You’re Hired. Let’s Arbitrate! The New Jersey Supreme Court Enforces
an Arbitration Agreement in an Employment Application
By Richard I. Scharlat,
Greenberg Traurig, New Jersey and New York Offices
View or download the PDF version of this Alert
Managing employee-related disputes gets increasingly complicated every
day. In tough times, reductions in force and other terminations present
a minefield of legal obstacles to navigate. Even in good times, more and
more employees raise more and more varied issues that must be resolved fairly,
efficiently, and economically. As you lean back in your chair behind your
desk, you look out the window and you can barely see the tops of the trees
outside over the tsunami-sized pile of litigation documents which threaten
to engulf your office. And you ask yourself, what can I do to stem the tide?
|"The New Jersey Supreme Court
has given you a tool... to help keep your company out of court and
keep litigation costs down."
Well, the New Jersey Supreme Court in Martindale v. Sandvik,
Inc., 173 N.J. 76 (2002), has given you a tool — if used properly
and carefully — to help keep your company out of court and keep litigation
costs down. The Court has determined that employers can enforce an arbitration
provision in an employment application if employers give clear and unambiguous
notice of a waiver of a right to a jury trial, give prospective employees
a chance to review the document and discuss the arbitration provision with
a third party or counsel, and to sign it voluntarily.
In 1994, Maureen Martindale was hired by Sandvik, Inc. ("Sandvik") as
a benefits administrator. Martindale was required by Sandvik, as part of
the hiring process, to complete and sign an employment application, which
contained an agreement to arbitrate all disputes relating to her employment
or the termination of her employment. Specifically, the language of the
agreement set forth that:
As a condition of my employment, I agree to waive my right to a jury
trial in any action or proceeding related to my employment with Sandvik.
I understand that I am waiving my right to a jury trial voluntarily
and knowingly, and free from duress or coercion.
I undersand that I have a right to consult with a person of my choosing
including an attorney, before signing this document.
I agree that all disputes relating to my employment with Sandvik or
termination thereof shall be decided by an arbitrator through the Labor
Relations Section of the American Arbitration Association.
Martindale signed the application containing this provision and took
the job with Sandvik. In January 1996, after almost two years of working
for Sandvik, Martindale informed the company that she was pregnant. A series
of "medical problems related to the pregnancy"2
ensued and, about two weeks before her delivery of the baby, Martindale
went on disability leave. Upon Martindale’s request, Sandvik thereafter
granted her Family and Medical Leave to begin at the end of her disability
In November 1996, after Martindale’s disability leave ran out, and shortly
after her Family and Medical Leave began, Sandvik informed Martindale that
her position as Benefits Administrator had been eliminated "due to a reorganization."3
At the same time, Sandvik terminated her disability payments. Martindale
sued Sandvik in New Jersey Superior Court alleging a "violation of the New
Jersey Family Leave Act ,"("FLA")4
and ultimately filed an amended complaint adding a claim against Sandvik
for violation of the New Jersey Law Against Discrimination ("LAD").
Relying on the arbitration agreement in the employment application that
Martindale had signed in 1994, Sandvik moved to stay the litigation in State
Court and to compel arbitration. The trial court granted the motion to stay
the proceeding and dismissed Martindale’s complaint without prejudice, but
ordered a stay of the matter pending appeal.5
On appeal, the Superior Court, Appellate Division affirmed the trial court’s
ruling. The Appellate Division determined that the arbitration agreement
contained in the employment application was not a contract of adhesion,
and was valid and enforceable.
Granting Martindale’s petition for certification, the New Jersey Supreme
Court reviewed the lower courts’ rulings. In affirming the dismissal of
the complaint, the Supreme Court’s analysis is very instructive as to future
formulation of arbitration agreements and their incorporation into employment
1. Is there a Valid Agreement to Arbitrate?
The Court first determined whether a "valid agreement to arbitrate existed."6
The Court cited the Federal Arbitration Act (FAA),7
which provides that arbitration agreements have the same validity as other
contracts. Similarly, the New Jersey legislature has endorsed the validity
of arbitration agreements, and favors them as a means of dispute resolution.8
The Court determined that the arbitration agreement was enforceable because
it was an agreement to arbitrate all claims against defendant Sandvik.9
2. Is the Agreement Supported by Consideration?
The Martindale Court analyzed whether there was consideration
underlying the contract to arbitrate. Notably, the Court found that the
arbitration agreement between Martindale and Sandvik was supported by identifiable
and valuable consideration: Sandvik’s willingness to consider employing
Martindale. Specifically, the Court found that "although defendant was under
no obligation to actually hire plaintiff, defendant’s consideration of plaintiff’s
application, its extension of an offer, the commencement of employment,
and thereafter the provisions of compensation and on-going employment constituted
sufficient consideration to support the parties’ agreement to arbitrate
3. Is the Agreement an Unenforceable Contract of Adhesion?
The Court next considered whether, although the contract might be valid
on its face based on its terms,
it was an unenforceable "contract of adhesion."11
A contract of adhesion is one in which one of the parties (here, the employee)
does not have meaningful opportunity to negotiate the terms of that contract.
