ARBITRATION CLAUSES CAN NO LONGER WAIVE PUNITIVE DAMAGES PURSUANT TO PUBLIC POLICY BEHIND THE NJLAD

On August 23, 2018, the New Jersey Appellate Division issued its opinion in Roman v. Bergen Logistics, LLC, et al., 2018 WL 4012025 (App.Div. Aug. 23, 2018) (not for publication). This case involved a female human resources employee who alleged that her immediate supervisor (the named individual defendant in the case) and Human Resources Director, sexually harassed and subjected her to a sexually hostile work environment. Plaintiff also alleged that her supervisor and company and retaliated against after objecting to the conduct she faced by terminating her.

The trial court dismissed plaintiff’s New Jersey Law Against Discrimination (NJLAD) case due to the arbitration clause signed by Plaintiff when she commenced employment. On appeal, two issues were decided: 1) whether the arbitration agreement could waive punitive damages normally available under the NJLAD; and 2) whether the arbitration agreement could otherwise be enforced even with plaintiff claiming she did not knowingly sign the arbitration clause.

ENFORCABILITY OF ARBITRATION CLAUSE

Taking these determinations in reverse order, the Appellate Division ruled that the arbitration agreement was knowingly signed and entered into. The court rejected plaintiff’s claims and found that she knowingly waived the right to go to trial. The Appellate Division found that the arbitration agreement clearly stated:

  1. Neither plaintiff not Bergen Logistics will “file or maintain any lawsuit, action or legal proceeding of any nature with respect to any dispute, controversy or claim within the scope of [the] Agreement;”
  2. “BY SIGNING [THE] AGREEMENT [PLAINTIFF] AND THE COMPANY ARE WAIVING ANY RIGHT, STATUTORY OR OTHERWISE TO A TRIAL BY JURY.”; and
  3. Any claims “shall be resolved exclusively by final and binding arbitration.”

Id., at *6. In so finding the appeals court held that a “valid arbitration agreement does not require advice on all component rights encompassed in a waiver of seeking relief in court. Such a requirement would render arbitration clauses too complex, hard to understand, and easy to invalidate, in contravention of the strong public policy favoring arbitration.” Id., citing Jaworski v. Ernst & Young U.S. LLP, 441 N.J.Super. 464, 480-81 (App.Div. 2015).

The Appellate Division also found unpersuasive plaintiff’s arguments that the arbitration agreement should be invalidated because she did not have an opportunity to read, understand and could not confer with counsel regarding the arbitration clause. The Appellate Division found that plaintiff’s arguments were refuted by the plain language of the agreement at issue. The agreement states that by signing, plaintiff: “acknowledged and agreed she read it, had sufficient time to confer with counsel of her choice, understood its terms, signed it knowingly and voluntarily, and did not rely on any statements or representations by Bergen Logistics in doing so.” Id., at *7.

ARBITRATION AGREEMENTS CANNOT WAIVE SUBSTANTIVE RIGHTS UNDER THE NJLAD

The real import of the Appellate Division’s decision is that arbitration agreements cannot purport to waive the right of a plaintiff to seek punitive damages in NJLAD cases on grounds of public policy embodied in the statute itself. Citing prior precedent that refused to allow abrogation of public policy statutory rights, the Court had no qualms striking down the portion of the arbitration clause at issue precluding plaintiff from pursuing punitive damages. See id., at *3, citing Rodriguez v. Raymours Furniture Co., Inc., 225 N.J. 343, 361-66 (2016) (holding that an arbitration clause requiring an employee to bring arbitration within six months of accrual versus the statutory two-year statute of limitations violated the public policy of the NJLAD); Van Duran v. Rzasa-Ormes, 394 N.J.Super. 254, 267-68 (App.Div. 2007) (finding an arbitration agreement foreclosing judicial review of an arbitration award violated public policy).

In refusing to enforce the waiver of punitive damages in the arbitration clause at issue in Roman, the Appellate Division determined:

. . . . we are persuaded the arbitration agreement’s bar of punitive damages claims under the LAD is unenforceable because it violates the public policy embodied in the LAD. Our Supereme Court has “long recognized that the essential purpose of the LAD is the ‘eradication of the cancer of discrimination.’” [citiations omitted] . . .

In 1990, the Legislature amended the LAD to permit the recover of punitive damages. L. 1990, c. 12. The amendment includes an unambiguous declaration of public policy providing a substantive remedy to victims of discrimination: “[t]he Legislature intends that [punitive] damages be available to all persons protected by” the LAD. L.. 1990, c. 12; N.J.S.A. 10:5-3.”

