A New Jersey Appellate Division court has held that an arbitration clause must effectively spell out what court or litigation rights are being given up, in order for the parties to be required to arbitrate. The decision makes no mention of the Federal Arbitration Act, and one can only wonder how this case would have come out had the parties focused on the FAA instead of the NJ arbitration law. (The lawsuit claimed violation of NY wage laws, but was filed in NJ.) The case arises in the context of a broker-dealer dispute, where the arbitration clause was based on FINRA regulations.

After the broker defended a customer claim in arbitration, the broker filed suit against his employer, claiming violation of NY wage laws and seeking reimbursement of costs incurred in the customer arbitration. The employer moved to compel arbitration with the broker, but the trial court refused to do so; the employer appealed.

The court cites to several NJ appellate decisions, requiring language in an arbitration clause that spells out what rights are being lost if a dispute must be arbitrated. The court stated that the arbitration clause must “convey that parties are giving up their right to bring their claims in court or have a jury resolve their dispute.” It cited with approval other arbitration clauses that referenced waiver of jury trial or other court proceedings. The clauses in question, the court found, “failed to clearly and unambiguously inform plaintiff of his waiver of the right to pursue his claims in a judicial forum.”

The FINRA regulations did not help the employer, as those regulations called for a disclosure to be provided, each time the employee signed a form containing an arbitration clause, as to the meaning and effect of that clause. The employer had failed to provide this information each time the broker signed the pertinent forms.

At least in NJ, employers must take steps to ensure that any employment or other consumer-related arbitration clause clearly spells out the rights that are being “given up” in the context of arbitration. The case is Barr v. Bishop-Rosen & Co., Inc., NJ App. Div. Docket No. A-2502-14T2 (Oct. 26, 2015), available here.