NJ COURT HOLDS THAT MANDATORY ARBITRATION PROVISION IN EMPLOYEE HANDBOOK NOT BINDING ON EMPLOYEE

On September 18, 2015 the New Jersey Appellate Court issued a decision that should make all employers review their employee handbooks if it contains a mandatory arbitration provision. In the beginning of almost every employee handbook there is a disclaimer provision that says something along the lines that the employment relationship is at-will and that the “provisions of this handbook is not intended to create a contract between the Company and the employee with regard to the matter set forth in the handbook”.

In this case, the New Jersey Appellate Court refused to enforce the mandatory arbitration provision in the employee handbook and stated in part, “the plain language in the handbook the defendant drafted shows, with unmistakable clarity, that Employer did not intend the handbook to create a binding agreement”. The Court went on to state “The employee handbook cannot be a binding agreement with respect to the arbitration provision, and an unenforceable document merely containing “management guidelines” for the rest of its provisions.” Click here to read a copy of this opinion.

In addition to the wording of the handbook being one of the main reasons the Court refused to enforce the arbitration provision, the Court also set forth other “problems” with the handbook that should serve as a guide to HR and in-house legal departments so their handbooks don’t suffer the same fate.

The arbitration waiver must spell out the rights that are being waived. Courts look closely when the constitutional right to bring an employment matter in court is being waived by an employee. Does the waiver spell out the rights being waived? Does the employee understand that he or she is giving up the right to have the case heard by a jury or whether this covers discrimination and other types of claims?

Additionally, there is the matter of the procedure set up by the employer being sufficient to show that the employee unmistakably agreed to arbitrate. Email consent is not enough – where the employee just clicks or agrees that he or she has received a copy of the handbook. Get the employee’s signature to show the employee agreed to the mandatory arbitration provision – assuming you have cured the other issues set forth above.

This case has broad reaching implications and not just in New Jersey. The provisions that caused this failure are common boilerplate protective provisions that are found in most employer handbooks (even if it was drafted by counsel) and therefore makes this cautionary tale relevant to every employer. I also believe this provision will may apply to covenants not to compete and non-solicitation agreements to the extent they too are set forth in employee handbooks and not in separate employment agreements signed by the employee. Be careful however, because merely placing such an agreement in front of your already employed employees to rectify the handbook issue will not work. While the reasons why are beyond the scope of this post, please click here to review an earlier post that addresses these issues.

If you have any questions regarding this employment issue or any other matter affecting your business, please feel free to contact us at Danziger Shapiro.

This entry is presented for informational purposes only and does not constitute legal advice.