or the alleged conduct occurred after the parties executed the agreement or related to the execution of the Deadlock Agreement.

Bottom Line

Unlike New York, and arguably contrary to the Federal Arbitration Act, New Jersey state courts have historically imposed a higher standard to enforce an arbitration agreement. The New Jersey Supreme Court has ruled that arbitration agreements in the state must provide “clear and unambiguous” terms that the parties are waiving the right to a jury trial. Although federal courts staunchly enforce arbitration agreements in favor of employers, employees sometimes reap the benefits of this state court hurdle for employers. Together, these recent opinions stand for the proposition that arbitration agreements may be strictly enforced in New Jersey.

While these opinions are triumphs for the enforcement of arbitration agreements, it is still imperative to include explicit language that your employees waive the right to a jury trial for all employment-related claims. Likewise, the law surrounding arbitration agreements is constantly shifting and all arbitration agreements should be carefully reviewed with counsel.

If you have questions on drafting arbitration agreements or arbitration disputes, 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.

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.