New Jersey Employment Lawyer Blog

Articles Posted in Arbitration / Mediation

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Employee Handbook Contiaining Unenforceable Arbitration ProvisionLast week, New Jersey’s Appellate Division ruled that Raymours Furniture Company cannot enforce the arbitration policy in its employee handbook because the handbook expressly states that it is not a contract. As a result, former Raymours & Flanigan employee Grant Morgan can proceed with his age discrimination claim in court rather than in arbitration.

Mr. Morgan alleges he experienced age discrimination in the workplace, and when he complained about it the company instructed him to sign an arbitration agreement or it would fire him. When Mr. Morgan refused to sign the agreement, the company followed through with its threat and fired him.

After Mr. Morgan filed a lawsuit, Raymours asked the court to enforce the arbitration provision in its employee handbook. The trial court denied its motion, and Raymours appealed.

Like most companies, Raymours’ employee handbook contains a prominent disclaimer declaring that it is not a contract. Specifically, it states that:

Nothing in this Handbook or any other Company practice or communication or document, including benefit plan descriptions, creates a promise of continued employment, [an] employment contract, term or obligation of any kind on the part of the Company.

These types of disclaimers are common because of Woolley v. Hoffman-La Roche, a 1985 New Jersey Supreme Court opinion. Woolley recognizes that employees generally can bring claims when their employers violate promises in their employee handbooks unless the handbook includes a prominent disclaimer making it clear it is not an enforceable contract. As a result, most employers include disclaimers in their handbooks so they cannot be sued for violating their own internal policies.

The Appellate Division ruled it would be unfair and improper for an employer to enforce an arbitration provision in an employee handbook that contains such a disclaimer. Specifically, it ruled that Mr. Morgan did not “clearly and unambiguously waive his right to sue [Raymours] in court.” The court explained that allowing Raymours to enforce the arbitration provision under the circumstances would run counter to the old English proverb, “wolde ye bothe eate your cake, and haue your cake?” In other words, Raymours cannot eat its cake and have it too.

The appellate court further noted that although Mr. Morgan signed a rider to the employee handbook, it merely states that he received and understood the handbook. It did not state that he agreed to be bound by its terms. As a result, the court ruled that Raymours “cannot fairly contend the employee ‘agreed’ to a waiver of the right to sue that might be found within those materials.”

Thus, in the published opinion of Morgan v. Raymours Furniture Company, Inc., the Appellate Division affirmed the trial court’s ruling that Raymours cannot enforce the arbitration provision against Mr. Morgan. Instead, he will be able to proceed with his case in a New Jersey state court.

This decision is one in a growing trend of opinions which are careful to enforce arbitration agreements between employers and employees only when the employees clearly and unambiguously agreed to waive their right to pursue their disputes in court. For more information about limitations on enforcing arbitration agreements, please read our previous article: Arbitration Agreement Unenforceable Unless Clearly Indicates Waiving Right to Go to Court.

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In recent years, employers have been increasingly requiring their employees to sign arbitration agreements. An arbitration agreement is when you agree to have a private arbitrator, rather than a judge or jury, decide your legal disputes. Arbitration generally is considered less fair to individual employees and more favorable to big businesses. Nonetheless, courts generally enforce arbitration agreements as long as they are clear and unambiguous.

However, a recent ruling by the New Jersey Supreme Court recognizes that to be valid, an arbitration agreement has to make it clear you are waiving your right to pursue your case in court. The case, Atalese v. U.S. Legal Services Group, L.P., was decided in the context of a consumer contract dispute. However, it seems likely the same principle would apply to employment law arbitration agreements.

The arbitration provision in the Atalese case states that “any claim or dispute . . . shall be submitted to binding arbitration upon the request of either party.” It also indicates that an arbitrator will “resolve the dispute” and the “decision of the arbitrator shall be final.”

Arbitration Agreements GavelThe New Jersey Supreme Court explained that arbitration agreements, like other contracts that waive an individual’s constitutional or statutory rights, have to be clear to the average person. The Court concluded that although the provision in question makes it clear the parties agreed to resolve their disputes in arbitration it does not say anything about waiving their right to go to court. It also does not explain what arbitration is or how it is different from a proceeding in court.

