There has been a great deal of controversy between employees and employers regarding the enforceability of arbitration clauses in employment agreements, employee handbooks or job applications. This is especially true when litigating discrimination claims that are governed in New Jersey by the Law Against Discrimination ("NJLAD"), which creates arguably the most expansive statutory rights for employees. New Jersey has seen no shortage of litigation on this issue.
Since the issue of whether an employer may require an employee – or prospective employee – to waive statutory rights is hotly contested, a legislative response may be forthcoming in 2003. There is a bill currently pending before New Jersey's Legislature amending the NJLAD by declaring that it would be an unlawful employment practice for any employer to force an employee to waive certain statutory rights as a condition of hiring or continued employment. These statutory rights include the right to a jury trial or adjudication in a court of law.
The bill states that it is the public policy of New Jersey to insure that all employees have the full benefit of legislation passed to protect them and that they are not "coercively deprived" of their constitutional rights to a jury trial and access to a public court. Thus, the purpose of the bill seems to act as a counterbalance against the recent trend of employers requiring that any and all claims an employee would bring against the employer would be resolved through arbitration as opposed to litigating cases in state court. Nevertheless, the proposed NJLAD amended still allows for an employee – or prospective employee – to "knowingly and voluntarily" waive these rights.
Whether an employee can be forced to waive statutory rights is not a minor issue. Based upon information collected from employers by the Equal Employment Opportunity Commission ("EEOC"), a recent study by two professors at the Rutgers School of Law in Newark found that about two million workers across the United States were affected by intentional discrimination in 1999. In New Jersey alone, the number is estimated to be approximately sixty thousand workers.
To the surprise of these workers in New Jersey, however, they may be required to bring their cause of action against their employer through private arbitration, not with the Superior Court of New Jersey. Typically, employees and employers not only disagree on the underlying facts regarding any work-related disagreement, now they may not even agree where the action must be litigated to resolve any of these underlying disagreements. In most cases, it is unlikely that a job applicant contemplated which forum he or she was selecting when applying for employment.
In 2001, the New Jersey Supreme Court in Garfinkle v. Morristown Obstetrics and Gynecological Associates held that courts will not assume that employees intended to waive statutory rights unless the employee had done so in "unambiguous terms". Garfinkle involved an employment contract. However, the Supreme Court in Garfinkle did not require that an employer list each and every statute (or even refer to the NJLAD) in the contract "by name to effectuate a knowing and voluntary waiver of rights." The Court did require – at minimum – that the "employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination."
Although the employees who believe that they have been discriminated still have a forum to be heard, it may not be in court of law before a jury of their peers according to a recent New Jersey Supreme Court ruling. In 2002, the New Jersey Supreme Court in Martindale v. Sandvik, Inc. ruled that an arbitration clause on a job application form that waives an employee's judicial remedy to bring an action in the Superior Court of New Jersey may be enforceable so long as certain requirements are met.
The Supreme Court in Martindale found that there was nothing contrary to public policy to declare such agreements unenforceable. Weighing the competing interests on this issue, the Supreme Court tipped the scales to favor arbitration versus litigation as a method to reduce legal costs and lessen the burden on the court system. Against the backdrop of the EEOC statistics, it is obvious that both the court system and employers are seeking alternative methods to resolve disputes with employees.
This ruling, however, does not necessarily mean that all arbitration clauses in employment applications or agreements are enforceable. The Supreme Court noted that the particular employment application informed the employee that she had the right to seek counsel prior to executing the application, the waiver language was conspicuous and that the waiver was knowing and voluntary. Since the decision was close, it is likely that the Supreme Court will be revisiting this issue for quite some time since the pending bill – in its present form – does little to clarify this issue. Complicating matters further is that some legal experts also believe that the pending bill may be preempted by the Federal Arbitration Act ("FAA").
The Appellate Division in Leodori v. Cigna Corp. refused to enforce an arbitration clause in an employee handbook and held that any voluntary waived of an employee's right to sue in the courts must be contained in a separate document to be "knowing and voluntary". Leodori is pending before the Supreme Court of New Jersey and employers may soon know arbitration clauses must be written in a separate document.
Employers that prefer arbitration to litigation should consult with their attorneys to determine whether the language of its arbitration clauses comports with recent changes in the law. Even if the proposed amendment to the NJLAD dies in the Legislature, recent court decisions should at least give employers adequate guides if they seek to incorporate arbitration clauses in their employment documents.