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.

A Troubling Decision for Employment Arbitration Agreements with Potentially Ambiguous Language and What it Means for Employers Going Forward

On April 5, 2016, in a rare rebuke of an employment arbitration agreement by a federal court, the United States District Court for the District of New Jersey (Hon. Madeline Cox Arleo, U.S.D.J.) held that it would not compel arbitration mandated by an employment agreement because the agreement at issue was too ambiguously drafted.

In Ranieri v. Banco Santander S.A., Civil Action No. 15-3740, Plaintiffs were former Mortgage Loan Officers with the Defendants in their New Jersey branches who brought a collective action claim for wage and hour violations under federal and state law.  The collective action was on behalf of all current and former employees of Defendants whose job duties included working as a mortgage loan officer and who were not paid overtime or minimum wage in the past three years.

At the start of their employment, Plaintiffs received an offer of employment which mandated that Plaintiffs execute “the enclosed Mortgage Retail Development Officer Agreement” (“MDO”) and all attached exhibits, on or before the first day of work.  The offer letter also attached a copy of the Mortgage Sales Commission Plan.  The MDO Agreement contained six sections, including an arbitration clause which prohibited class, collective, and representative actions against Defendants.  Both Plaintiffs signed the MDO agreements on the bottom of the final page under a bolded sentence that read: “I certify, by my signature below, that I have received a copy of the Mortgage Sales Commission Plan, which has been provided to me.”  The MDO Agreement contained a Pennsylvania choice of law provision.

While the Court acknowledged that ordinarily a party’s signature on an agreement implies agreement to the entire contract, here the Court found that the language in the MDO Agreement was ambiguous, specifically the sentence above the signature line.  The Court found that the purpose of the signatures was too unclear: either the Plaintiffs could memorialize only that they received the Mortgage Sales Commission Plan or that they agreed to all of the terms of the MDO Agreement and that they were confirming receipt of the Mortgage Sales Commission Plan.  Due to the ability to logically construe the agreement in more than one way, the Court held that it would not compel arbitration because the intent of the parties could not be determined on the pleadings alone, and because the ambiguous language in the MDO Agreement should be construed against the drafters, the Defendants.  Defendants’ motion to compel arbitration was denied without prejudice and the Court ordered discovery on the question of arbitrability.

The Court’s decision is important because federal courts have traditionally viewed employment arbitration agreements very favorably based upon the Federal Arbitration Act and significant U.S. Supreme Court precedent.  Such agreements have also become more widespread.  Employers with arbitration agreements should have these agreements regularly reviewed by counsel, as the law is in a constant state of flux regarding the effectiveness of arbitration agreements as to state claims and the prohibitions on class claims that any good arbitration agreement contains.  Carefully drafted arbitration agreements are more likely to be enforced.  Note that beyond having employment counsel review arbitration agreements, employers should also discuss the need for such agreements to start with.  Employers often mistake employment arbitration agreements as a panacea to liability from claims by current and former employees, however, legal fees and discovery are often not significantly reduced and with appeal options severely limited, a bad decision by an arbitrator can be disastrous for an employer.  Instead, arbitration agreements are often most useful in industries and for employers who face significant potential wage and hour class and collective action exposure.  Careful consultation with an employment attorney is critical both in deciding whether to use employment arbitration agreements and if the decision is made to use such agreements, how to make sure that they remain enforceable in a constantly changing legal landscape.

For more information regarding employment arbitration agreements, please contact Harris S. Freier, Esq., a Partner in the firm’s Employment Law and Appellate Practice Groups, at hfreier@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.

Lawfulness of Employer Arbitration Policies Barring Class Actions Far From Settled

The NLRB continues to disapprove of employer policies limiting employees’ rights to pursue employment-related concerted action.  The question over the permissibility of arbitration class action waivers stems from recent U.S. Supreme Court decisions favoring deferral to arbitration.  In 2009, the U.S. Supreme Court handed down its seminal decision in 14 Penn Plaza LLC v. Pyett, where it enforced a collective bargaining agreement provision containing a clear and unmistakable waiver of employees’ right to pursue employment-related statutory claims in court in favor of arbitration.  Then, in 2011, in AT&T Mobility v. Concepcion, the U.S. Supreme Court held in the consumer context that a consumer arbitration agreement could bar class action lawsuits.

However, the NLRB has pushed back, strongly disfavoring arbitration policies requiring deferral of all employment-related claims to individual arbitration.  In 2011, in the DR Horton case, the NLRB held than an arbitration agreement requiring employees to waive their right to bring a joint, class or collective action as a condition of employment violated the NLRA.  The employer appealed that determination to the Fifth Circuit Court of Appeals where the case is still pending.

Then, just last month, an NLRB Administrative Law Judge struck down 24 Hour Fitness USA, Inc.’s policy requiring employees to waive their right to bring employment-related joint, class or collective actions in any arbitral or judicial forum.  The employer sought to distinguish its policy from the policy the NLRB deemed unlawful in DR Horton by pointing to the fact that employees could opt-out of the policy by taking a series of steps during the first 30 days of their employment.  However, the ALJ found that the opt-out provision was “an illusion” because the process was convoluted and employees were limited in their ability to identify coworkers who had also opted out.  The ALJ also rejected the argument that the U.S. Supreme Court’s pro-arbitration decisions like Concepcion meant 24 Hour Fitness’ policy should be upheld, holding that arbitration decisions in the consumer context are unrelated to arbitration decisions in the employment context.

Clearly, the issue over the permissibility of class action waivers in employment agreements is far from settled.  Employers should be cautious in requiring employees to waive their right to bring employment-related joint, class or collective actions in any arbitral or judicial forum until federal courts—and perhaps the U.S. Supreme Court—weigh in.  Employers are well advised to confer with counsel over the risks and benefits of maintaining such policies in light of the unsettled state of the law.  If you have any questions or for more information about implementing lawful arbitration clauses in employee handbooks, please contact Douglas E. Solomon, Esq., dsolomon@nullgenovaburns.com, or Douglas J. Klein, Esq., dklein@nullgenovaburns.com, in the Labor Law Practice Group.