A Troubling Decision for Employment Arbitration Agreements with Potentially Ambiguous Language and What it Means for Employers Going Forward

On April 5, 2016, in a rare rebuke of an employment arbitration agreement by a federal court, the United States District Court for the District of New Jersey (Hon. Madeline Cox Arleo, U.S.D.J.) held that it would not compel arbitration mandated by an employment agreement because the agreement at issue was too ambiguously drafted.

In Ranieri v. Banco Santander S.A., Civil Action No. 15-3740, Plaintiffs were former Mortgage Loan Officers with the Defendants in their New Jersey branches who brought a collective action claim for wage and hour violations under federal and state law.  The collective action was on behalf of all current and former employees of Defendants whose job duties included working as a mortgage loan officer and who were not paid overtime or minimum wage in the past three years.

At the start of their employment, Plaintiffs received an offer of employment which mandated that Plaintiffs execute “the enclosed Mortgage Retail Development Officer Agreement” (“MDO”) and all attached exhibits, on or before the first day of work.  The offer letter also attached a copy of the Mortgage Sales Commission Plan.  The MDO Agreement contained six sections, including an arbitration clause which prohibited class, collective, and representative actions against Defendants.  Both Plaintiffs signed the MDO agreements on the bottom of the final page under a bolded sentence that read: “I certify, by my signature below, that I have received a copy of the Mortgage Sales Commission Plan, which has been provided to me.”  The MDO Agreement contained a Pennsylvania choice of law provision.

While the Court acknowledged that ordinarily a party’s signature on an agreement implies agreement to the entire contract, here the Court found that the language in the MDO Agreement was ambiguous, specifically the sentence above the signature line.  The Court found that the purpose of the signatures was too unclear: either the Plaintiffs could memorialize only that they received the Mortgage Sales Commission Plan or that they agreed to all of the terms of the MDO Agreement and that they were confirming receipt of the Mortgage Sales Commission Plan.  Due to the ability to logically construe the agreement in more than one way, the Court held that it would not compel arbitration because the intent of the parties could not be determined on the pleadings alone, and because the ambiguous language in the MDO Agreement should be construed against the drafters, the Defendants.  Defendants’ motion to compel arbitration was denied without prejudice and the Court ordered discovery on the question of arbitrability.

The Court’s decision is important because federal courts have traditionally viewed employment arbitration agreements very favorably based upon the Federal Arbitration Act and significant U.S. Supreme Court precedent.  Such agreements have also become more widespread.  Employers with arbitration agreements should have these agreements regularly reviewed by counsel, as the law is in a constant state of flux regarding the effectiveness of arbitration agreements as to state claims and the prohibitions on class claims that any good arbitration agreement contains.  Carefully drafted arbitration agreements are more likely to be enforced.  Note that beyond having employment counsel review arbitration agreements, employers should also discuss the need for such agreements to start with.  Employers often mistake employment arbitration agreements as a panacea to liability from claims by current and former employees, however, legal fees and discovery are often not significantly reduced and with appeal options severely limited, a bad decision by an arbitrator can be disastrous for an employer.  Instead, arbitration agreements are often most useful in industries and for employers who face significant potential wage and hour class and collective action exposure.  Careful consultation with an employment attorney is critical both in deciding whether to use employment arbitration agreements and if the decision is made to use such agreements, how to make sure that they remain enforceable in a constantly changing legal landscape.

For more information regarding employment arbitration agreements, please contact Harris S. Freier, Esq., a Partner in the firm’s Employment Law and Appellate Practice Groups, at hfreier@genovaburns.com or 973-533-0777.