GT Alert

You’re Hired. Let’s Arbitrate! The New Jersey Supreme Court Enforces an Arbitration Agreement in an Employment Application

January 2003
By Richard I. Scharlat, Greenberg Traurig, New Jersey and New York Offices

  View or download the PDF version of this Alert here.

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.1

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 leave.

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 applications.

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 their disputes."10

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 application"14 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 bottom line.

Footnotes

1 Martindale v. Sandvik, 173 N.J. 76, 81 (2002).

2 Id.at 82.

3 Id.

4 Id.

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).

10 Id.

11 Martindale, 173 N.J. at 90.

12 Id.

13 Id.at 91

14 Id.

15 Id.

16 Id.

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.

© 2003 Greenberg Traurig

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