Ultimately, the Supreme Court ruled the arbitration provision was unenforceable because it does not contain anything making it clear that the individual was waiving his or her right to pursue a claim in a court of law. The court explained that no “magic words” are necessary to make this clear. However, to be enforceable an arbitration agreement in a consumer contract has to make it clear, one way or another, that the individual is agreeing arbitration will be the exclusive remedy and is giving up the time-honored right to sue.

Applying that principle, the Court found the language in the arbitration agreement did not make it “sufficiently clear to a reasonable consumer” that he/she is waiving his/her right to sue. Accordingly, it found the agreement is not enforceable and the case can proceed in court.

The Supreme Court did not directly address whether the same principle apply to employment law cases. However, it relied on numerous previous employment law cases in support of its ruling. In fact, one of the cases the Court cited, Leodori v. CIGNA Corp., holds that arbitration provisions in employment contracts must “reflect that an employee has agreed clearly and unambiguously to arbitrate the disputed claim.” This makes it seem likely a similar provision in an employment contract would not be enforceable. Accordingly, it is likely courts will not enforce employment arbitration agreements unless they make it clear the employee is waiving his or her right to sue in court.

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Earlier today, New Jersey’s Appellate Division ruled in favor of one of my clients, Karen Cole, holding that her former employer waived its right to enforce her arbitration agreement because it waited too long to raise it as a defense. As a result, her case can proceed to a jury trial instead of having her claims decided in arbitration.

Ms. Cole, a nurse anesthetist, worked at Jersey City Medical Center through her employer, Liberty Anesthesia Associates, LLC. In 2007, Jersey City revoked her hospital privileges. Liberty fired Ms. Cole shortly thereafter. Ms. Cole has evidence that Jersey City’s decision to revoke her privileges, and Liberty’s decision to fire her, were due to the fact that she has a disability, Ehlers Danlos Syndrome, and because she objected to illegal practices at the hospital. Accordingly, she sued Jersey City for disability discrimination in violation of the New Jersey Law Against Discrimination (LAD), and retaliation in violation of New Jersey’s whistleblower law, the Conscientious Employee Protection Act (CEPA). She later named Liberty as a defendant, alleging it discriminated and retaliated against her when it fired her.

Jury Box.jpgLiberty was a defendant in Ms. Cole’s case for 20 months, and actively participated in the litigation during that period. However, it did not raise arbitration as a defense until three days before the trial. Liberty claims it waited so long because Ms. Cole did not have an arbitration agreement with Jersey City, and it believed it made more sense to keep the entire case together in court. However, after Ms. Cole settled her claims against Jersey City a few weeks before the scheduled trial, Liberty decided to enforce the arbitration agreement. Liberty filed its motion to compel arbitration only 3 days before the scheduled trial date.

The trial judge found that Ms. Cole was required to bring her case against Liberty in arbitration, and dismissed her case from court. But the Appellate Division reversed. In Cole v. Jersey City Medical Center, it ruled that Liberty waived its right to enforce Ms. Cole’s arbitration agreement by intentionally waiting until the eve of trial before it raised it as a defense. It concluded that Liberty could have sought to require Ms. Cole’s to arbitrate her claims against it earlier, but chose not to do so for strategic reasons. It also found that Ms. Cole was prejudiced by Liberty’s delay, since she had to spend time preparing for a jury trial, which is much more time consuming than preparing for arbitration. As a result, it ruled that Liberty waived its right to require Ms. Cole to have her case decided in arbitration, and that Ms. Cole is entitled to a jury trial. The Appellate Division’s opinion was approved for publication, meaning it is a binding legal precedent.

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In January, the United States District Court for the Southern District of New York (“SDNY”) began requiring early mediation in all employment discrimination cases other than cases brought under the Fair Labor Standards Act (“FLSA”). Mediation is a form of Alternative Dispute Resolution (“ADR”) in which a lawyer, retired judge, or other trained mediator tries to help the parties settle their case.

Mediation offers the parties to a lawsuit a way to resolve their cases before they spend too much time, money, or mental energy trying to prove their cases. A study has shown that Settling Is Better Than Going to Trial for both employers and employees. As a result, it makes perfect sense that the SDNY would require early mediation in employment discrimination cases, which often can be very time consuming, costly, and emotional for everyone involved.

SDNY.jpgThe SDNY is a federal court which is located in downtown Manhattan, White Plains and Middletown, New York. It covers the Bronx, New York, Westchester Rockland, Putnam, Orange, Dutchess, and Sullivan Counties. The SDNY’s mediation program is free, since the mediators donate their time.

