In Morando v. Netwrix Corporation, the United States District Court for the District of New Jersey upheld an arbitration provision in an employment contract by granting the employer’s motion to dismiss and compel arbitration.

Steven Morando worked as a sales representative for Netwrix, a network security software company, during two separate periods from June 2009 to July 2011. When Netwrix hired Morando, he signed an employment agreement that contained an arbitration provision stating that any dispute arising from his employment must be resolved through binding arbitration. The employment agreement also contained a waiver that prohibited Morando from filing a lawsuit regarding any matter within the scope of the arbitration clause.

Morando resigned in December 2010, but Netwrix rehired him in April 2011, and Morando signed an identical employment agreement containing the arbitration and waiver provisions. When he signed each employment agreement, he also signed an acknowledgment stating that he understood the agreement and had an opportunity to seek legal advice.

Netwrix discharged Morando in July 2011 for poor sales performance. Morando filed a lawsuit alleging failure to pay overtime wages in violation of the Fair Labor Standards Act (“FLSA”) and failure to provide a reasonable accommodation in violation of the New Jersey Law Against Discrimination (“NJLAD”). Netwrix filed a motion to dismiss the lawsuit and to compel arbitration of Morando’s claims.

The District Court granted the motion to dismiss and compel arbitration, holding that the arbitration provision was neither procedurally nor substantively unconscionable. Morando signed an acknowledgment confirming that he read and understood the employment agreement and had adequate opportunity to review its terms with legal counsel. The agreement was not substantively unconscionable because it did not significantly limit his statutory rights under either the NJLAD or FLSA.

Employment agreements that contain binding arbitration provisions can be very beneficial to employers by expediting the resolution of employee grievances and reducing the costs of litigation. However, employers must be mindful that courts will strike down unconscionable arbitration provisions. At a minimum, employers must ensure that their employees understand the rights that they are waiving and affirmatively acknowledge their agreement to arbitrate. It is often a best practice to grant employees an opportunity to seek legal advice before agreeing to the terms of the arbitration provision.