The New Jersey Appellate Division recently issued a decision adding yet another hurdle for employers in the Garden State to overcome in drafting and enforcing arbitration agreements. In Flanzman v. Jenny Craig, Inc.,¹ the court found that because an arbitration agreement did not establish the forum for the arbitration, the agreement lacked sufficient details to establish the “meeting of the minds” component crucial to rendering it enforceable. As a result of this decision, employers operating in New Jersey should consider taking a fresh look at their arbitration agreements to ensure they include the necessary provisions.

Background

New Jersey not only follows the Federal Arbitration Act, but also has enacted its own state legislation endorsing a public policy favoring arbitration agreements.² The New Jersey Arbitration Act, which is similar to the federal statute in many respects, provides, “[a]n agreement … to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract.”³ In relying on this state law-based exception contained in both the federal and state arbitration statutes, however, New Jersey courts have continuously increased the requirements to show mutual assent to arbitrate under state contract law. As a result, courts have created a moving target, expanding protections for employees and burdening employers attempting to draft and enforce arbitration agreements. 

For example, in 2001, the New Jersey Supreme Court held that because a waiver of an employee’s right to a jury trial and judicial forum under the New Jersey Law Against Discrimination (LAD) and similar statutes must be knowing and voluntary, an agreement to arbitrate such claims is invalid unless it unambiguously states an intention to waive statutory rights specifically, and generally references the types of claims included, such as workplace discrimination claims.⁴ Thus, an arbitration provision in an employment contract by which the parties broadly agreed to arbitrate “any controversy or claim arising out of, or relating to, this Agreement or the breach thereof” was held not to cover LAD claims.⁵ Just two years later, the court expanded arbitration enforceability requirements again, holding that implied consent to arbitration – such as by continued employment after receiving an employee handbook containing an arbitration provision – is insufficient consent.⁶  Rather, to constitute a knowing and voluntary waiver, the agreement “must reflect that an employee has agreed clearly and unambiguously to arbitrate the disputed claim.”⁷ Therefore, the court held, an arbitration agreement must show “an explicit, affirmative agreement that unmistakably reflects the employee’s assent,” such as by an employee’s signature.⁸

In the past 15 years, New Jersey appellate courts have considered and addressed what constitutes clear and unambiguous assent to arbitration. The resulting prerequisites are far more than a simple signature, and include strict requirements for the contents of arbitration agreements. In fact, under New Jersey law, mutual assent requires that employees have an understanding both of the terms of the arbitration agreement and the ramifications of their assent.⁹  In order to establish such an understanding, arbitration agreements must explain both that an employee is waiving his/her right to seek relief from a court or jury, including with regard to statutory discrimination and retaliation claims, and how arbitration differs from a court proceeding.¹⁰  

New Decision

In a new decision issued on November 13, 2018, the New Jersey Appellate Division has taken the requirements to show mutual assent to arbitrate one step further.  In Flanzman, the employer sought to compel a former employee to arbitrate her age discrimination and harassment claims under the LAD.  The arbitration agreement at issue covered the basics of enforceability, but did not identify any arbitration forum or process for conducting the arbitration.  It was signed by the plaintiff and stated: 

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 trial court enforced the agreement, but the Appellate Division reversed.  The court held the agreement was insufficient to establish a meeting of the minds because it did not establish the forum for the arbitration, and therefore failed to set forth the ramifications of agreeing to arbitrate.  Although the court clarified that it did not require the identification of a specific arbitrator or any special language in arbitration agreements, the agreements must “either designate [an arbitral] forum or communicate the general method for selecting a different arbitration setting.” One way that may be accomplished, the court explained, is by indicating in the agreement that the arbitration will be conducted by the American Arbitration Association or JAMS, two organizations that administer arbitration proceedings and establish certain due process and procedural safeguards under their arbitration rules.  According to the court, only by doing so will the parties have sufficient information concerning “the substantive and procedural setting for the entire arbitration process” to establish mutual assent.  The court stopped short of requiring that the agreement mandate a specific arbitrator or arbitration selection process, noting that under the New Jersey Arbitration Act, the parties could ask a court to make those determinations once the forum has been designated in the agreement.

Recommendations

Going forward, employers doing business in New Jersey should review and revise their arbitration agreements to ensure those agreements identify the forum for arbitration or, at a minimum, provide the general method for selecting an arbitration setting.  The more specifics included in the arbitration agreement, the more likely it is to be enforced.  Alternatively, under Flanzman, arbitration agreements that “generally address in some fashion the process that foreclosed [the employees’] right to a jury trial” will also satisfy mutual assent as to the ramifications of the waiver and the procedures that replaced judicial adjudication. As a result, arbitration agreements that set forth the specific procedures to be used in arbitration, rather than a specific arbitral forum or arbitrator, would likely also be valid under current New Jersey law.