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Can You Enforce Your Arbitration Clause?

By on February 11, 2016 in Arbitration with 0 Comments

The odds are that your company has an employee handbook that governs the workplace.  You also most likely (hopefully) have a clause in your handbook indicating that the handbook does not create a contract between the employer and employee and the terms of the handbook can be changed at any time without notice to the employee.  Since it has become common practice to prefer arbitration over dealing with state and/or federal courts, many of you may also have a section of the handbook requiring arbitration of any employment claims that arise between the employer and the employee.  If this is the case, then the following information is important for you to understand.

A recent published New Jersey Appellate Division decision has upended employment law in New Jersey.  Specifically, the Appellate Division held on January 7, 2016, that an employee handbook that contains a clause stating that the “rules, regulations, procedures and benefits . . . are not promissory or contractual in nature and are subject to change by the company,” and in addition contained an arbitration clause purporting to waive the employee’s right to sue in court, did not in fact waive the employee’s right to file suit in federal or state court.  Without a clear and unambiguous waiver of the right to sue, an employee cannot be forced to arbitrate.

The case, Morgan v. Raymours Furniture Co., Inc., Dkt. No. A-2830-14T2 (App. Div. Jan. 7, 2016), involves a former employee of Raymours Furniture Company (“Raymours”) who instituted a complaint in state court alleging violations of the Law Against Discrimination and wrongful termination.  Initially when the employee first complained of alleged discrimination, the employer attempted to have the employee sign a standalone arbitration agreement or face termination.  When the employee refused to sign the standalone arbitration agreement, he was terminated.  The employee handbook did contain an arbitration clause.  The employee subsequently filed a complaint in state court and Raymours filed a motion to dismiss the state court complaint and compel arbitration.

In denying Raymour’s motion to compel arbitration, the Appellate Division noted that the employer could not have it both ways.  The employer could not argue that the handbook was not a contract between the parties, but at the same time argue that the handbook did contain a full waiver of an employee’s right to file a lawsuit in state or federal court.  The Appellate Division stated,

In this setting, it is simply inequitable for an employer to assert that, during its dealings with its employee, its written rules and regulations were not contractual and then argue, through reference to the same materials, that the employee contracted away a particular right.

Moreover, the court noted:

In any event, our Supreme Court has made clear that an employee in this circumstance must “clearly and unambiguously” agree to a waiver of the right to sue.  By inserting such a waiver provision in a company handbook, which, at the time, the employer insisted was not “promissory or contractual,” an employer cannot expect — and a court, in good conscience, will not conclude — that the employee clearly and unambiguously agreed to waive the valued right to sue. And, by the same token, in obtaining the employee’s signature on a rider, which stated only that the employee “received” and “underst[ood]” the contents of the company handbook or rules and regulations, the employer cannot fairly contend the employee “agreed” to a waiver of the right to sue that might be found within those materials.

So what does this court decision mean for you if your handbook contains an arbitration clause?  This decision means that if you want to be able to enforce an arbitration clause, then you as the employer must obtain an employee’s signature on a standalone arbitration agreement.  Given this change in the law governing employee handbooks, it is an opportune time to undergo a thorough review of your employee handbook to bring your handbook into compliance with the law in New Jersey.


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