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Articles Posted in Employment Contracts

The court system encourages litigants to attempt alternative dispute resolution (ADR) before taking their cases to court. Many employment contracts in New Jersey and nationwide include clauses requiring arbitration before (or instead of) going to court. The Federal Arbitration Act (FAA) strongly favors these clauses, but it exempts certain groups of workers. The Third Circuit Court of Appeals recently vacated an arbitration order in a New Jersey employment class action. It found that the plaintiff, a driver for a major rideshare company, could be part of an exempt group under the FAA.

The Third Circuit case deals with alleged misclassification of employees as independent contractors, a common issue with rideshare companies and other “gig economy” employers. Employees are protected by multiple local, state, and federal statutes governing wages, hours of work, working conditions, paid and unpaid leave, discrimination and harassment, and more. Independent contractors do not enjoy most of these legal protections. Under New Jersey law, a worker is considered an employee unless they meet the “ABC test,” which looks at the degree of control the employer may exercise over the worker, and the extent to which the worker has their own established trade or business. See N.J. Rev. Stat. §§ 43:21-19(i)(6)(A), (B), (C).

ADR offers some advantages over litigation, but for employees seeking relief under New Jersey’s employment statutes, it can also have disadvantages. The parties must pay all of the costs associated with ADR, including the fees charged by arbitrators, mediators, or other ADR specialists. This can give employers with deep pockets an advantage. The FAA sets a very high bar for challenging, modifying, or vacating an arbitration award. In order for a court to compel arbitration in an employment lawsuit, however, an employer must first demonstrate that the FAA applies to its employees.

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Employers often include restrictive covenants (RCs) in employment contracts. As the name suggests, these are contractual provisions that restrict employees from taking certain actions, both during and after employment. In order for provisions like these to be enforceable, they must balance the employer’s interests with the employee’s rights. The New Jersey Superior Court, Appellate Division ruled this summer in a consolidated group of cases in which an employer alleged RC violations by former employees. It addressed the “inconsistent” handling of the lawsuit by lower courts, and sought “to bring some clarity and uniformity” to how courts deal with RCs in New Jersey employment contracts.

Two common RCs are:
– Non-competition or non-compete agreements, which restrict employees from working for another company that competes with their employer; and
– Non-solicitation agreements, which restrict employees from soliciting clients or customers of their employer to do business with someone else.

In 1970, the New Jersey Supreme Court established three principles for non-competition agreements. In order to be enforceable, the court held that a non-competition agreement (1) must protect no more than an employer’s “legitimate interests”, (2) must “impose[] no undue hardship on the employee”, and (3) must not be “injurious to the public.” The court further ruled that New Jersey non-competition agreements must have reasonable limits on both duration and geographic scope. The court later held that the employer has the burden of demonstrating enforceability. A non-competition agreement that restricts a former employee’s ability to work indefinitely, or which prohibits working for a competitor anywhere in the United States would likely be deemed unreasonable and unenforceable in New Jersey.

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New Jersey employment lawsuits can take months or years before getting to trial. Alternative dispute resolution (ADR) offers other ways for litigants to deal with their disputes. Many employment contracts now include clauses stating that employees agree to submit employment-related disputes to arbitration, a type of ADR that resembles a trial, before going to court. The Federal Arbitration Act (FAA) sets standards for arbitration agreements, and establishes limited guidelines for when courts have the authority to vacate or modify “binding” arbitration awards. The U.S. Supreme Court recently ruled on whether an arbitration agreement in an employment contract can require an employer to engage in arbitration with a class of employees, rather than separate proceedings with each employee asserting a claim. The ruling in Lamps Plus, Inc. v. Varela, 587 U.S. (2019), holds that an arbitration agreement must explicitly allow for class arbitration. Courts cannot infer consent to class arbitration from an ambiguous agreement.

In an arbitration, the parties to a dispute choose a neutral third-party arbitrator who acts in a role similar to that of a judge. This process offers the advantage of moving faster than a lawsuit. Its disadvantages often weigh heavier on employees, such as the confidentiality of arbitration proceedings and, in the case of binding arbitration, a lack of further recourse if the arbitrator rules against them. The FAA presumes that any agreement to arbitrate is “valid, irrevocable, and enforceable” as long as it complies with all requirements for an enforceable contract. 9 U.S.C. § 2.

