Best If Used By: Keep an Eye Out for Arbitration Agreement Expiration Dates

A recent opinion in the case of Susan L. O’Keefe v. Edmund Optics, Inc., addressed the question of whether an arbitration provision in a written employment agreement could survive the expiration of the agreement’s one-year term.  The Superior Court of New Jersey, Camden County, in denying the employer’s request to dismiss the former employee’s gender and age discrimination complaint in favor of arbitration, held that such an arbitration provision could not survive.

Facts

O’Keefe was hired by Edmund Optics in April 2011, as the Executive Vice President of Supply Chain.  In February 2013, to effectuate a change in her position to Executive Vice President of Operations, O’Keefe and Edmund Optics jointly executed a 1-year Executive Employment Agreement (“Agreement”), the term of which expressly ran from February 14, 2013, through February 13, 2014.  The “term” provision stated that the Agreement shall not automatically renew, but stated that O’Keefe “may remain in the employ of [Edmund Optics] subject to the terms and conditions of employment [Edmund Optics] deems appropriate . . . . [and which] will be generally consistent with the terms and conditions of employment of similarly situated employees.”

The Agreement also contained an arbitration provision by which the parties agreed to arbitrate all disputes that might arise out of O’Keefe’s employment and expressly waived the right to a jury trial.  O’Keefe remained employed with Edmund Optics in the role of Executive Vice President of Operations beyond the February 13, 2014 expiration of the Agreement, until her eventual termination on August 3, 2018.  Thereafter, O’Keefe filed a complaint alleging wrongful termination on the basis of her age and gender in violation of the New Jersey Law Against Discrimination.

Edmund Optics filed a motion to dismiss the complaint, arguing that the arbitration provision survived the expiration of the Agreement and that it would defy logic to allow O’Keefe to continue her employment with the company on less favorable terms after the expiration of her employment agreement. In opposing the motion, O’Keefe noted that other clauses explicitly survived the expiration of the Agreement, such as the restrictive covenants clause, but the arbitration clause did not.

The Court’s Decision

The trial court agreed with O’Keefe and found that the arbitration provision expired along with the term of the Agreement, noting that her circumstances were no different than a hypothetical scenario in which she had left employment with Edmund Optics on February 13, 2014, and returned prior to being terminated.  The Court stated that, in such a scenario, there would be “no doubt that the mandatory arbitration clause would be unenforceable.”  The Court also found that “[a]s a venue, this court is no more or less favorable to [Edmund Optics] than an arbitration venue.”  Therefore, given the absence of a valid, current agreement of the parties to arbitrate, the Court denied Edmund Optics’ motion to dismiss.

Bottom Line

Recent opinions by the New Jersey Courts make clear that the enforceability of arbitration agreements depends on the clarity of the plain language used as well as on the rights that the employee and employer have agreed to waive.  Employers should not assume that the bare existence of an arbitration provision in an employment agreement will be sufficient to compel arbitration.  This opinion reaffirms that employers must ensure a mandatory arbitration clause survives the end of the term of a written employment agreement. The agreement should also be reviewed with the assistance of legal counsel to ensure that the arbitration provision is not limited to disputes between the parties only occurring during the term of the written agreement.

For more information, 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.