As a result of what is often perceived as costly and protracted employee-initiated lawsuits, and in the wake of the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis, it has become more common for employers to require employees to sign arbitration agreements requiring employment disputes to be resolved through binding arbitration as a term and condition of employment. Recent cases in New Jersey have emphasized that there are several requirements that employers must consider when drafting and enforcing arbitration agreements.
Both the Federal Arbitration Act (FAA) and New Jersey Arbitration Act (NJAA) make arbitration agreements “valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
These statutory provisions establish an “equal treatment principle” pursuant to which “a court may invalidate an arbitration agreement based on generally applicable contract defenses … but not on legal rules that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Kindred Nursing Centers v. Clark, 137 S.Ct. 1421, 1424 (2017). The United States Supreme Court has repeatedly made clear that the FAA preempts any state law or rule which discriminates because the contract in question is an arbitration agreement. Id. As such, New Jersey courts are required to treat arbitration agreements like any other contract “and enforce them according to their terms.” Atalese v. U.S. Legal Servs. Grp., 219 N.J. 430, 431 (2014); Stone v. Royal Ins. Co., 211 N.J. Super. 246, 248 (App. Div. 1986)(“[t]he court will not write better or more favorable contracts for parties than they have themselves seen fit to make.”).
In New Jersey, employment arbitration agreements will be enforced where: (1) the terms of the agreement make it “clear and unambiguous” that the employee has chosen to arbitrate his or her disputes against the employer; (2) the employee has “manifested an intent” which is “explicit, affirmative and unmistakable” that he or she is expressly giving up his or her established right to bring an action in court in favor of arbitration; and (3) the terms of the agreement do not violate the terms of a statute or contravene public policy, and are not unconscionable. See Leodori v. CIGNA Corp., 175 N.J. 293 (2003); see also Atalese, supra.
Recent case law in New Jersey has confirmed that while arbitration agreements should “be read liberally in favor of arbitration,” the courts will not compel arbitration absent strict compliance with these requirements. In addition, one recent decision, Flanzman v. Jenny Craig, 456 N.J. Super. 613 (App. Div. 2018), has imposed an additional procedural hurdle by requiring the parties to include terms in the agreement for which the parties themselves did not bargain. This new requirement has been implemented notwithstanding the fact that nothing in the Supreme Court’s Atalese opinion, addressing the necessity for a clear waiver of a Constitutional right to a jury trial, mandates the specification of any of the procedural aspects of arbitration in order for an agreement to be enforceable.
In Flanzman, the plaintiff, as a term and condition of her continued employment with Jenny Craig, signed an “Arbitration Agreement” that provided in pertinent part:
Any and all claims or controversies arising out of or relating to employee’s employment, the termination thereof, or otherwise arising between employee and employer shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration. This agreement to arbitrate includes all claims whether arising in tort or contract and whether arising under statute or common law including, but not limited to, any claim of breach of contract, discrimination or harassment of any kind.
Plaintiff’s signature on the document and the plain language of the agreement, which evidenced her clear and unambiguous assent to have her discrimination claims resolved through arbitration, would appear under New Jersey contract-law principles to be an unquestionable waiver of her right to seek relief in court.
Nevertheless, while admitting it was required to “place arbitration agreements on an equal footing with other contracts and enforce them according to their terms” the appellate panel refused to compel arbitration because the agreement did not specify the forum where the arbitration would be conducted (such as the American Arbitration Association) or, alternatively, describe a process for selecting a forum which the court opined should have been included.
In Skuse v. Pfizer, No. A-3027-17T4, ___ N.J. Super. ___, 2019 WL 237301 (App. Div. Jan. 16, 2019) (approved for publication), the company’s mandatory arbitration policy was communicated to the employee in what the company described as a “training module” or “training activity” consisting of four separate slides, one of which required the employee to merely “acknowledge” that they had reviewed the policy. The employee was further advised that if she did not acknowledge the policy, she would nonetheless be bound by it after 60 days.
In refusing to compel arbitration, the appellate panel held that the company’s communication of its mandatory arbitration requirement through what it termed “a training module” or “training activity” could not be used to compel binding arbitration as “[t]hese prosaic labels do not fairly capture the essence of the endeavor, i.e., an effort to extract an employee’s knowing and voluntary agreement to waive important rights that have been bestowed upon him or her by law.” The panel further ruled that the use of the word “acknowledge” as opposed to “agree” or “agreement” was insufficient to bind the employee, and that the company’s attempt to impose “consent by default” after 60 days fell far short of demonstrating mutual assent under the New Jersey Supreme Court’s seminal decision in Leodori.
Whether these decisions will be reviewed by the New Jersey Supreme Court remains to be seen.
Both, however, serve as a reminder to employers who value arbitration as the preferred method of dispute resolution to continually review and update their arbitration agreements. As New Jersey courts have shown a tendency over the last two decades to impose increased requirements on employers seeking to enforce arbitration agreements, there is a lack of clarity as to what an employer must do to draft an arbitration agreement that will be enforced. Under the present state of the law, however, best practices would appear to dictate the following:
- The use of straightforward, concise and easy to understand language, which clearly specifies that by signing an agreement to arbitrate as a term and condition of employment, the employee is: (1) agreeing to have any and all disputes that may arise during the course of employment resolved through binding arbitration; and (2) waiving his or her right to proceed before a judge or jury.
- The agreement should make clear that any and all federal, state and local statutory and common law claims are subject to arbitration. See Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124 (2001). In addition, the agreement should separately specify that the employee, in signing the agreement, is waiving his or her right to class or collective actions.
- The statute of limitations should not be altered. See Rodriguez v. Raymours Furniture Co., 225 N.J. 343, 347 (2016) (private agreement shortening the two-year limitations period for private LAD claims was unenforceable).
- Remedies that are available to an employee in a court of law cannot be abridged. See Roman v. Bergen Logistics, 456 N.J. Super. 157 (App. Div. 2018) (arbitration agreement’s punitive damages waiver violated the public policy underlying the LAD, thereby rendering the agreement unenforceable).
- A signed standalone agreement should be obtained that specifies that the document is in fact an agreement to arbitrate. At the most basic level, Skuse makes clear that obtaining a signed agreement on a document conspicuously identified as an “Agreement to Arbitrate” goes a long way in demonstrating that an employee was provided with notice of the company’s arbitration policy and agreed to be bound by it.
- Take measures (through human resources professionals, supervisors or other designees) to ensure that a hard copy or electronic signature is in fact obtained, demonstrating that the employee agreed to arbitrate.
- Following Flanzman, the agreement should identify a general location for the arbitration to be held (i.e., “in the State of New Jersey”) and the name of the organization appointed to conduct the arbitration. Alternatively, the agreement should specify a “general method” for selecting an arbitration forum. Although, as a practical matter, it is not entirely clear from Flanzman how this process would work in the real world. Ultimately, Flanzman, for all intents and purposes, requires employers to designate the American Arbitration Association (AAA) or Judicial Arbitration and Mediation Services (JAMS) in order not to run afoul of the decision’s requirements. Parenthetically, it is noted that it is unclear whether the procedural requirements unilaterally imposed in Flanzman, apply solely to employment arbitration agreements or to all arbitration agreements in New Jersey.
Employers seeking to draft and enforce employee arbitration agreements should avoid taking the one-size-fits-all approach. This is especially true given that the proverbial goalpost for what is required in order to have an enforceable agreement continues to be moved. As such, careful monitoring of New Jersey’s continually evolving case law in this area is essential to drafting and implementing a sound policy.
Christopher J. Capone is a partner in the New Jersey office of the national labor and employment law firm Fisher Phillips.