New Jersey Appellate Court Invalidates Arbitration Clause in Employee Handbook

New Jersey courts encourage parties to a dispute to make every reasonable effort to resolve their disagreements without resorting to litigation. Various forms of alternative dispute resolution (ADR) are available to assist litigants and would-be litigants. One type of ADR, known as arbitration, is somewhat similar to a trial, in that the parties present their cases to one or more arbitrators. Many employment contracts include clauses stating that any disputes must be submitted to arbitration, and that the arbitrator’s decision is binding on the parties. The New Jersey Appellate Division recently ruled that an arbitration clause in an employee handbook was not a mandatory arbitration clause, because the handbook also stated that it was not to be construed as a contract. Morgan v. Raymours Furniture Co., Inc., No. A-2830-14T2, slip op. (N.J. App., Jan. 7, 2016).

The New Jersey Arbitration Act, N.J. Rev. Stat. § 2A:23B-1 et seq., applies to arbitration agreements between employers and individual employees. An agreement to arbitrate must be part of an enforceable employment contract, or else it must be a separate contract between an employer and an employee.

A party to a dispute can ask a court to compel arbitration if another party is refusing to cooperate with a valid arbitration agreement. N.J. Rev. § 2A:23B-7. A court is required to enter an order confirming a binding arbitration award, N.J. Rev. § 2A:23B-22; unless it vacates the order due to fraud, partiality by an arbitrator, or certain other grounds, N.J. Rev. § 2A:23B-23; or it modifies the award due to an error by the arbitrator, N.J. Rev. § 2A:23B-20, 24.

A key fact in Morgan that led to the court’s ruling invalidating the arbitration clause was a separate clause in the employee handbook stating that the handbook did not constitute a contract between the employee and the employer. This was likely based on a New Jersey Supreme Court decision holding that an employer could be contractually bound by an “implied promise” in an employment handbook or manual, “absent a clear and prominent disclaimer” that it did not create a contractual relationship. Woolley v. Hoffmann-La Roche, Inc., 99 N.J. 284, 285 (1985).

The employer/defendant in Morgan provided the employee/plaintiff with an employee handbook that included a clause regarding arbitration of disputes and a clause stating that the handbook was was not an “employment contract, term or obligation of any kind on the part of the Company.” Morgan, slip op. at 5-6. The plaintiff alleged that the defendant retaliated against him when he complained of age discrimination, giving him the choice of signing “a stand-alone arbitration agreement” or losing his job. Id. at 5.

The plaintiff filed suit against the defendant after it followed through on its threat to fire him. The defendant claimed that the suit was barred by the arbitration clause in the handbook. It moved to compel arbitration, and appealed the trial court’s denial of its motion. The Appellate Division affirmed the trial court, and was quite blunt in its criticism of the defendant’s effort to “seek both the benefit of its disclaimer in most instances, while insisting that the handbook was contractual when it suits its purposes.” Id. at 6. The court noted that its ruling probably would have been different “had [the] plaintiff executed the standalone arbitration agreement presented to him.” Id. at 9.

If you need to speak to an attorney about an employment law matter in New Jersey or New York, please contact the Resnick Law Group online, at 973-781-1204, or at (646) 867-7997.

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