Appellate Decision May Prompt New Jersey Employers to Seek Jury Waivers Instead of Arbitration Agreements

By William R. Horwitz

Earlier this month, the Superior Court of New Jersey, Appellate Division, issued a decision that may cause employers considering mandatory arbitration agreements to consider jury-waiver agreements instead. In Noren v. Heartland Payment Systems, Inc., 2017 WL 476216 (App. Div. Feb. 6, 2017), the Court invalidated a jury-waiver provision’s application to statutory employment claims, but explained that, worded properly, such waivers are enforceable.  Litigating in court without a jury has certain advantages and New Jersey employers considering arbitration programs may also want to consider jury waiver provisions as another possible option.

The Facts

Defendant Heartland Payment Systems, Inc. (“HPS”) hired plaintiff Greg Noren (“Noren”) as a Relationship Manager in April 1998.  In that position, Noren sold debit and credit, payroll and other processing card services to merchants.  In 2002, HPS terminated Noren’s employment but then rehired him.  In connection with his rehiring, Noren signed an agreement that contained a jury-waiver provision.  In 2003, he signed another agreement containing an identical jury-waiver provision.  Both jury-waiver provisions provided that HPS and Noren “irrevocably waive any right to trial by jury in any suit, action or proceeding under, in connection with or to enforce this Agreement.”  In June 2005, HPS terminated Noren’s employment.

Trial Court

Noren filed a lawsuit asserting claims for breach of contract and violation of the New Jersey Conscientious Employee Protection Act (“CEPA”).  Noren requested a jury trial, but the court denied the request in light of the jury-waiver provisions.  After a bench trial, the judge dismissed Noren’s lawsuit.  Noren appealed.

Appellate Division

On appeal, the Appellate Division reversed the judgment of the trial court.  In reaching its decision, the Appellate Division observed that both the New Jersey Constitution and the statutory language of CEPA guarantee the right to a jury trial.  Thus, according to the Court, the issue was whether the jury-waiver provision to which Noren and HPS agreed “is a legally enforceable waiver of this constitutionally and statutorily guaranteed right.”  Based upon “customary principles of contract law,” the Court explained that such a waiver must be clear and unmistakable.  No magic language is required but, the Court explained, “to effect a waiver, the language must clearly explain (1) what right is being surrendered and (2) the nature of the claims covered by the waiver.”

Applying these principles, the Court held that the language of the jury-waiver provisions in Noren’s agreements was deficient.  According to the Court, the contractual language “made no reference to statutory claims and did not define the scope of claims as including all claims relating to Noren’s employment.”  The Court also noted that the reference in the jury-waiver provisions to “this Agreement” limited “the category of disputes for which a jury trial is waived.”  Thus, the Appellate Division concluded that the jury-waiver provisions “fail[ed] to clearly and unambiguously explain that the right to a jury trial is waived as to a CEPA claim.”  The Appellate Division remanded the CEPA claim to the trial court for a jury trial.

Practical Takeaways

The practical implication of this decision is that New Jersey courts are likely to treat a properly-worded jury trial waiver similar to a mandatory arbitration provision.  Courts have long recognized a federal policy favoring arbitration based on the Federal Arbitration Act.  In light of this policy, New Jersey courts generally enforce properly-crafted arbitration agreements.  No such federal policy favors jury-waiver provisions.  However, in its decision in Noren, the Appellate Division did not reference this distinction and instead analyzed the enforceability of jury-waiver provisions by applying the reasoning of caselaw addressing the enforceability of arbitration provisions.  In other words, the Court held jury-waiver provisions to the same standard as arbitration provisions.  Thus, in New Jersey, jury waiver provisions appear to be as enforceable as arbitration provisions.  Accordingly, employers considering arbitration agreements should also consider whether jury-waiver agreements are better suited to meet their needs.

For employers, arbitration offers many potential advantages over litigating in court with a jury.  For instance, an arbitrator is less likely than a jury to award a plaintiff a surprising and unwarranted multi-million dollar verdict.  And, arbitrations are generally private, with no public filings unless a party moves to enforce an arbitration award.  Moreover, the employer plays a role in selecting the arbitrator.  However, arbitration has drawbacks.  For instance, an arbitration award is generally not appealable and the cost of arbitration (which, for the employer, includes paying the arbitrator’s fees) can be exorbitant.  Litigating in court without a jury does not have these drawbacks.  The employer can appeal a judge’s rulings and is not responsible for paying the judge’s fees.  Plus, judges are typically more inclined than arbitrators to dismiss a plaintiff’s claims on summary judgment.