Federal and state civil procedure rules allow large groups of plaintiffs with similar claims against a defendant to join their claims into a single lawsuit, known as a class action. Class arbitration operates on a similar principle, allowing a group of claimants to present their cases together in one proceeding. The alternative is to have each claimant bring their claims individually, with each individual bearing the full cost of doing so. While a well-established set of procedural rules govern class actions, however, class arbitration derives from contractual agreements, such as those between employees and their employer. The Supreme Court ruled that courts cannot compel class arbitration when the arbitration agreement is “silent” on whether the parties have consented to it.

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When an employee begins working for an employer, they are often required to sign an employment agreement that establishes numerous features of the employer-employee relationship. Most provisions involve standard matters like job expectations, wages, and termination of the employment relationship. Employment agreements may also include provisions for nondisclosure of various types of information, as well as waivers of certain rights. When employers and employees enter into settlement agreements to resolve disputes, an employer may seek a nondisclosure clause as well. Provisions like these may hinder individuals’ ability to assert their rights under employment statutes like the New Jersey Law Against Discrimination (NJLAD). At least partly in response to increased attention on sexual harassment in the workplace, the New Jersey Legislature enacted a bill in January 2019 that amends the NJLAD to prohibit enforcement of certain nondisclosure agreements, as well as waivers of rights under the NJLAD or similar statutes.

The NJLAD prohibits employers from discriminating against employees on the basis of race, religion, sex, age, sexual orientation, gender identity or expression, and many other factors. Courts have held that prohibitions on sex discrimination in the NJLAD and other laws cover sexual harassment, as well as harassment based on other protected factors. Unlawful harassment generally includes two scenarios: (1) acquiescence to or tolerance of harassing behavior, including sexual advances, is made a condition of employment; and (2) pervasive and unwelcome harassing behavior creates a hostile work environment that interferes with an individual’s ability to perform their job duties.

The #MeToo movement has allowed people all over the country to come forward with their own experiences, when many of them might have been afraid to do so before. Nondisclosure agreements (NDAs) in discrimination and harassment cases may prevent people with similar experiences from sharing their stories. Last year, California and New York enacted limits on NDAs in situations involving alleged sexual harassment. California now prohibits NDAs that purport to “prevent[] the disclosure of factual information related to a” lawsuit or administrative complaint alleging sexual harassment. New York now has similar provisions in its laws barring NDAs in settlements and other resolutions of sexual harassment disputes.
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Organized labor is arguably responsible for many features of employment that are often taken for granted today. Union membership has decreased considerably over the past few decades for a variety of reasons. Employees in New Jersey are union members at a higher rate than the national average, but union members still only account for less than twenty percent of New Jersey’s workforce. Public sector unions tend to receive a great deal of media attention today, and the most popular historical images of union membership probably involve trades like manufacturing and mining. Recent news coverage, however, has pointed to itself as an important sector for union organizing. Newsrooms at print and digital publications around the country have elected to organize for the purpose of collective bargaining. While it is not clear if employees at any New Jersey-based publications have taken this step, it has happened at many publications that reach New Jersey readers.

New Jersey remains generally favorable to labor unions. Federal law protects workers’ rights to organize and engage in “concerted activities” related to organizing, and prohibits employers from interfering with those rights. See 29 U.S.C. §§ 157, 158. It does not, however, prevent states from enacting so-called “right-to-work” laws. At least twenty-six states, not including New Jersey, have enacted such laws. Right-to-work laws prohibit “union security clauses” in collective bargaining agreements (CBAs) between employers and labor unions. A union security clause requires all employees to contribute to the union, either by becoming a member or paying a fee. Without a union security agreement, employees who contribute nothing to the union still benefit from the union’s efforts.

