New Jersey Appellate Court Rules on Enforceability of Employee Arbitration Agreements

Arbitration clauses, by which the parties to a contract agree to submit disputes to an arbitrator or arbitration panel before filing suit, or in lieu of litigation entirely, are becoming increasingly common in both consumer and employment contracts. Arbitration is a form of alternative dispute resolution (ADR) that has some similarities to the litigation process, but it is conducted almost entirely outside the court system. The New Jersey Appellate Division recently issued a ruling that clarifies the requirements for the validity of an arbitration clause in an employment contract, holding that the clause must state a “clear and unmistakable” waiver of an employee’s right to a jury trial. Milloul v. Knight Capital Group, et al., No. A-1953-13T2, slip op. at 15 (N.J. App., Sep. 1, 2015).

New Jersey courts, as a matter of policy, encourage litigants and prospective litigants to use arbitration and other ADR methods. The New Jersey Arbitration Act, N.J. Rev. Stat. § 2A:23B-1 et seq., sets basic guidelines for arbitration. A neutral third party, known as an arbitrator, reviews both sides’ claims and defenses, and he or she may conduct a proceeding that is similar to a trial before rendering a decision. Arbitrators are often former judges with experience in conducting trials, as well as training and certification through various private arbitration organizations. State and federal laws do not require licensing for arbitrators the way they do for attorneys and other professionals, although courts may set their own criteria.

Some arbitration clauses state that the result of an arbitration is binding on the parties. In that case, a court’s authority over the matter is limited to ratifying the arbitration decision, unless it finds evidence of fraud, bias, or misconduct during the arbitration process. See N.J. Rev. Stat. §§ 2A:23B-22, 23, 24. When an arbitration clause appears in an employment contract, much as when one appears in a consumer contract, the employee is often not in a position to negotiate the details of the clause, due to both a lack of bargaining power and a lack of understanding of what the clause means. Arbitration clauses are the subject of much criticism, partly because of this disadvantage.

The plaintiff in Milloul filed suit against the defendant in 2013, claiming religious discrimination and retaliation under the New Jersey Law Against Discrimination. N.J. Rev. Stat. § 10:5-12. The defendants filed a motion to compel arbitration that November, arguing that the plaintiff received a “new hire packet” in January 2008 that included an arbitration agreement. The trial court agreed and dismissed the lawsuit.

The Appellate Division found that the arbitration clause fell short of the standard for consumer arbitration clauses established by the New Jersey Supreme Court in Atalese v. U.S. Legal Serv. Group, 99 A.3d 306 (N.J. 2014). Since an arbitration agreement requires the parties to agree to “a waiver of a party’s right to have her claims and defenses litigated in court,” courts must make certain that both parties had “a clear mutual understanding of the ramifications of that assent.” Id. at 313. The court ruled that the Atalese standard also applies to employment contracts. It reversed the order compelling arbitration, ruling that the clause must “state in some express fashion that the employee is sacrificing his or her right to a trial.” Milloul at 20.

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

More Blog Posts:

New Jersey Supreme Court Applies Broad Definition of “Employee,” Including Many Normally Classified as Independent Contractors, The New Jersey Employment Law Firm Blog, April 22, 2015

Updated LinkedIn Profile Leads to Claim for Alleged Breach of Non-Compete Agreement, The New Jersey Employment Law Firm Blog, February 27, 2015

Sandwich Chain Reportedly Requiring Employees to Sign Non-Competition Agreements, The New Jersey Employment Law Firm Blog, November 12, 2014

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