by Amy Hatcher
In a decision that will affect New Jersey employers seeking to
arbitrate employees’ claims, the Appellate Division, earlier this month, in Morgan
v. Ramours Furniture Company, Inc., held that arbitration clauses
contained in employee handbooks are unenforceable where the handbook also
includes a disclaimer that it does not create a contract.[1] Accordingly, New Jersey employers
whose handbooks currently include arbitration clauses should consider
carefully, replacing them with either arbitration clauses in an employment
application, and/or with a stand-alone agreement.
Given the potential for additional disputes, however, part of
that process should include determining whether and how to implement such
agreements with existing employees. The opinion, which is rife with truisms,
highlights the inclination of New Jersey courts to take notions of fairness and
equity into their decision making.
Case Facts
The decision arose from the trial court’s denial of Raymours
Furniture Company’s (“Raymours”) motion to compel arbitration of plaintiff’s
claim alleging age discrimination and retaliation in violation of the New
Jersey Law Against Discrimination (“LAD”). Raymours sought arbitration based on
a provision in the company’s employee handbook. Although the defendants
appealed the denial of their motion to compel arbitration on numerous grounds,
the Court focused primarily on the following few facts.
Employee Makes an Internal Complaint, Then is Fired for Refusing
to Sign an Arbitration Agreement
Plaintiff contended that upon complaining of age discrimination
on the job, defendants gave him an ultimatum –he could either sign a
stand-alone arbitration agreement, or be discharged. When plaintiff
refused to sign the agreement, Raymours followed through and terminated his
employment. Plaintiff responded by filing suit.
Raymours Moves to Compel Arbitration Under the Handbook –
Despite the Handbook’s Disclaimers
The Company moved to compel arbitration of the plaintiff’s
claims based on an arbitration clause and waiver of the right to sue, included
in the company handbook. The handbook, however, was prefaced with the
following contract disclaimer:
Nothing in this Handbook or any other Company practice or
communication or document, including benefit plan descriptions, creates a
promise of continued employment, employment contract, term or obligation of any
kind on the part of the Company.
Likewise, the company’s annual electronic acknowledgement of
receipt of the handbook included similar contract disclaimer language that the
employee,
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.
Court’s Analysis in Affirming the Denial of the Company’s Motion
to Compel Arbitration
In rendering its decision, the Court invoked principles of
equity – finding that it would be inequitable to allow an employer to take
contrary positions vis-à-vis the contractual nature of the handbook according
to whichever position better suited the employer at the time (i.e., claiming
that the handbook is not a contract when sued by an employee
for breach of contract, but then insisting that the handbook language is contractual when seeking to
enforce the handbook’s arbitration provision).
The Court also relied on contractual principles in arriving at
its decision, and explained that its decision was wholly consistent with the
Federal Arbitration Act – citing to a recent Fourth Circuit decision refusing
to enforce a handbook-based arbitration clause, based on nearly identical
circumstances.[2]
Take-Away
To be enforceable, the agreement to arbitrate must be in an
unambiguous contract. TheMorgan opinion suggests in dicta that “had
the plaintiff executed the stand-alone arbitration agreement presented to him
when a rift formed in the parties’ relationship, a different outcome would
likely have followed.” When it comes to handbooks and arbitration
clauses, the Appellate Division made it clear that employers cannot have their
cake and eat it too.
[1] Morgan v. Ramours Furniture
Company, Inc., A-2830-14T2, 2016 N.J. Super. LEXIS 1 (App. Div. Jan. 7,
2016).
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