Despite offering a relatively favorable environment for labor unions, not many New Jersey workers are union members. According to the Bureau of Labor Statistics, part of the U.S. Department of Labor, New Jersey had 630,000 union members in 2017. This accounted for 16.2 percent of all employees in the state. New York had 2,017,000 union members in 2017, or 23.8 percent. Both states saw a decline in union membership since 2007. New York’s number of union members fell by 38,000, while New Jersey’s fell by 118,000.
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Federal and state antitrust laws prohibit agreements that attempt to restrain trade in various forms. This applies to New Jersey employment disputes when competing businesses agree not to hire one another’s employees, or to set limits on wages or benefits. This type of unlawful activity by employers is commonly known as “collusion.” In addition to statutes, collective bargaining agreements (CBAs) also often include anti-collusion provisions. A professional football player recently settled a dispute with the National Football League (NFL), in which he alleged that the league and its individual teams colluded to deprive him of job opportunities because of his participation in a controversial protest. The dispute was submitted to arbitration under the terms of the CBA between the NFL and players. It was styled Kaepernick v. NFL, et al, but it was not a lawsuit filed in a court of law.

At the federal level, the Sherman Antitrust Act of 1890 prohibits any “contract…in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. This has been interpreted very broadly over the years to apply to a wide range of commercial activities, including employment. Similarly, the New Jersey Antitrust Act prohibits “contract[s]…in restraint of trade or commerce, in this State.” N.J. Rev. Stat. § 56:9-3.

The Kaepernick case cited Article 17 of the CBA between the NFL and the NFL Players Association (NFLPA), which has been in effect since August 4, 2011. The CBA is binding on the NFL and its thirty-two teams, also known as clubs. Section 1(a) of Article 17 prohibits clubs from “enter[ing] into any agreement, express or implied, with the NFL or any other Club, its employees or agents to restrict or limit individual Club decision-making” with regard to hiring decisions. Remedies, addressed in §§ 8 and 9 of Article 17, include termination of existing contracts and compensatory damages.
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Many New Jersey employers include provisions for arbitration of disputes in written contracts with new employees. In order for an arbitration agreement to be legally enforceable, it must, among other criteria, contain enough information to demonstrate a “meeting of the minds” between the parties. The New Jersey Appellate Division recently ruled that an arbitration agreement, signed decades after the plaintiff began working for the defendant, was not enforceable because there was no “meeting of the minds” in evidence. Flanzman V. Jenny Craig, Inc., No. A-2580-17T1, slip op. (N.J. App., Nov. 13, 2018).

The plaintiff in Flanzman is alleging age discrimination under the New Jersey Law Against Discrimination (NJLAD). This statute prohibits employers from discriminating against employees on the basis of numerous factors, including age. Whereas the federal statute addressing age discrimination expressly states that it only applies to individuals who are forty years of age or older, 29 U.S.C. § 631(a), the NJLAD does not set a minimum age. It does, however, state that an employer does not automatically violate the law if they “refus[e] to accept for employment or to promote any person over 70 years of age.” N.J. Rev. Stat. § 10:5-12(a). This exception only covers two specific discriminatory acts: refusal to hire and refusal to promote. It does not mention other acts, such as termination or unequal pay.

In order for a contract to be enforceable, the party seeking enforcement must demonstrate that the other party knowingly assented to the agreement. Courts are particularly strict about this requirement when the contractual term at issue involves a waiver of legal rights. An arbitration agreement waives the right to seek redress in court. If the agreement provides for binding arbitration, the parties may have no recourse in the court system at all. New Jersey courts therefore require evidence that an employee “clearly and unambiguously agree[d] to waive his or her statutory rights.” Flanzman, slip op. at 8, quoting Leodori v. Cigna Corp., 175 N.J. 293, 302 (2003).
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Litigation is perhaps the most well-known method of dealing with legal disputes, but it is not the only method. Our legal system increasingly encourages would-be litigants to use alternative dispute resolution (ADR) before, or instead of, going to court. Many contracts now include clauses requiring the parties to submit disputes to arbitration. While arbitration may offer some benefits over the court system, it is subject to numerous criticisms in disputes involving a significant imbalance of power and resources. If you have questions of this nature, contact a New Jersey employment attorney without delay.