To be sure, a contract is not necessarily void even if it is found to be
a contract of adhesion. "The standardized nature of the contract, the parties’
relative bargaining positions, the subject matter of the contract, the degree
of economic compulsion"12
that motivates the (weaker) party to enter into the contract, and public
interest, are all considerations that weigh in determining whether a contract
of adhesion will be void.
The Martindale Court held that the Sandvik employment application
was not "offered on a take-it-or-leave-it basis,"13
such that it was a contract of adhesion. The Court weighed heavily the fact
that Sandvik gave Martindale the "opportunity to ask questions about the
and consult with a third party, including an attorney. The Court also considered
that Martindale herself was an "educated person who was experienced in the
field of Human Resources."15
The Court noted that nothing in the record showed that Martindale asked
or attempted to change or to negotiate any terms of the agreement.
4. Is the Agreement Valid in Its Scope?
The Court then considered the scope of the agreement to arbitrate. That
an employee may validly waive a right to pursue claims in court in favor
of arbitration is well established.16
As long as no substantive rights are given up by submitting to an arbitral
forum, there is no invalidity to the proceeding -- so long as its objective
is to achieve final disposition in an inexpensive and expeditious manner.
The Court also noted that neither the FLA nor LAD preclude the use of arbitration
to pursue claims under those statutes. In the absence of a legislative mandate
that would restrict the use of arbitration, a valid agreement to arbitrate
will be enforceable, so that all claims subject to the arbitration provision,
in this case encompassing Ms. Martindale’s employment and the termination
thereof, must be submitted to arbitration rather than a court.
5. Is the Language of the Agreement Clear and Unambiguous?
Finally, in light of another case addressing similar issues,17
the Martindale Court considered whether the language of the arbitration
agreement was sufficiently clear to give Martindale notice that she was,
in fact, waiving her right to a jury trial on the statutory claims concerning
her employment. Failure to provide sufficient notice is likely to be fatal
to an action to compel arbitration. The Court contrasted the language in
the Sandvik agreement to that which was the subject of the Garfinkel
case, in which the arbitration agreement at issue stated only that:
"[A]ny controversy or claim arising out of, or relating to, this Agreement
or the breach thereof shall be settled by arbitration."18
The Garfinkel Court determined that that "language was too ambiguous"19
and was not an enforceable waiver of the employee’s right to take
the matter to court instead of arbitration. The Court determined that a
waiver must at least notify the employee that "all statutory claims arising
out of the employment relationship or its termination" will be subject to
arbitration. On that basis, the Court found that the Sandvik agreement was,
in fact, clear, unambiguous, and enforceable.
In his dissent, Justice Stein determined that the Sandvik arbitration
clause should be deemed "unenforceable as a matter of public policy"20
because of the vast disparity in bargaining power between the parties. The
dissent framed the question before the Court as whether employers should
be allowed to "extract concessions in a job application form, such as a
waiver of the right to a jury trial, from prospective employees."21
Justice Stein also noted that there was no reciprocal arrangement to the
arbitration clause; Sandvik was not required to arbitrate any disputes that
might arise with an employee.
The dissent notwithstanding, the Supreme Court of New Jersey has laid
down the law. You can break out your employment applications, sit down with
counsel, and start redrafting. If you are careful with the language, provide
clear and unambiguous notice of a waiver of right to a jury trial, and give
prospective employees a fair opportunity to: (1) review the document; (2)
discuss the arbitration provision with a third party or counsel; and (3)
sign it voluntarily, knowingly and without duress, you have begun to reduce
the paper work on your desk and the cost of litigation from your company’s
1 Martindale v. Sandvik, 173 N.J. 76,
2 Id.at 82.
5 Id.at 83.
6 Id.at 92.
7 Federal Arbitration Act (FAA) (2002)
8 N.J.S.A.2A:24-1, et seq.
9 In another recent decision, issued by a federal
District Court in Michigan, a provision in an employment application imposing
a six-month time limitation for an employee to bring employment-related
claims against her employer was upheld. Wright v. DaimlerChrysler,
E.D. Mich. No. 02-71311 (9/30/02).
11 Martindale, 173 N.J. at 90.
13 Id.at 91
17 Garfinkel v. Morristown Obstetrics &
Gynecology Assocs., 168 N.J. 124, 127 (2001).
18 Id.at 128.
19 Id.at 127.
20 Martindale,173 N.J. at 97.
21 Id.at 102.
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