In short, there are advantages and disadvantages to resolving employment disputes in court with a jury, in court without a jury, or in arbitration.  New Jersey employers seeking an alternative to court litigation should consider arbitration agreements but, in consultation with counsel, may also want to consider whether jury-waiver agreements would be a more suitable alternative to meet their goals.

Trump’s Supreme Court Nominee Will Likely Be Key Vote in Class Action Waiver Dispute

By Thomas J. Barton

The United States Supreme Court finally agreed earlier this year to resolve whether the National Labor Relations Act (NLRA) prohibits class action waivers in employee arbitration agreements. This ruling will have an immediate and far ranging impact on employers. The Trump presidency will likely play a crucial role in the outcome of what will be the first of many challenges to the expansive federal agency policies under the former Obama administration.

Employers have increasingly required employees to sign agreements to have their employment disputes resolved through private arbitration rather than through a lawsuit in state or federal court. The most critical aspect of these agreements has been the provisions by which the employee agrees to resolve his or her dispute on an individual basis rather than by means of a class action. When enforced, class action waivers are a potent weapon to stem the tide of wage and hour and employment discrimination class actions, which otherwise can result in claims involving thousands of workers and multimillion dollar settlements.

During the past five years, the federal appellate courts have disagreed on the validity of class action waivers causing confusion for national companies. Under President Obama, the NLRB took the position that workers have a right to engage in “concerted, protected activity” and therefore cannot waive their rights to engage in collective and class action proceedings to enforce these collective rights. In doing so, the NLRB, as it often did under the former administration, reached outside of its traditional role of resolving disputes between management and unionized workforces, to strike down arbitration provisions applicable to non-unionized workers.

In 2013, the Fifth Circuit in D.R. Horton v. National Labor Relations Board rejected the NLRB’s position and upheld the use of class action waivers. Undeterred, the activist NLRB continued to challenge class action waivers without success in the Second and Eighth Circuits in Sutherland v. Ernst & Young and Murphy Oil USA v. NLRB, respectively.

Last year, the NLRB finally received support for its position. The Seventh and Ninth Circuits found that “concerted activities” under the NLRA included participation in class and collective remedies. In other words, these courts struck down class action waivers because they prevented employees from joining together in a class action to assert their common rights. The Seventh and Ninth Circuits bolstered their rulings by declaring that the NLRB was entitled to “judicial deference” in its interpretation of the NLRA. Thus, a split occurred among the circuits that the Supreme Court will resolve. To add further to the confusion, there is another decision pending before the Third Circuit, which may be decided this spring.

Trump recently nominated Judge Neil Gorsuch to the Supreme Court to fill Justice Scalia’s seat. Judge Gorsuch currently sits on the Federal Court of Appeals for the Tenth Circuit. If nominated, many experts believe that Judge Gorsuch will be the deciding vote in what is currently viewed as a four-to-four tie among the justices.

As expected, Trump’s appointment is a conservative jurist whose decisions, on the whole, are pro employer. Not surprisingly then, Judge Gorsuch has a history of reigning in federal agency authority. Of particular note is his opinion in NLRB v. Community Health Services, where he rejected the policy of deference to the NLRB and felt that the NLRB had taken a position beyond its statutory mandate. Gorsuch’s appointment does not bode well for the NLRB’s recent aggressive positions including, its position on class action waivers.

Further tipping the predictive scales in favor of employers, Judge Gorsuch’s past rulings have favored upholding arbitration agreements. In Ragab v. Howard, Judge Gorsuch filed a dissent in a case where the majority refused to enforce an arbitration agreement, because, as he wrote, the “parties clearly intended to arbitrate their claims.” By extrapolation, Judge Gorsuch may be inclined to enforce the parties’ agreement to arbitrate their claims on an individual basis rather than through the means of a class action mechanism. While no one can predict the outcome in this case, the odds are that Judge Gorsuch will vote to uphold the validity of class action waivers.