The Appellate Division continued to hold that “[t]he availability of punitive damages serves the LAD’s public policy of eradicating employment discrimination by focusing n the deterrence and punishment of particularly serious discriminatory conduct by certain employees. [citations omitted]. Punitive damages may be awarded under the LAD only where there is “proof that there was ‘actual participation by upper management or willful indifference,’ and proof that the conduct was ‘especially egregious.’” Id., at *4, citing Quinlan v. Curtiss-Wright Corp., 204 N.J. 239, 274 (2010) (quoting Rendine v. Pantzer, 141 N.J. 292, 313-14 (1995)). Further, the Roman Court found that: “a contractual provision barring an employee’s access to punitive damages under the LAD not only violates public policy by eliminating a remedy the Legislature expressly declared is available to all victims of discrimination under the statute . . . . it also eviscerates an essential element of the LAD’s purpose – deterrence and punishment of the most egregious discriminatory conduct by employees who, by virtue of their position and responsibilities . . . . control employer policies and actions that should prevent discriminatory conduct in the workplace.” (Citations omitted).

THE IMPORT FOR BUSINESSES AND BUSINESS OWNERS

The Roman v. Bergen Logistic, LLC case, brings up several issues that require some discussion and elucidation for business owners. This case involves arbitration clauses. Many employers seek to impose arbitration clauses in their employee handbooks and intake packages to resolve employment law issues. Arbitration is not the right fit for every business or business owner. While proponents of arbitration argue that matters are held more expeditiously and more cost effectively than trial courts, this is not always the case. As the business owner in an employment law matter, you will be responsible for the arbitrator’s fees, which are not inexpensive. These fees could involve bills for multiple arbitrators, depending on the type of arbitration selected and arbitrator fees for time not even arbitrated (such as preparation time) in addition to your own counsel fees. In court, you do not pay for the judge’s time. While many employers seek to avoid a jury trial (which could be contractually waived), only the actual trial could be heard and decided by a jury, not the pre-trial discovery process and not summary judgment motions. If a business wants to have a valid and enforceable arbitration clause it must: “at least in some general and sufficiently broad way, must explain that plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.” Id., at *6, citing Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430, 445-46 (2014). Further the Appellate Division noted that “[a]n employee who signs but claims to not understand an arbitration agreement will not be relieved on those grounds alone.” Id., at *6-7.

What this decision also makes clear, is that if a business wants to have certain protections in their employee handbooks or other documentation governing employee conduct, the business better make sure such policies cannot be successfully challenged in court. The language utilized in the Roman case regarding the arbitration agreement is a prime example of successful language the company utilized to prevent the plaintiff from claiming she did not understand the agreement.  The last thing an employer wants or needs, is to have an employee be able to challenge a term of employment because he or she can successfully argue that he or she did not have time to read, review, consider or otherwise study and agree to its terms. The Roman Court found that the plaintiff’s “argument is also contradicted by the plain language of the agreement, stating that by its execution plaintiff acknowledged and agreed she read it, had sufficient time to study and consider it, had sufficient tome  to confer with counsel of her choice, understood its terms, signed it knowingly and voluntarily, and did not rely on any statements or representations by Bergen Logistics in doing so.” Id., at *7.

The key to the whole decision though is the confirmation that arbitration agreements cannot waive an employee’s claims to punitive damages. For years, employers have sought arbitration to try and avoid any claim of punitive damages. In the current social environment we are currently in, where there is a heightened awareness of sexual harassment and employment discrimination, as a result of this ruling, employers can no longer seek to shield their improper actions by having an employee waive his or her statutory rights to punitive damages. What businesses and business owners need to do is have firm policies in place regarding sexual harassment and discrimination. It must investigate each and every claim presented and treat each claim with urgency and great import, otherwise, depending on the size of the business and applicable insurances in place, the business may not be able to survive a successful harassment/discrimination claim if punitive damages are awarded.

To handle the multitude of situations that affect a business and a business owner, outside counsel needs to be in place before a situation arises. Getting policies and procedures in place, having staff trained in the policies, having management understand the importance of investigation of claims, reviewing hand books and other policies, preparing non-compete and non-disclosure agreements, having proper insurance in place and being able to handle any customer or vendor disputes are some but not all of the issues businesses face. We at the Beinhaker Law Firm, LLC handle all aspects of the issues facing businesses, from formation, draf6ting of by by-laws, leasing and buying of property and equipment, to succession planning and/or sale of the business or a portion thereof. We provide our clients with personalized attention, collaborative partnership level work and customizable arrangements for representation. We seek to be the first call of businesses in times of trouble and in times of growth and success. Let the Beinhaker Law Firm be your outside general counsel and be your business partner for the life of your business.

 

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