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NJ Appellate Court Offers New Guidance on Employee Arbitration Agreements

Earlier this month, the New Jersey Appellate Division ruled that employee arbitration agreements, to be enforceable, must contain a “clear and unmistakable” waiver of an employee’s right to a trial in court.  In Milloul v. Knight Capital Group, the court, finding no distinction between an employee arbitration agreement and a consumer arbitration agreement, extended an earlier 2014 New Jersey Supreme Court decision requiring express right-to-sue waivers in consumer arbitration agreements.

The Agreement

In Milloul, the plaintiff signed—among other forms provided in a “new hire packet”—a one-paragraph employee arbitration agreement, called a “Dispute Resolution Agreement,” shortly after his prior employer was acquired by Knight.  The DRA provided:

I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out of or relating to my application for employment, my employment or the cessation of my employment with Knight Capital Group, Inc. or any of its affiliates exclusively by final and binding arbitration pursuant to the rules of the American Arbitration Association.  Such claims include but are not limited to claims under federal, state and local statutory law or common law, such as the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans with Disabilities Act, the law of contract and the law of tort.

According to the plaintiff, Knight required him to fill out the “new hire” forms immediately.  He claimed he was “handed a bunch” of standard human resources forms and was pressured to immediately sign the forms.  The plaintiff further alleged that he was not given an opportunity to read the forms and was not advised that one of the forms was related to arbitration or waving his right to sue Knight.  Accordingly, he claimed that he completed and signed the forms, including the DRA, on the spot at his new hire orientation, without reading them.

The Decision

Though it recognized New Jersey’s strong public policy “to favor arbitration as a means of settling disputes which otherwise would go to court,” the appellate court nonetheless reversed the trial court’s order compelling the plaintiff to arbitrate his religious discrimination and retaliation claims.  Specifically, the court found the arbitration agreement unenforceable because it did not “state in some express fashion that the employee is sacrificing his or her right to a trial.”  Citing the recent New Jersey Supreme Court decision concerning consumer arbitration agreements, the court explained that parties to an arbitration agreement must know that they are “waiving their time-honored right to sue,” and that “an average member of the public may not know—without some explanatory comment—that arbitration is a substitute for the right to have one’s claim adjudicated in a court of law.”

The Takeaways

The message to employers is clear:  Review your employee arbitration agreements, and if they do not include a “clear and unmistakable” waiver of an employee’s right to a trial in court, it is time to revise them.  Other lessons from this decision and other case law concerning crafting employee arbitration agreements:

  • define the arbitration process (e.g., private, binding, which rules apply, who pays forum fees);
  • although not necessary to “list every imaginable statute by name,” at minimum, “provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination,” including workplace discrimination claims;
  • similar to a release you would find in a separation agreement, include language for employees to acknowledge that they have read and understand the arbitration agreement, are voluntarily signing it, and have been provided ample time to consider the agreement, ask the employer questions and consult counsel (i.e., allow employees to bring the document home to complete);
  • ensure the arbitration provision is in a conspicuous place if it is contained within another document (e.g., offer letter, handbook) or, better yet, provide the arbitration agreement as a stand-alone document; and
  • draft the agreement “in a simple, clear, understandable and easily readable way.”

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David Katz