No Roman Holiday: New Jersey Appellate Division Says Employees Must Submit Sexual-Harassment and Discrimination Claims to Arbitration

August 23, 2018 was a busy day for the New Jersey Appellate Division on the arbitration front when it issued two opinions effectively upholding the enforceability of arbitration agreements.  Both cases involved sexual-harassment and discrimination claims brought by employees against their former employers under the New Jersey Law Against Discrimination (“NJLAD”).  In D.M. v. Same Day Delivery Service, Inc., et al., the Appellate Division held that a former employee was bound by the terms of an arbitration agreement, even though the language in a few sentences were “poorly written” and “didn’t make sense.”  In Roman v. Bergen Logistics, LLC, et al., the Appellate Division held that a former employee was required to arbitrate her claims, but added that, contrary to the terms of her agreement, she could also seek punitive and exemplary damages in arbitration.

Same Day provides some clarity for Arbitration Agreement language

In Same Day, an employee filed a complaint in New Jersey state court against both her former employer and her former manager, asserting claims under the NJLAD.  The employee had been hired as a delivery person by Same Day Delivery, Inc. and worked as a driver for just over two months.  During the time of her employment, the employee alleged that her manager had made “sexually provocative comments” about her body and subjected her to a hostile work environment on account of her sex and sexual orientation.  Furthermore, the employee maintained that she was fired in retaliation for rejecting her manager’s advances.

The employer moved to dismiss the complaint and compel arbitration, asserting that the employee had electronically signed an arbitration agreement along with her employment application, which she had submitted through the company’s online recruiting platform, and was therefore required to submit her claims to binding arbitration.  In response, the employee argued that the arbitration agreement was unenforceable and pointed to certain sentences with ambiguous and unclear language, which she contended made the whole agreement incomprehensible to an employee of average intelligence and thus invalid.  Particularly at issue was the wording of the last sentence of the agreement, which stated “I am agree to waive my voluntarily and knowingly, and free from any duress or coercion whatsoever to a trial by a trial judge or jury as well as my right to participate in a class or collective action.”  The trial court found that, although this sentence “doesn’t make sense,” the rest of the agreement was sufficiently clear to make the agreement enforceable and therefore entered an order directing arbitration and dismissing the complaint.  The employee appealed.

Giving further support to the federal and state policies favoring the arbitration of disputes, the New Jersey Appellate Division affirmed the trial court’s finding that the poorly drafted language did not make the whole agreement ambiguous to the extent that it was invalid because the remainder of the document was clearly written.  In reaching this conclusion, the Appellate Division addressed the issue of what language would make an arbitration agreement clear and understandable to an ordinary reader.  At the outset, the Appellate Division noted that the standard in New Jersey for an enforceable arbitration agreement is that the language clearly state that the employer and employee(s) are 1) agreeing to arbitrate and 2) agreeing to waive the right to pursue a claim in court.  Notably, this standard does not require a “particular form of words,” but, being mindful that these agreements involve a waiver of rights, the language must be such that the employee has full knowledge of his/her legal rights and, by signing, demonstrate his/her intent to surrender those rights.  The Appellate Division also noted that such an agreement will pass muster when it is phrased in plain language that is understandable to an average member of the public, who may not know that arbitration is a substitute for the right to sue.

Roman: don’t waive punitive damages goodbye

In Roman, the court confronted an arbitration agreement which stated, among other things, that the employee had waived her right to pursue punitive damages for all employment matters, including those related to wrongful termination, discrimination, harassment, retaliation, and any other violation of state and federal law.  The employee was hired by Bergen Logistics, LLC as a human resources generalist and signed an arbitration agreement as an express condition of her hiring and continued employment. The employee was terminated within four months of her hire date, after which point she filed a complaint in New Jersey state court against her employer and her former supervisor, asserting claims under the NJLAD and for intentional infliction of emotional distress.  The employee alleged that, during the time of her employment, her supervisor had sexually harassed her and had created a sexually hostile work environment and she further alleged that her termination was retaliation for her objecting to the supervisor’s sexual advances.

The employer moved to dismiss the complaint and compel arbitration, asserting that the employee was obligated to arbitrate her claims pursuant to the agreement that she had signed at the outset of her employment.  In response, the employee argued that the arbitration agreement was unenforceable because it barred the recovery of punitive damages, which the NJLAD makes explicitly available to victims of discrimination.  Unpersuaded, the trial court found that the agreement was a clear and unambiguous waiver of claims for punitive damages, that the employee knowingly signed the agreement, and that the agreement covered the claims set forth in the complaint.  The trial court accordingly entered an order upholding the enforceability of the agreement and dismissing the complaint.  The employee then appealed, again contending that a waiver of punitive damages should not be enforced.

In reviewing the trial court’s decision, the New Jersey Appellate Division noted that the federal and states policies favoring arbitration are “not without limits.”  In this vein, the Appellate Division focused its review on the relationship of the waiver-of-rights provision in arbitration agreements to the rights afforded by the NJLAD.  The Appellate Division determined that the NJLAD permits the recovery of punitive damages to victims of discrimination for an important, public-interest purpose, namely the deterrence and punishment of the most egregious discriminatory conduct by employees who, by virtue of their positions in upper management, control employer policies that should prevent discriminatory conduct in the workplace.  The Appellate Division held that this is a “substantive right” that cannot be waived by agreement between an employee and his/her employer.  Therefore, that Appellate Division modified the trial court’s decision by affirming that the employee must arbitrate her claims and adding that she was permitted to include claims for punitive and exemplary damages in the arbitration proceeding.

Bottom Line

While these opinions reaffirm the compelling federal and state policies that favor the arbitration of disputes, they also illuminate equally compelling, and at times competing, public interests at play within the broader scope of employer-employee relations in the state of New Jersey.  Courts in New Jersey have consistently recognized the benefits of arbitration as providing an inexpensive and efficient means of dispute resolution.  Furthermore, the agreement between the employee and employer to pursue arbitration as expressed in the form of a contract has been strictly enforced, in most instances.  However, these recent opinions make it clear that the enforceability of arbitration agreements depends, in part, on the clarity of the plain language used as well as on the rights that the employee and employer have agreed to waive.  These recent opinions should serve as cautionary tales that the public interests of clarity in contract and an employee’s right to a discrimination-free workplace are some of the many considerations that employers must have when crafting arbitration agreements with the assistance of counsel.

For more information on what your company can do to ensure its arbitration agreement will be enforceable, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group, at jpetrella@genovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@genovaburns.com, or 973-533-0777.