New Jersey Appellate Division Holds that Mandatory Arbitration Provisions Contained in Employee Handbooks are Unenforceable

New Jersey Appellate Division Holds that Mandatory Arbitration Provisions Contained in Employee Handbooks are Unenforceable

Summary

New Jersey employers’ mandatory arbitration policies are likely to be found unenforceable when contained in an employee handbook, the New Jersey Appellate Division recently ruled.  In C.M. v. Maiden Re Insurance Services, LLC, (A-2913), the court held that if a mandatory arbitration policy is contained in an employee handbook which also contains typical disclaimer language, an employee’s acknowledgment of receipt of the handbook is insufficient to create a binding agreement to arbitrate.  Accordingly, all such arbitration provisions will be deemed unenforceable by New Jersey courts.  This decision follows New Jersey’s continued reliance on basic contract principles to invalidate arbitration provisions.            

Analysis

In Maiden Re Insurance Services, the defendant employer included a mandatory and binding arbitration policy at the end of its employee handbook which provided that any controversy or claim arising out of the employment relationship would be resolved through arbitration. Plaintiff employee electronically acknowledged receipt of the handbook. The employee handbook also contained a disclaimer making clear that the handbook is not intended to create contractual obligations between the employer and its employees.  

Defendants moved to dismiss plaintiff employee’s complaint and force arbitration based on the arbitration policy.  The lower court granted Defendants’ motion, however the Appellate Division reversed.   The Appellate Division found that the arbitration policy in defendant Maiden’s employee handbook was irreconcilable with the express language in other sections of the same handbook that prominently and unequivocally disclaim that the handbook is intended to create a legally enforceable contract between Maiden and its employees.  The Appellate Division held that if the handbook contains the typical disclaimer language that its provisions “are not intended to create contractual obligations,” any mandatory arbitration provision also contained in the handbook is insufficient to bind the employee.    

In reaching its decision the Appellate Division emphasized that an agreement to arbitrate must be the product of “mutual assent” and “requires a meeting of the minds,” as most recently emphasized by the New Jersey Supreme Court in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), cert. denied sub. nom., Legal Servs. Grp., L.P., v. Atalese, 135 S. Ct. 2804 (2015) (refusing to enforce an arbitration agreement because it did not contain a specific warning that the parties were waiving their right to a jury trial).  The Appellate Division found that the plain language in the handbook demonstrated with unmistakable clarity that the defendant employer did not intend for the handbook to create a binding agreement.  Based on this reasoning, the Appellate Division held that the plaintiff did not waive her rights to seek redress in court by virtue of having acknowledged receipt of the employee handbook, because the handbook did not create a binding enforceable agreement between the employer and the employee.  

Employer Implications

The implications of this decision are clear – an arbitration policy in an employee handbook is not sufficient to form a binding agreement to arbitrate and will not be enforced by New Jersey courts.  Arbitration agreements must be just that, separate agreements signed between employer and employee.  Employers should take action now to review their handbooks.  If the company’s arbitration policy resides in the handbook, it should be removed and placed in a separate agreement, signed by all employees, in order to be enforceable.  

For more information about this important development, please contact the authors or the Saul Ewing attorney with whom you are regularly in contact.

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