On May 21, 2018, the U.S. Supreme Court issued its long-awaited opinion in Epic Systems Corporation v. Lewis, in which it held that arbitration agreements containing class action waivers were enforceable notwithstanding the National Labor Relations Act’s protection for employee “concerted activity.” The five-Justice majority opinion sparked a fiery dissent by Justice Ruth Bader Ginsburg, who focused on the opinion’s potential impact on wage and hour litigation, among other employee activities. In response, this week, Washington State’s Democratic Governor Jay Inslee issued a sweeping Executive Order seeking to discourage employers from implementing (or continuing to rely on) arbitration agreements with class action waivers. Although Governor Inslee’s action is the exception so far, it may signal a broader backlash to arbitration agreements with class action waivers in the employment context.
Late last year, a bipartisan coalition in the United States Senate sponsored legislation to ban the use of mandatory arbitration agreements to settle sexual harassment and sex discrimination claims (H.R. 4734/S. 2203). While that bill—titled the “Ending Forced Arbitration of Sexual Harassment Act of 2017”—remains pending, a similar bill is also now pending before the California legislature (A.B. 3080). If enacted, A.B. 3080 would prohibit employers from requiring mandatory arbitration agreements as a condition of employment, continued employment, or the receipt of any employment-related benefit, such as a bonus.
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 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.
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.