The thought of a million-dollar jury verdict awarded to a sympathetic employee and splashed across the front page understandably strikes fear into every employer. Given the devastating impact a sizable employee verdict can have on a business, employers are well advised to explore avoidance strategies at all costs.
New Jersey employers have absorbed the time and expense of employment litigation at a fairly consistent rate since fiscal year 2009. The United States Equal Employment Opportunity Commission (EEOC) reported that in fiscal year 2014, it received 1,613 total charges of employment violations in New Jersey— just slightly below the average number of charges filed between fiscal years 2009 and 2014 of 1,668. These figures do not include the multitude of claims over which the EEOC is not tasked with enforcement, such as wage-and-hour, breach-of-contract and claims against small employers. Addressing recent developments in this area, this article will explore the enforceability, benefits and burdens of employment arbitration clauses; class-action and collective-action waivers; jury trial waivers; and clauses shortening statutes of limitation in employment applications, handbooks and agreements.
Agreements to Arbitrate Employment Claims
Contractual provisions requiring employees to submit employment claims to arbitration are increasingly popular, as employers seek to avoid unpredictable and sympathetic juries and are attracted to the privacy of arbitration proceedings. Arbitration is also typically swifter than litigation, which may result in substantial cost and time savings. To be sure, arbitration provides little in the way of appeal rights, and may ultimately be as or more expensive than litigation, when factoring in arbitrator costs and other fees. Additionally, some think arbitration clauses in employment applications and agreements actually encourage employees to pursue claims. Properly managed, however, arbitration can provide real benefits.
Twenty-five years ago, the U.S. Supreme Court determined that agreements to arbitrate certain federal statutory claims, including claims under the Age Discrimination in Employment Act, 29 U.S.C. §634 (ADEA), are enforceable under the Federal Arbitration Act, 9 U.S.C.A. §§1-16 (FAA). In Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20 (1991), the Supreme Court upheld an arbitration agreement contained in plaintiff's registration application with the New York Stock Exchange (NYSE), which mandated arbitration of any controversy between representatives and member firms arising out of the employment, or termination of employment, of the registered representative. Id. at 23.
New Jersey's public policy favoring arbitration is codified in the New Jersey Arbitration Act, N.J.S.A. 2A:24-1-11 (NJAA). The NJAA parallels the FAA, which provides that agreements to arbitrate will be enforced unless legal or equitable reasons exist for the contract to be revoked.
In Quigley v. KPMG Peat Marwick, 330 N.J. Super. 252 (App. Div. 2000), which involved a claim for discrimination under the New Jersey Law Against Discrimination, N.J.S.A. 10:5-1, et seq. (LAD), the Appellate Division specifically recognized New Jersey's strong public policy favoring arbitration, and noted the fairly liberal standard for enforcement under the NJAA.
Within the past several months, the Appellate Division has confirmed the "federal and state policies favoring arbitration." Bowman v. Raymours Furniture Co., No. A-4061-14T1 (N.J. Super. App. Div. 2016) (quoting Atalese v. U.S. Legal Serv. Grp., 219 N.J. 430, 440 (2014)). Most recently, however, the New Jersey Appellate Division held that to be enforceable, an arbitration provision must be set forth in a separate agreement from an employee handbook that contains a disclaimer stating that it does not form a contract. Morgan v. Raymours Furniture Co., 443 N.J. Super. 338 (App. Div. 2016).
Class- and Collective-Action Waivers
Class- and collective-action waiver provisions are invaluable to large-scale employers susceptible to group claims. In some cases, the sheer size of a class or collective action may force employers to settle employee claims, regardless of their merit. Nearly every court to address the issue has held that class- and collective-action waivers in employment agreements or agreements to arbitrate are enforceable. See, generally, AT&T Mobility v. Concepcion, 563 U.S. 333 (2011); American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013); and see Sutherland v. Ernst & Young, 726 F.3d 290 (2d Cir. 2013) (enforcing class-action waiver in an arbitration agreement and compelling individual arbitration of FLSA claims); and Litman v. Cellco Partnership, 655 F.3d 225, 231 (3d. Cir. 2011) (New Jersey law, forbidding class-arbitration waivers as unconscionable, was pre-empted by the FAA).
