Agreements to Arbitrate: New Developments Under NY and NJ Law

In two recent employment decisions in New Jersey and New York, the parties were compelled to arbitrate employment claims despite the lack of written assent to arbitrate.

Jaworski v. Ernst & Young US LLP, et al. [1]

In Jaworski, the Appellate Division held that an employee may be compelled to arbitrate New Jersey Law Against Discrimination (NJLAD) claims after the employer institutes an arbitration policy, electronically noticed to all employees, which states that continued employment will be considered consent to such arbitration.

The Facts 
Plaintiffs Paul Jaworski, Alexander Haggis and Robert Holewinski were former employees at Ernst & Young’s (EY) Secaucus office whose employment was terminated in August 2012. At the time of their respective terminations, Jaworski was 61 years old, Haggis was 57 years old and Holewinski was 55 years old.

EY initiated an arbitration program (Program) in August 2002. Under the Program, covered disputes included claims based on federal, state and local civil and anti-discrimination statutes, among others (Covered Disputes). The Program provided for mediation, followed by binding arbitration should mediation fail. Finally, the Program stated that “an employee indicates his or her agreement to the proposed amendment . . . by continuing his or her employment with EY.” The Program was communicated to Plaintiffs by e-mail.

In March 2006, the Program was amended, again through e-mail. The Program reiterated that employees waived the right to bring a Covered Dispute in court and stated that “an Employee indicated his or her agreement to the Program and is bound by its terms and conditions by beginning or continuing employment with [EY] after May 1, 2006.” Among other things, the 2006 policy also amended the “Termination or Amendment Clause” insofar as EY would provide notice of the amendment twice, giving employees thirty days within which to file claims for arbitration under the prior version of the Program.

On April 25, 2006, EY sent the revised terms to all U.S. personnel by e-mail. EY’s records reflect that Plaintiffs received this e-mail. Thereafter, on June 18, 2007, EY distributed another revised version of the Program by e-mail to all U.S. personnel, including Plaintiffs, indicating an employee’s agreement with its provisions would be effected by his/her continuing employment with EY after July 18, 2007.

Additionally, Jaworski signed an Employment Agreement with EY on August 3, 2007, which contained the terms of the Program, whereby he expressly agreed “to waive any right [he] may have to have a dispute between [himself] and [EY] determined by a court of law and that all such disputes shall be resolved through mediation and arbitration.” Haggis signed a similar Agreement, which also referenced the terms of the Program, on January 27, 2010. Holewinski, however, signed his Employment Agreement on May 19, 2004, but did not sign a new agreement after either the 2006 or 2007 amendments to the Program became effective. Nevertheless, Plaintiffs continued their employment with EY after July 18, 2007.

Procedural History
After filing suit, Defendants filed a Motion to Dismiss and Compel Arbitration in lieu of an Answer. The court denied Defendants’ motion, concluding that, while the claims fell within the meaning of the Covered Disputes under the Program, the record was devoid of any evidence that Plaintiffs signed any paperwork regarding the arbitration claims. Defendants moved for reconsideration, attaching copies of Plaintiffs’ employment agreements. Thereafter, the court granted Defendants’ motion for reconsideration and dismissed Plaintiffs’ claims without prejudice in favor of arbitration. Plaintiffs appealed.

The Court’s Holding
First, Holewinski claimed that, consistent with Leodori, [2] he was not bound by the 2006 and 2007 amendments and arbitration must be done under the original 2002 Program. In Leodori, the Court declined to enforce an employment agreement’s arbitration provision where there was no evidence the plaintiff-employee assented to the agreement’s terms through his signature, and where there was no “other unmistakable indication that the employee affirmatively had agreed to arbitrate his claims.” Id. at 306-07.

The Court, disagreeing with Holewinski, pointed to the Court’s clarification that “[t]o enforce a waiver-of-rights provision in this setting, the Court requires some concrete manifestation of the employee’s intent as reflected in the text of the agreement itself.” Id.at 300. Accordingly, the Court distinguished the holding in Leodori, pointing out that EY’s “own documents contemplated [the employee’s] signature as a concrete manifestation of his assent.” Id. at 306. The Court then noted that Holewinski remained employed with EY for an additional five years following the effective date of the 2007 amendments. Therefore, consistent with Leodori, the Plaintiffs were bound by the 2007 version of the Program.

