New Jersey Court Denies Two Motions to Compel Arbitration by Employer in Wrongful Termination Lawsuit

The court system in the U.S. is often described as “overburdened.” Courts therefore encourage litigants to pursue a variety of alternative dispute resolution (ADR) methods. Many employers in New Jersey and around the country often include clauses in employment contracts requiring a form of ADR known as arbitration in disputes with their employees. Both federal and New Jersey employment laws establish a preference in favor of enforcing arbitration clauses but require that an employee receive adequate notice. A federal district court in New Jersey ruled on two separate motions to compel arbitration by an employer in a wrongful termination case. First, the court ruled that a genuine issue of fact existed as to whether the plaintiff received adequate notice of an arbitration agreement. Schmell v. Morgan Stanley & Co., Inc. (“Schmell I”), No. 3:17-cv-13080, op. (D.N.J., Mar. 1, 2018). It later denied a motion “to compel arbitration…to resolve disputed issues of fact related to arbitration.” Schmell v. Morgan Stanley & Co., Inc. (“Schmell II”), No. 3:17-cv-13080, op. at 2 (D.N.J., May 30, 2018).

The arbitration process involves presenting a dispute to one or more trained ADR professionals, often former judges, who conduct a proceeding similar to a trial and render a decision. If the parties have agreed in advance, this decision is binding. Arbitration offers some advantages over litigation, but it is often perceived as favoring employers, who typically have more resources to pay arbitration fees. New Jersey law holds that an employee is not bound by an arbitration clause if the employee “does not sign or otherwise explicitly indicate his or her agreement to it.” Schmell I, op. at 4, quoting Leodori v. CIGNA Corp., 814 A.2d 1098, 1106 (N.J. 2003).

The plaintiff in Schmell began working for the defendant in 2006. During his employment, he wrote “a self-help book that referenced his history with drug and alcohol abuse and ultimate recovery.” Schmell I at 1. In June 2017, according to the plaintiff, he presented the defendant with a draft of the book. The defendant allegedly threatened termination if he did not make certain edits. The plaintiff claims that he made the requested edits, but the defendant still terminated him on October 31, 2017. The book was published on November 14. The plaintiff filed suit one month later, alleging discrimination on the basis of disability because of his history of addiction.

The defendant’s first motion to compel arbitration stated that it had notified all employees of changes to the company’s arbitration policy in September 2015 via email. The policy made arbitration mandatory unless an employee opted out. The defendant argued that, since the plaintiff did not opt out and continued working for the defendant, this constituted notice and assent. The court disagreed, holding that this is insufficient to “find that Plaintiff is bound to arbitrate pursuant to this agreement.” Id. at 8.

Several weeks after that ruling, the defendant moved to compel arbitration on the questions raised by the earlier ruling. The court also denied this motion. It held that, since the enforceability of the arbitration agreement itself was in question, “the present dispute…may not be submitted to arbitration.” Schmell II at 9. It did, however, allow “limited discovery on factual issues of notice.” Id.

The Resnick Law Group’s arbitration lawyers represent employees, former employees, and job applicants in New Jersey and New York in a variety of disputes with employers. Contact us online, at 973-781-1204, or at (646) 867-7997 today to schedule a confidential consultation with a member of our team.

More Blog Posts:

New Jersey Appellate Court Invalidates Arbitration Clause in Employee Handbook, The New Jersey Employment Law Firm Blog, April 1, 2016

New Jersey Appellate Court Rules on Enforceability of Employee Arbitration Agreements, The New Jersey Employment Law Firm Blog, October 27, 2015

A Resnick Law Group Victory: Last Minute Arbitration Will Not Be Upheld in New Jersey, The New Jersey Employment Law Firm Blog, April 5, 2012


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