The National Labor Relations Board (NLRB), however, has ruled repeatedly that collective- and class-action waivers encroach upon an employee's right to pursue legal claims concertedly, in violation of sections 7 and 8 of the National Labor Relations Act (NLRA). At least one court has disagreed with the NLRB. See D.R. Horton v. NLRB, 737 F.3d 344, 348, (5th Cir. 2013) (concluding the NLRB failed to give proper weight to the FAA, and enforcing a class waiver in an arbitration clause, but requiring employer to clarify with employees that waiver did not eliminate employees' rights to pursue unfair labor practices claims with the NLRB). Accord, Murphy Oil USA v. NLRB, 808 F.3d 1013 (5th Cir. 2015).
The NLRB ended 2015 with 16 rulings that adhered to the view that employers' class- and collective-action waivers violate the NLRA. Until the Supreme Court resolves this issue, employers outside of the Fifth Circuit may be vulnerable to adverse NLRB determinations concerning class- and collective-action waivers.
Jury Trial Waivers
Jury trial waivers are often viewed as a middle ground, and, when secured properly, afford employers the comfort of knowing that an employment claim will not be subject to the vagaries and sympathies of an unpredictable jury. At the same time, a bench trial will afford the parties appeal rights not present in arbitration. Based on the same reasoning upholding agreements to arbitrate, New Jersey courts (unlike some other states) will enforce clear and unambiguous jury trial waivers. See Martindale v. Sandvik, 173 N.J.76, 89-92 (2002) (upholding jury trial waiver in employment application). Our courts have long held that no public policy exists against jury trial waivers and, provided that they are knowing and voluntary, they will be enforced. Investors Savings Bank v. Waldo Jersey City, 418 N.J. Super. 149, 160 (App. Div. 2011).
Agreements to Shorten Statutes of Limitations
Employers also may limit their liability to employees, and more efficiently resolve claims while evidence and witnesses are fresh and readily available, by shortening the statutes of limitations applicable to employee claims. Federal courts and a growing number of state courts have held that contractually shortened limitations periods are enforceable. See Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S.Ct. 604 (2013) (upholding contractually shortened limitations period in ERISA plan, even one that starts to run before the cause of action accrues, as long as the period is not unreasonably short and there is no controlling statute to the contrary). Accord, In re Aetna UCR Litigation, Civ. No. 07-3541, (D.N.J. June 30, 2015) (Hayden, J.)
In 2014, the New Jersey Appellate Division extended the Heimeshoff rationale to employment agreements, holding that an employee's LAD claims were time-barred pursuant to a six-month limitation period set forth in defendant's employment application. Rodriguez v. Raymours Furniture Co., 436 N.J. Super. 305, 319-320 (App. Div. 2014). Rejecting the plaintiff's invitation to judicially impose a prohibition on provisions shortening limitations periods in employment agreements, the court stated its role is to determine whether, considering the factual circumstances in a particular case, the shortened limitation period is reasonable and does not contravene public policy. The court noted that other courts that have considered the issue have given widespread approval to shortened periods comparable to the one before the Appellate Division. Since the employer-friendly ruling, the New Jersey Supreme Court granted certification in the matter, and heard oral argument on Dec. 1, 2015. Employers can expect a decision from the Supreme Court addressing the issue this year.
Employers must be careful in drafting agreements to arbitrate, class- and collective -action waivers, jury trial waivers and contractually shortened limitations periods. The hallmarks of enforceability of these agreements are their reasonableness, fairness, consistency with governing legislation, if any, and evidence that they are undertaken knowingly and voluntarily.
Reprinted with permission from the March 15, 2016 issue of the New Jersey Law Journal. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.