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Friday, July 8, 2016

Can I Go to Court Rather than Arbitration? The Enforceability of Arbitration Clauses in Employment Applications

Employment applications sometimes have clauses stating that any dispute between the employer and employee arising out of the employment relationship can only be resolved by a means of alternative dispute resolution, such as binding arbitration, thereby preventing the employee from filing a discrimination lawsuit in State or Federal Court. Many legal minds, including Hope A. Lang, the author of this blog, think that such “ arbitration clauses” in employment applications are contracts of adhesion, and they should not be enforced, i.e., that a Plaintiff should be allowed to file a lawsuit in court rather than have the matter be resolved in binding arbitration. 

The author of this blog, Hope A. Lang, has lobbied in Washington D.C. for bills that would make such “arbitration only” clauses in employment applications unenforceable on grounds that they are contracts of adhesion. Unfortunately, the law as of the date of this post, is that in New Jersey, such “arbitration only” clauses in employment applications are legally enforceable, as recently noted by the New Jersey Supreme Court in Rodriguez v. Raymours Furniture Company, Inc., No. A-27-14, 074603 (N.J. June 15, 2016).

In Rodriguez,  the Supreme Court addressed whether the Law Against Discrimination, N.J.S.A. 10:5-1 to -49, stated that  “ arbitration type “ clauses in employment applications are binding contractual agreements. These binding contractual agreements require employees with employment discrimination claims to submit statutory NJLAD claims to binding arbitration or some other type of alternative dispute resolution, rather than filing a lawsuit in Court.

There have been instances where the employer Defendants did not raise the "arbitration only clause" in their affirmative defenses in their Answer to the lawsuit, although they could have, and allowed Plaintiff to proceed in Court without a challenge to the Plaintiff's proceeding in court. The author of this blog was the attorney in such a discrimination lawsuit. In that lawsuit, the Plaintiff had forgotten that she had signed an employment application containing such an arbitration clause eight  years prior, and she did not understand what it meant. She and her lawyer, Hope A. Lang, only first learned of this "arbitration only clause" in her employment application, during litigation in the procedural process known as  “discovery”, after the lawsuit was filed, when Hope A. Lang and the Plaintiff demanded a complete copy of her employee file. Although the employer, who was a large national corporation, could have raised the "arbitration only clause" as a defense to have the case be removed from a court to an arbitration  forum, they did not raise it as defense, and Hope A. Lang was successful in obtaining a six figure settlement for the Plaintiff.

The New Jersey Supreme Court in Rodriguez v. Raymours Furniture Company, Inc., in discussing the enforcement of such arbitration clauses in employment applications while at the same time rejecting enforcing a clause in an employment application that shortens the statute of limitations for filing lawsuits in Court under the NJLAD, the Supreme Court reasoned as follows:

"Here the reduced period for bringing an LAD action, among other employment-related claims, was contained in an employment  application.  Simply because the contract term was in an  employment application does not end the inquiry for  enforceability.  In Martindale, supra, 173 N.J. at 81, we upheld  an agreement to arbitrate contained in an employment  application.  However, the employee was a human resources  officer, a more sophisticated employee than plaintiff, an  applicant for an entry-level position.  To apply for the needed  job, plaintiff in this case was presented with a take-it-or-leave-it application.  There was no bargaining here.  The  instant matter plainly involves a contract of adhesion and  therefore necessarily involves indicia of procedural  unconscionability.  See Delta Funding Corp. v. Harris, 189 N.J. 28, 39 (2006).  Moreover, the employment application at issue in  Martindale did not restrict the rights of employees to bring  claims; it merely utilized an arbitration clause to agree in  which forum to bring them.

When a contract is one of adhesion, the inquiry requires  further analysis of unconscionability.  Rudbart v. N. Jersey  Dist. Water Supply Comm'n, 127 N.J. 344, 354, cert. denied sub.  nom. First Fidelity Bank, N.A. v. Rudbart, 506 U.S. 871, 113 S.  Ct. 203, 121 L. Ed. 2d 145 (1992)."

Our Court has applied four  factors for evaluating unconscionability of contracts of  adhesion: 

          “[1] the subject matter of the contract, 
[2] the  parties' relative bargaining positions, 
[3] the degree of  economic compulsion motivating the ‘adhering' party, and 
[4] the  public interests affected by the contract." Id. at 356.  Those  factors focus on procedural and substantive aspects of the  contract "to determine whether the contract is so oppressive, or  inconsistent with the vindication of public policy, that it  would be unconscionable to permit its enforcement."  Delta  Funding, supra, 189 N.J. at 40 (citations omitted).  In this  instance, were an unconscionability analysis to be the prism  through which a shortening of the LAD's statute of limitations  should be analyzed, Rudbart's fourth factor, namely "the public  interests affected by the contract," Rudbart, supra, 127 N.J. at  356, would feature in the analysis and would have led us to the  same outcome based on the anti-discrimination concerns expressed  in the LAD.

Arbitration proceedings are complex, no matter if it be a racial or sex discrimination claim or some other type of issue. A person should not be lulled into a false sense of security that a lawyer is only needed for representation in a Court proceeding and not in an arbitration proceeding. Arbitration is a legal process that requires skilled and knowledgeable legal expertise to achieve good results. “A man who is his own lawyer has a fool for a client.” -an early-19th century proverb found in Henry Kett’s the Flowers of W5it, or a Choice Collection of Bon Mots (1814).

If you believe you may be the victim of discrimination in employment and you signed an employment application that may have contained a clause stating that all disputes that arise out of the employment relationship shall be resolved in arbitration or some other alternative dispute forum, contact Hope A. Lang, Attorney at Law, today for a free consultation.


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