New Jersey Employers: ‘Tis the Season to Review Your Arbitration Agreements

The rules surrounding arbitration agreements are one of the most dynamic areas of employment law in New Jersey, requiring employers to re-evaluate their existing agreements and drafting strategies regularly.

As we previously reported, a New Jersey statute enacted earlier this year provides, in part, that any provision in an employment contract (other than a collective bargaining agreement) waiving a substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment is against public policy and unenforceable. Additionally, the law prohibits agreements incorporating a prospective waiver of rights and remedies under either the New Jersey Law Against Discrimination or other laws. But in a significant development, the New Jersey Civil Justice Institute and the US Chamber of Commerce filed suit on August 30, 2019, in the United States District Court for the District of New Jersey, alleging that to the extent this law prohibits pre-dispute arbitration agreements between employers and employees, it is preempted by the Federal Arbitration Act (“FAA”) and thus unenforceable. The lawsuit remains pending and creates further uncertainty regarding the status of employment arbitration agreements in New Jersey.

Independent of the legislature, New Jersey courts have issued several rulings within the past 14 months that employers should carefully consider when drafting and revising arbitration agreements. These decisions are largely employee-friendly.

Would your company’s agreement stand up to judicial scrutiny in New Jersey? What drafting areas should you focus on when preparing or updating your standard arbitration agreement? We address these points below.

Include Procedural Details
An arbitration agreement’s failure to include forum selection language and/or procedural rules may prove fatal to its enforceability.

On November 19, 2019, the New Jersey Supreme Court heard oral argument in Flanzman v. Jenny Craig, in connection with an appeal filed by the company from an Appellate Division ruling, which rendered an arbitration agreement unenforceable because of its failure to identify an arbitration forum and the procedural rules for conducting the arbitration. The Appellate Division relied on Atalese v. United States Legal Services Group, L.P., a 2014 New Jersey Supreme Court decision requiring that a party to an arbitration agreement relinquishing rights “must be able to understand – from clear and unambiguous language – both the rights that have been waived and the rights that have taken their place.”  The New Jersey Supreme Court is examining whether the Appellate Division, by imposing the forum and procedural rules conditions on arbitration agreements, unjustifiably extended the Atalese requirements.

Use Simple, Clear Terms
An arbitration agreement must use plain, simple terms that put employees on notice that they are forgoing the right to file claims in court and expressly state the types of claims governed by the agreement. New Jersey courts will not tolerate intentional or unintentional use of language in arbitration agreements that fails to address these points.

The Appellate Division, in Kiraly v. Forcepoint (October 2, 2018), reinforced this basic tenet. There, at the outset of her employment, the plaintiff signed a document that included a two-page addendum detailing the processes and procedures for the employer’s dispute resolution program. Though the addendum was executed simultaneously with the 8-page main agreement, the agreement used single-spaced, small font buried within the middle to advise that the employee was agreeing to resolve any disputes by binding arbitration in accordance with the addendum’s terms. The addendum, in turn, provided that “all [a]rbitrable [d]isputes shall be resolved only by final and binding arbitration conducted privately and confidentially by a single arbitrator selected as specified in this Addendum.”  The Appellate Division determined that the agreement was unenforceable because it lacked the “simple language” needed to insure the employee’s knowing waiver of the right to bring her claim in court. The appellate court relied on Alatese’s admonition that an arbitration agreement “must explain that plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.”

Be Careful When Using Electronic Means to Document Employee Agreements to Arbitrate
As the United States District Court for the District of New Jersey ruled, in Falk v. Aetna Life Ins. (August 31, 2019), a properly executed “clickwrap” arbitration agreement is valid and enforceable under New Jersey law when properly drafted and affirmatively accepted by the employee. But using a “click box” method (i.e., electronic signature) to evidence employee acceptance of an arbitration duty may be fraught with risk if the agreement does not plainly state that the employee agrees to arbitrate claims.