Like the SDNY, New Jersey’s state courts require early mediation in most employment law cases. However, currently the United States District Court for the District of New Jersey (“DNJ”) does not require mediation in every employment discrimination case, but instead leaves it up to individual judges to decide if and when to send the parties to mediation.

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On February 9, 2011, the United States Court of Appeals for the Third Circuit ruled that an arbitrator, rather than a judge, must decide whether an arbitration agreement allows the parties to have a class action arbitration. As a result, it reversed the District of New Jersey’s decision which had ruled that the case must proceed to arbitration as individual claims, rather than as a class action.

I represent the plaintiffs in the case, Jose Ivan Vilches, Francis Sheehan, Jr., and Jack Costeria. They each worked for the Travelers Companies, Inc., and related companies as appraisers in New Jersey. They filed a lawsuit on behalf of themselves and other appraisers who worked for Travelers, seeking damages for unpaid overtime pay under the Fair Labor Standards Act (FLSA) and the New Jersey Wage & Hour Law (NJWHL).

Gavel On Lawbook.jpgWhen they began working for Travelers, Mr. Vilches, Mr. Sheehan and Mr. Costeria each signed agreements which require them to pursue their legal claims against Travelers through arbitration. Those agreements do not say, one way or the other, whether they can bring a class action in arbitration. Travelers later modified its arbitration policy to say that employees cannot bring class action cases. However, Mr. Vilches, Mr. Sheehan and Mr. Costeria never agreed to that new policy.

Last year, the District of New Jersey granted Travelers’ motion to compel arbitration. The court also ruled that the plaintiffs were bound by the arbitration policy which prohibited them from bringing a class action.

But on appeal, in an unpublished opinion in Vilches v. Travelers Companies, Inc., the Third Circuit Court of Appeals ruled that the District Court should not have decided whether the arbitration agreement the plaintiffs agreed prohibited them from bringing a class action wage and hour case. Rather, since the question involves interpreting the arbitration agreement they signed when they were hired to determine whether that agreement permits class action arbitration, the Third Circuit concluded that the arbitrator rather than a judge must answer that question. As a result, the Third Circuit reversed the lower court’s ruling, and referred the case to arbitration to decide whether the case can proceed as a class action.

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Many companies require employees to sign arbitration agreements as a condition of getting hired or keeping their jobs. Arbitration agreements are often included in employment contracts, but they also can be in separate agreements. Arbitration is when a case is decided by one or more professional arbitrators, rather than by a judge and jury. Arbitration is often referred to as “binding arbitration” because there is a very limited right to appeal from an arbitrator’s decision, meaning that normally the arbitrator’s decision is final. While arbitration certainly is not the end of the world, for a variety of reasons most employment lawyers in New Jersey and New York who represent employees (myself included) would much prefer a jury trial. As a result, it is important to understand whether your arbitration agreement is enforceable.

To determine whether an arbitration agreement is enforceable under New Jersey law, the first question is whether you entered into the agreement “knowingly” and “voluntarily.” Unfortunately, those terms are not necessarily interpreted the way you might think. Rather, it boils down to whether you understood or should have understood that you were waiving your right to a jury trial. It does not necessarily mean you actually read or understood the rights you were signing away.

Sign Contract.jpg There are many other factors judges consider when determining whether an arbitration agreement is enforceable. Usually, the most important factor is how clearly the agreement states the employee is giving up his right to a jury trial. But other factors can include the employee’s level of education and business experience, how much time the employee had to review the arbitration agreement before he signed it, how much input (if any) the employee had in negotiating the terms of the arbitration agreement, whether the employee was represented by a lawyer before he signed the arbitration agreement, and whether the employee received something extra in exchange for signing the arbitration agreement.

Even if an arbitration agreement appears to be enforceable, an employee might have a legal defense that would prevent the employer from enforcing it and sending the case to arbitration. For example, an arbitration agreement is not enforceable if the employee can prove it was the result of fraud, or if the employer waived its right to enforce the agreement. Another more complicated defense to an arbitration agreement is when the agreement is what lawyers call an “unconscionable contract of adhesion,” which basically means it is extremely favorable to one party (the employer), the other party (the employee) had little or no ability to negotiate its terms, and it would be extremely unfair for a court to enforce it.

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