Next, the Court addressed and rejected Plaintiffs’ three other arguments for reversal. First, the Court rejected Plaintiffs’ argument that the Program constituted an illusory promise because any change to the Program does not become binding on a particular employee until thirty days after he or she receives the second electronic notice (preserving the employee’s right to arbitrate under the current terms by filing notice within thirty days). Second, the Court rejected Plaintiffs’ argument that, under Garfinkel [3] and Quigley, [4] they were not compelled to arbitrate because the Covered Dispute did not include the words “discharge,” “dismissal” or “termination” reasoning that the Program did, in fact, include clear language that NJLAD claims are arbitrable. Finally, the Court rejected Plaintiffs’ contention that EY’s Program failed to provide notice of a jury trial waiver pursuant to Atalese [5] because the Program emphasized, through highlighting and italicization, that an employee is waiving their right to sue in Court.

BGC Notes, LLC v. Kevin J. Gordon [6]

In BGC Notes, the Supreme Court of New York County held that an arbitration provision in an agreement will bind a non-signatory if that non-signatory knowingly exploited and received the benefits of that agreement.

The Facts
Plaintiff was a former employee of BGC Financial, L.P. (BGC Financial). Pursuant to an employment agreement signed by BGC Financial and Plaintiff, BGC Financial would cause BGC Notes, LLC (BGC Notes), a BGC Financial affiliate, to issue a $700,000 loan to Plaintiff. In accordance with the employment agreement, Plaintiff executed a cash advance distribution agreement and promissory note (collectively, Promissory Note) whereby he borrowed $700,000 from BGC Notes. The Promissory Note stated that BGC Financial would cause BGC Notes to issue the $700,000 loan.

The employment agreement contained a mandatory arbitration provision, which stated, in relevant part:

[A]ny disputes, differences or controversies arising under this agreement or Employee’s employment shall, to the maximum extent permitted by applicable law, be settled and finally determined by arbitration before a panel of three arbitrators in New York, New York, according to the rules of the Financial Industry Regulatory Authority (if required).

In contrast, the Promissory Note contained a choice of venue provision, which stated, in relevant part:

Maker agrees that any and all disputes arising under this Agreement are subject to litigation in the courts of the Sate of New York and acknowledges that this Note is an agreement for the payment of money only subject to enforcement pursuant to NY CPLR §3213. With regard to any and all disputes arising under this Agreement, Maker hereby irrevocably submits to [ ] the exclusive jurisdiction of the New York state courts . . . .

Approximately eight months after Plaintiff began employment with BGC Financial, he resigned. At the time of his resignation, nearly the full amount remained unpaid on the Promissory Note.

Procedural History
After Plaintiff resigned, BGC Notes filed an action to recover on the Promissory Note, moving for summary judgment in lieu of complaint. Plaintiff cross-moved for an order compelling arbitration and an order staying the action, arguing that the parties to the Promissory Note should be bound by the arbitration provision in the employment agreement. In response, BGC Notes argued that the action merely concerned an instrument for the payment of money only, requiring no proofs outside the Promissory Note, and that it was not a party to the employment agreement. Thus, the matter was within the jurisdiction of the Court. Plaintiff disagreed.

The Court’s Holding
The Court held that BGC Notes was estopped from avoiding arbitration and granted Plaintiff’s motion for an order compelling BGC Notes to arbitrate the claims under the rules of FINRA. In doing so, the Court found that the claim on the Promissory Note should have been raised before a panel of arbitrators pursuant to the employment agreement’s arbitration clause because the money provided pursuant to the Promissory Note and the repayment terms were “dependent to a significant degree on the Employment Agreement.”[7] Importantly, the Court found that BGC Notes, as a non-signatory to the employment agreement, was nevertheless bound by its arbitration provision because it knowingly exploited and received the benefits of that agreement. The benefits BGC Notes received could be traced directly to the employment agreement, pursuant to which Plaintiff was to receive the $700,000 loan from BGC Notes, in addition to salary and commissions, and that, pursuant to the Promissory Note, BGC Financial would cause BGC Notes to make the $700,000 loan. In addition, the repayment and default terms under the Promissory Note were directly related to the employment agreement. Therefore, BGC Notes’ right to repayment was directly related to Plaintiff’s employment agreement.

The Bottom Line. It is clear that, based on Jaworski and BGC Notes, parties in New Jersey and New York may be required to arbitrate disputes, even absent a signed arbitration agreement which expressly covers such dispute. Notwithstanding these decisions, however, it is our recommendation that an employer always have its employees sign an arbitration agreement, demonstrating unequivocally in writing that they have knowledge of and assent to such a policy.

For more information, please contact Emily J. Bordens or Jenny R. Caruso.