New Jersey’s Appellate Division has again issued a decision limiting the enforceability of arbitration clauses in employment agreements. In Marilyn Flanzman v. Jenny Craig, Inc., A-2580-17T1, an eighty-two-year-old plaintiff was terminated by the defendant after twenty-six (26) years of service, and alleged age discrimination under New Jersey’s Law Against Discrimination. In response to the suit, the defendant employer filed a motion to compel arbitration, relying on the parties’ arbitration agreement. This agreement was entered into in 2011 – some twenty years after plaintiff was hired – as a condition of the Plaintiff continuing her employment.
The agreement provided:
Any and all claims or controversies arising out of or relating to [plaintiff’s] employment, the termination thereof, or otherwise arising between [plaintiff] and [defendant] shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration. This agreement to arbitrate includes all claims whether arising in tort or contract and whether arising under statute or common law including, but not limited to, any claim of breach of contract, discrimination or harassment of any kind.
The agreement was silent as to “what forum generally replaced” the right to a jury trial. Nevertheless, the trial court dismissed the action and compelled the parties to proceed to arbitration. On appeal, the Plaintiff claimed that the arbitration agreement lacked “mutual assent,” and that the parties did not reach a “meeting of the minds.” This was due to the lack of language in the agreement specifically choosing an arbitration forum, or providing a mechanism or procedure for the parties to select such a forum.
The Appellate Division noted that, while giving deference to the state’s public policy in favor of arbitration, arbitration contracts are governed by rules of interpretation that are applicable to contracts in general. Courts are to “take particular care in assuring the knowing assent of both parties to arbitrate,” because arbitration involves the waiver of the right to pursue a case in court.
The Court followed a 2016 decision, Kleine v. Emeritus at Emerson, 445 N.J. Super. 545, 552-53 (App. Div. 2016). There, the appellate court encountered a scenario where the arbitration forum selected in the agreement was not actually available at the time the contract was executed. Thus, the court concluded that there was no enforceable contract to arbitrate.
The panel analogized Kleine to the contract above. In the absence of clear language selecting an arbitration forum, the parties would not understand the applicable arbitration rules and procedures, and would be unfamiliar with the procedures that replaced judicial adjudication. In the absence of this knowledge, the Court ruled, the parties could not reach a “meeting of the minds.” Moreover, the contract did not set forth any process for selecting an arbitration mechanism or setting in the absence of a specific selection clause. The Court declined to impose “any special language” that must be utilized in such an agreement, but noted that there was a lack altogether of language that would identify a process by which the parties had agreed to arbitrate any claims.
The Court concluded that in “a contract in which one gives up a right – a jury trial for example – expecting to resolve a dispute in some other forum, one must know about that other forum. Without that knowledge, they are unable to understand the ramifications of the agreement.” The Court reversed the trial court’s dismissal of the action, and remanded.
This decision should be a red flag to businesses across the State which rely on arbitration agreements to avoid protracted litigation as part of their employment practices. While not disallowing the practice, the Appellate Division has made clear that the process that will replace court adjudication must be spelled out in sufficient detail for the parties to understand the replacement forum.
If you have any questions about this article, or about the state of employment law in New Jersey, please feel free to reach out to MK&C attorney Tom Emala at email@example.com.