January 1, 1900

by Keith B. Bannach

Considering the many benefits of using arbitration to resolve disputes, more and more employment agreements contain provisions for arbitration as the exclusive forum of dispute resolution. These agreements require the use of arbitration to resolve either specifically designated issues or all disputes arising out of the employment relationship. Disputes include advancement, job assignments, pay or benefits, and even termination. Arbitration is beneficial to employers and employees alike as a means of resolving employment disputes more quickly and with less cost than traditional litigation. However, two recently decided New Jersey cases have mandated that certain rights must be clearly and unmistakably identified as being within the agreement to arbitrate. Unless the employment agreement satisfies the new strict requirements, the benefits of arbitration may be available only if both the employer and employee consent to arbitration after the dispute arises.

The Benefits of Arbitration and the Arbitration Process

Arbitration - like the traditional court system - is simply a forum in which to resolve disputes. It is an efficient and flexible forum to resolve most types of disputes. Being less formal than court proceedings, arbitration often proceeds more quickly and with less expense than traditional litigation. Arbitration also permits the parties, with assistance from the arbitrator, to design creative and more effective solutions than court ordered injunctions or monetary damages alone.

Courts favor arbitration because it reduces the existing backlog of filed cases and permits the judges to allocate more judicial resources to the remaining cases. A complaint filed in the New Jersey Superior Court can take years to resolve. New Jersey, like many other states, requires certain cases filed in the court system to be submitted to some form of Alternative Dispute Resolution ("ADR") before being assigned to a judge for adjudication.

Although arbitration is less formal than litigation, the parties still present their case to a neutral arbitrator, or panel of arbitrators, for a decision - a process similar to traditional litigation. If not agreed to prior to the dispute, a party may request arbitration. A "binding" arbitration decision is final, although the parties may also agree to "non-binding" arbitration prior to the arbitration process. If all parties agree to arbitrate the dispute, they then select the hearing location and arbitrator(s), whereafter a schedule establishing times for each party to present their case is established. At the arbitration hearing each party presents its case, including testimony of key witnesses and other evidence. Thereafter, the arbitrator(s) has a certain period of time to make a decision and award, usually in writing.

The arbitration award may be converted into a formal judgment to allow enforcement similar to a court ordered judgment. Additionally, although the arbitration award may be final, a party may appeal alleged errors in the arbitration process itself, providing another level of protection of each parties' entitlement to a fair hearing.

Arbitration of Claims Alleging Violation of the New Jersey Law Against Discrimination

An agreement to arbitrate is simply an agreement to use arbitration as the exclusive forum to resolve disputes. In legal terms, it is a waiver of the right to bring suit in court or other administrative body concerning a particular dispute. Such an agreement poses unique issues when one party, typically the employee, is asked to waive specially protected rights, such as the right to bring claims arising under state or federal laws. These "statutory" rights include claims alleging violation of the New Jersey Law Against Discrimination ("LAD") or the Federal Americans with Disabilities Act, among others. As these "statutory" rights were enacted to address problems identified by law makers, special protection is afforded an individual's entitlement to these rights. Specifically, an individual's waiver of these rights must be knowing and voluntary.

Two recent New Jersey cases reaffirm the longstanding rule that an employee's waiver of the right to sue an employer alleging violations of statutory rights, including LAD, must be unambiguous and knowing. In both of these cases, the agreement to arbitrate was found to be not sufficiently specific, and the courts have refused to uphold the respective agreements to arbitrate. The New Jersey Supreme Court in Garfinkel v. Morristown Obstetrics & Gynecology Assoc., P.A. acknowledged that parties may voluntarily agree to arbitrate disputes through an employment contract or other agreement, noting that arbitration is a favored means of resolving disputes. However, the Garfinkel Court stated that arbitration agreements in an employment agreement must incorporate specifically "any dispute" language which represents an all inclusive agreement to arbitrate all disputes, including those arising from statutory rights. Preferably, it was suggested, the agreement should specifically identify the options available and types of statutory or other rights being waived. Without such all inclusive or specific language, courts will not find a knowing waiver of an employee's right to sue pursuant to a statutory right, and thus the arbitration agreement will not be enforced.

Shortly thereafter, the Appellate Division decided Grasser v. United Healthcare Corp. and established a more strict standard by holding that any "waiver [of rights] and agreement to arbitrate must be explicit and must refer specifically to arbitration of [ ] disputes and claims of LAD violations. ...Waiver provisions which are not clear and explicit will not be enforced." In both cases, the courts focused on the specific language of the agreements involved and held that the agreements lacked a clear and unambiguous waiver of the employee's right to sue for alleged violations of the LAD.

In Grasser, the employee signed an "acknowledgment" indicating that "arbitration is the final, exclusive and required forum for the resolution of all employment related disputes which are based on a legal claim." The Grasser court determined that the "acknowledgment - the only document signed by plaintiff" was not specific enough concerning the requirement to arbitrate LAD, or similar federal anti-discrimination claims, because it did not specifically mention these "statutory" rights. The court opined that it "is neither obvious nor inevitable to an average reader without legal training or above average sophistication" that the provision had an extensive reach sufficient to apply to LAD claims. Thus, New Jersey requires that an agreement to arbitrate a statutory claim must be specifically and unmistakably detailed in an agreement to which the employee knowingly agrees.

Collective Bargaining Agreements?

There is currently no case in New Jersey which addresses whether an individual employee is bound by a collective bargaining agreement's requirement to arbitrate LAD or similar statutory employment claims. However, it is doubtful that an employee would be required to arbitrate such claims pursuant to a collective bargaining agreement in light of the stringent holdings of Garfinkel and particularly Grasser.

Both Garfinkel and Grasser emphasize the importance of identifying the actual intent of the individual parties to determine if there was an agreement to arbitrate these statutory rights. The holdings deny imputing knowledge of the waiver, and require actual knowledge of, and agreement to, the waiver by the individual. The Grasser court stated "[o]ur courts will not indulge an assumption that an employee would probably know, or should have known, that vague or non-specific language is intended to include termination disputes and/or LAD violations."

Conclusion

Garfinkel and Grasser have significantly revised what is required to constitute valid arbitration and waiver clauses. Many employment agreements created prior to these cases will likely fall short of these new requirements. At Hill Wallack, we are ready to assist you in reviewing your existing employment agreements, or to draft new agreements, to ensure they meet these new stringent requirements and your company's employment needs.

Keith B. Bannach is an associate of Hill Wallack where he is a member of the Litigation Division and the Trial & Insurance Practice Group.