Arbitration Agreement Found in Employee Handbook With At-Will Disclaimer Held Unenforceable

On January 7, 2016, the New Jersey Appellate Division affirmed the denial of an employer’s motion to compel arbitration of an former employee’s age discrimination and wrongful termination lawsuit because the employee handbook, within which the arbitration policy was contained, also included an “at-will” disclaimer announcing that the handbook did not constitute a contract. As such, the arbitration agreement and waiver of the right to sue did not constitute a contract binding on the employee. Morgan v. Raymours Furniture Company, Inc. [1].

New Jersey courts will enforce arbitrations agreements involving statutory discrimination claims where the waiver is clearly and unmistakably established and the parties must waive their rights to a jury trial with full knowledge of the legal rights they intend to surrender. [2] These same courts, however, have made it clear that employers who place their arbitration policies only in employee handbooks do so at their own peril. For example, in Leodori v. Cigna Corp. [3], the New Jersey Supreme Court held that an employee's signed receipt of the employer's handbook did not constitute agreement with its terms because the acknowledgement did not express that “the recipient has received and agreed to an arbitration policy.”

Most employers who implement and distribute employee handbooks include a valid “at-will” disclaimer which, among other things, makes it clear that the handbook itself does not constitute a contract of employment. They do so in order to prevent claims by employees that the handbook is actually an implied contract that prevents them from being discharged “without cause.” [4]  However, as Morgan demonstrates, courts will refuse to enforce arbitration agreements where the handbook includes that disclaimer. In Morgan, the employer had prefaced the handbook with a disclaimer against any assumption that its provisions were "contractual in nature." In affirming the denial of arbitration, the court concluded that the employer could not equitably have it both ways and that the presence of the employer's disclaimer precluded a determination that the employee had contracted away his right to sue. Of interest is the fact that this is not the first time that a court has refused to enforce the arbitration agreement in Raymours’ employee handbook [5].

THE BOTTOM LINE: Courts are willing to enforce arbitration agreements but employers must take several important precautions. First, an employee handbook is not the place to insert an arbitration policy because of the “at-will” disclaimer. Morgan tells us that non-binding provisions in a handbook will not be enforced. The best approach for employers who want their employees to agree to arbitration should create and distribute a separate document in which both they and their employees agree to arbitrate their statutory discrimination claims [6]. Second, the arbitration agreement must “clearly and unmistakably” state that employees will arbitrate statutory claims and that they waive their right to sue in court.