New Developments on the Arbitration Front

For the past several years, the United States Supreme Court has chastised lower courts for their refusal to enforce mandatory arbitration agreements despite the Court’s repeated admonition that, under the Federal Arbitration Act (“FAA”), agreements to arbitrate disputes must be placed on equal footing as any other contract and any law or rule that fails to do so is preempted. In Kindred Nursing Centers v. Clark, decided in 2017, the Court stated once again that “The [FAA] requires courts to place arbitration agreements ‘on equal footing with all other contracts.’”

It is difficult to square the clarity of the Court’s continual insistence on adherence to the FAA with New Jersey Senate Bill S121 (S121), which was passed on March 18, 2019. Under that statute, “[a] provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable.” In other words, New Jersey has explicitly carved out a particular area in which contracts to arbitrate disputes are not permitted.

It remains to be seen how the courts will view the arbitration agreement ban in the employment context. However, there seems to be no question that S121 attempts to treat arbitration agreements in the employment context differently than other contracts. For now, the new law only applies to arbitration agreements entered into, renewed or modified after March 18, 2019. Given how dubious S121 may be under Supreme Court precedent, New Jersey employers who use mandatory arbitration to resolve disputes with their employers may well elect to disregard the statute and continue requiring that employees sign such agreements.

In another attack on arbitration agreements in the employment context, a federal district court in Washington, D.C. held that an employee who had received four emails informing him that his employer had instituted a mandatory arbitration program for employment disputes was not bound by that agreement because he claimed never to have read the emails. Jin v. Parsons Corp. In that case, the employer sent notice of the program to all of its employees and instructed to certify that they agreed to the program. They also informed employees that if they did not return the certification, their continued employment would be deemed their agreement. The employee in this case received the first email and the three reminder emails but did not sign the certification. The court held that continuing employment could not establish the employee’s agreement to arbitrate disputes and that the employer could not prove (at that stage of the proceedings) that the employee had read the emails and understand that his continued employment would indicate his agreement.

The obvious lesson from Jin is that employers should be diligent in ensuring that employees demonstrably agree to mandatory arbitration to avoid the “ostrich defense” by employees. The other lesson is that some level of judicial hostility to arbitration agreements is likely to continue until the courts run out of creative arguments to avoid enforcing them.