In terms of timing, the Supreme Court will not likely issue a decision until October or November of this year. In the meantime, employers are left with conflicting precedents. Given the predicted outcome, employers probably should not alter their practices or policies of requiring arbitration agreements with class action waiver provisions. Nor should employers shy away from adopting arbitration policies that include class action waivers. Depending on the jurisdiction where a putative class action is filed, employers should continue to attempt to enforce class action waivers and seek a stay of the litigation, if appropriate, now that the Supreme Court has agreed to hear the case.

If you have any questions or concerns about this alert, please do not hesitate to contact the author or your usual Drinker Biddle contact.

Employers Should Not Rely on Employer Handbooks to Create Enforceable Arbitration Agreements

By Vik C. Jaitly

In a recent published opinion, the New Jersey Appellate Division held that an arbitration clause in an employee handbook was unenforceable because the handbook also contained standard disclaimer language stating that the handbook did not create an employment contract. The Court’s decision, in Morgan v. Raymours Furniture Co., Slip Op. A-2830-14T2, 2015 WL 9646045 (N.J. App. Div. Jan. 7, 2016), makes clear that arbitration agreements should ideally be separate, stand-alone documents, not provisions in employee handbooks.

On three occasions during the course of his employment with defendant Raymours Furniture Company (“Raymours”), plaintiff Grant Morgan acknowledged receipt of an employee handbook. The handbook included a mandatory arbitration clause and a waiver of the employee’s right to sue in court. According to Morgan, after he complained about age discrimination in the workplace, Raymours presented him with a separate, stand-alone arbitration agreement and told him to sign the agreement or Raymours would terminate his employment. Morgan refused to sign and Raymours fired him.

Morgan filed a lawsuit against Raymours (and two individual Raymours managers) asserting age discrimination under the New Jersey Law Against Discrimination, wrongful termination and other causes of action. The defendants filed a motion to compel arbitration. The trial judge denied the motion, and the defendants appealed.

In reviewing the trial court’s decision, the Appellate Division considered the disclaimer contained in the employee handbook, which stated:

“Nothing in this Handbook or any other Company practice or communication or document, including benefit plan descriptions, creates a promise of continued employment, [an] employment contract, term or obligation of any kind.”

The Court also considered the text of the electronic form on which Morgan had acknowledged receipt of the employee handbook, which stated that the employee received the handbook and:

“understand[s] that the rules, regulations, procedures and benefits contained therein are not promissory or contractual in nature and are subject to change by the company.”

The Court recognized that Raymours included these disclaimers because of New Jersey Supreme Court precedent in Woolley v. Hoffman-LaRoche, Inc., 99 N.J. 284, 309, modified, 101 N.J. 10 (1985), holding that they may be necessary to defeat a claim that the handbook created implied contractual rights and duties. Nonetheless, the Morgan Court explained that “it is simply inequitable for an employer to assert that, during its dealings with its employee, its written rules and regulations were not contractual and then argue, through reference to the same materials, that the employee contracted away a particular right.” Moreover, the Court explained, for an arbitration clause to be enforceable, the employee must “clearly and unambiguously” agree to a waiver of his or her right to sue.

In light of the disclaimers, the Court concluded that Morgan had not clearly and unambiguously agreed to waive his right to sue. The Court reasoned that by “inserting such a waiver provision in a company handbook, which, at the time, the employer insisted was not ‘promissory or contractual,’ an employer cannot expect – and a court, in good conscience, will not conclude – that the employee clearly and unambiguously agreed to waive the valued right to sue.” The Court further reasoned that merely obtaining Morgan’s acknowledgment that he received the handbook did not constitute his agreement not to sue. The Appellate Division affirmed the trial court’s decision denying the motion to compel arbitration.

One’s immediate reaction to the Morgan decision may be that it leaves employers with two untenable options. They can either: (1) issue handbooks with enforceable arbitration provisions that may inadvertently create contractual rights for employees; or (2) issue handbooks with unenforceable arbitration provisions that will not inadvertently create contractual rights for employees. However, employers also have a third, better option. An employer wishing to implement a mandatory arbitration program should require employees to sign a separate, stand-alone agreement in which the employee clearly and unambiguously agrees to arbitration. Meanwhile, employers should continue to include Woolley disclaimers in their handbooks. Overall, while arbitration programs offer many benefits, it is critical that employers exercise great care to ensure that they are enforceable.