Court decisions interpreting New Jersey’s employment antidiscrimination statute have invalidated provisions of arbitration agreements that infringe on statutory rights. Federal law, on the other hand, favors arbitration over litigation in most cases. Several major technology companies, employing thousands of people, recently dropped mandatory arbitration of sexual harassment claims, which may allow more claims to see the light of day.

Statutes like Title VII of the federal Civil Rights Act of 1964 and the New Jersey Law Against Discrimination (NJLAD) prohibit discrimination in employment on the basis of sex, and include sexual harassment as a form of unlawful sex discrimination. In order to assert a claim under these statutes, an individual must first file a complaint with a state or federal agency like the Equal Employment Opportunity Commission (EEOC). The agency will investigate the claim, and if it determines the claim to have merit, it will issue a “right to sue” letter. This allows the complainant to file suit in state or federal court. Arbitration clauses in employment contracts prevent employees from accessing this process.

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Arbitration clauses are an increasingly common feature of New Jersey employment contracts, as well as around the country. If a dispute arises between the employee and employer, they agree to submit it to arbitration, a form of alternative dispute resolution (ADR) that somewhat resembles a trial, instead of the court system. Employment contracts may state that the results of the arbitration process are binding or non-binding. While arbitration may offer some advantages, it is widely perceived as favoring employers. New Jersey courts therefore tend to examine arbitration clauses very closely to ensure that employees have knowingly entered into an agreement that effectively bars them from taking their claims to court. A recent decision by the New Jersey Appellate Division, Walsh v. Prospect EOGH, Inc., et al, No. A-328-17T2, slip op. (N.J. App., Nov. 21, 2018), provides an example of this sort of scrutiny.

The arbitration process is essentially an informal trial, conducted by one or more arbitrators, who are often retired judges or attorneys. The parties submit evidence and arguments, and the arbitrators render an “arbitration award.” This could include an award of damages to one party, an order to do or refrain from doing something, or a declaration of some matter in dispute. If an arbitration clause states that the process is binding, statutes like the Federal Arbitration Act prevent courts from reviewing arbitration awards, except in cases involving alleged fraud or other misconduct.

Arbitration is arguably advantageous because it bypasses the slow-moving court system, where a lawsuit may wait years for a trial date. Parties in an arbitration may be able to select an arbitrator with knowledge of the specific issues involved in the dispute, rather than having the case decided by a randomly-assigned judge. These advantages, however, can also be distinct disadvantages employment disputes. The employer is likely to be at an advantage in selecting an arbitrator.
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A new law protecting New Jersey public sector unions, which was signed into law by Governor Phil Murphy in May 2018, faces a legal challenge based on a U.S. Supreme Court decision one month later. The law, entitled the Workplace Democracy Enhancement Act (WDEA), establishes standards for interactions between public-sector unions and government employers, and addresses several controversial issues. The Supreme Court’s ruling in Janus v. AFSCME, 585 U.S. ___ (2018), however, could represent a significant reduction in the power of public-sector unions. A lawsuit filed by several union members against their union and various state government officials argues that Janus invalidates certain provisions of the WDEA. Thulen, et al v. AFSCME, et al, No. 1:18-cv-14584, complaint (D.N.J., Oct. 3, 2018). The lawsuit is among the first to test how Janus will impact New Jersey employees’ rights.

Federal and state laws protect workers’ rights to organize for the purpose of collective bargaining, and either to form a union or to join an existing union that can negotiate with management on their behalf. The WDEA declares that any public sector union chosen as “the exclusive representatives of employees in a collective negotiations unit” must “hav[e] access to and be[] able to communicate with the employees it represents.” P.L. 2018, c. 15 § 2 (N.J. Rev. Stat. § 34:13A-5.12). The law requires public employers to allow union representatives to have reasonable access to employees, and to provide certain employee information to the union within a specified time frame.

Public-sector union members may authorize their employer to deduct union membership dues from their paychecks. The WDEA provision at issue in Thulen involves a restriction on employees’ ability to withdraw authorization for this payroll deduction. An employee may only withdraw authorization by giving written notice to the employer “during the 10 days following each anniversary date of their employment.” Id. at § 6, amending N.J. Rev. Stat. § 52:14-15.9e.

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