Thursday, February 18, 2016
Arbitration Clauses in Employment Handbooks With Contract Disclaimer Are Unenforceable
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. 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.
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.
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.
 Morgan v. Ramours Furniture Company, Inc., A-2830-14T2, 2016 N.J. Super. LEXIS 1 (App. Div. Jan. 7, 2016).
 Lorenzo v. Prime Commc’ns, L.P., 806 F.3d 777 (4th Cir. 2015).
Proposed Guidance Highlights the EEOC’s Continued Focus on Retaliation Claims
Employers face claims of retaliation at an increasingly alarming rate. Nearly 43% of all charges filed with the U.S. Equal Employment Opportunity Commission (EEOC) in FY 2014 included some allegation of retaliatory conduct. While retaliation is by no means a new concern for the EEOC, the Proposed Enforcement Guidance on Retaliation and Related Issues issued on January 21, 2016 shows very clearly that the agency intends to take an even more aggressive approach to address what it perceives as an epidemic of retaliation affecting the workplace.
The EEOC last issued guidance on the topic of retaliation in 1998. Since then, the percentage of retaliation charges has almost doubled and the U.S. Supreme Court has issued several significant decisions concerning the scope of the anti-retaliation protections under federal employment statutes, as discussed here and here. Citing this backdrop, the EEOC chose to issue the proposed guidance to make known the agency’s current position on several key topics relating to retaliation. Although not carrying the weight of law or regulation, the enforcement guidance, once adopted, will establish the various standards EEOC staff can be expected to apply while investigating charges or litigating cases.
Perhaps not surprisingly, the EEOC’s proposed guidance advances a broader, claimant-friendly application of federal anti-retaliation statutes. For instance, the EEOC’s classification of conduct as either “participation activity” or “opposition activity” – the two types of activities protected by most federal employment laws – differs sharply from the standard applied almost universally by courts. Whereas nearly all courts hold that participation activity requires some connection to the administrative or litigation process (such as filing a charge or serving as a witness), the EEOC takes the position that even making an internal complaint with an employer constitutes participation activity. This is significant because, unlike with opposition activity – which filing an internal complaint unquestionably is – an employee need not reasonably believe that unlawful discrimination actually occurred for participation activity to be cloaked with statutory protection. In other words, according to the EEOC, an employee should be able to lodge a knowingly baseless internal complaint of discrimination without any potential for repercussion. This is a dramatic departure from the current state of the law.
Also, while the EEOC acknowledges that opposition activity is only protected if the manner of opposition is reasonable, the proposed guidance would make it extremely difficult for an employer to ever establish that an employee’s conduct was so outrageous that it loses the protection of federal anti-retaliation laws. For example, the EEOC states that protected opposition activity may include engaging in a production slow-down, writing critical letters to customers, or protesting against discrimination in an industry or society in general – without any connection to a specific workplace – even if that conduct causes the employer financial harm.
The proposed guidance shows that the EEOC intends to push the limits of federal anti-retaliation laws to expand the scope of employee protections. To prepare for this, employers should re-evaluate their policies and procedures to ensure that the appropriate mechanisms are in place to minimize even the specter of retaliation. In this regard, the proposed guidance lists several “best practices” that the EEOC believes employers should follow, including:
- Maintaining written policies which provide examples of prohibited retaliation, a complaint procedure, and a clear explanation that engaging in retaliation can result in discipline, up to and including termination;
- Training all managers, supervisors and employees on the employer’s written anti-retaliation policy and emphasizing to all employees that the employer will not tolerate retaliation;
- Establishing a protocol to remind managers or supervisors who are accused of discrimination of the employer’s anti-retaliation policy, and to provide tips to help managers and supervisors avoid engaging in conduct which might constitute unlawful retaliation or be perceived as such;
- Following up with employees, managers and witnesses while an EEO matter is pending to ask if they have any concerns about potential or perceived retaliation; and
- Reviewing proposed employment actions, ideally by designating a management or human resources representative who can ensure that employees or witnesses involved in an EEO matter are not subjected to unlawful retaliation.
The EEOC’s proposed guidance is open for public comment until February 24, 2016.