NJ Supreme Court Continues To Clarify Arbitration Law

Bob BartkusBy Robert E. Bartkus

This summer, the New Jersey Supreme Court issued three decisions that, together and individually, will greatly affect arbitration.

In some, they confirmed existing principles; in others, they reversed Appellate Division cases and returned to “first principles” of state contract law and both the Federal Arbitration Act and the New Jersey Revised Uniform Arbitration Act. At the risk of reading too much into these results, I suggest that these opinions put teeth into the prelude to arbitration decisions in New Jersey that arbitration is favored: the contract-formation requirement of “mutual assent” (or “meeting of the minds” in the New Jersey rubric) no longer is to be stretched to vitiate an otherwise valid arbitration clause.

FAA Section 5 and NJRUAA Section 11

In the most recent case, Flanzman v. Jenny Craig, Inc.,     N.J.  , 2020 N.J. LEXIS 920 (Sept. 11, 2020), the Supreme Court unanimously reversed an Appellate Division opinion, 456 N.J. Super. 613 (App. Div. 2018), that had required arbitration clauses to designate either an “arbitral institution” or a “process for selecting an arbitration mechanism or setting.” See R. Bartkus, An Arbitration Agreement Must Identify the Forum and Rules (ABA Litigation Section, ADR Committee Article, Jan. 29, 2019) (quoting 456 N.J. Super. at 628-29). The Supreme Court opinion reminded us that Section 5 of the FAA, 9 U.S.C. § 5, and Section 11 of New Jersey’s version of the Revised Uniform Arbitration Act, N.J.S.A. 2A:23B-11, provide an explicit remedy for the problem perceived by the Appellate Division; the Appellate Division’s additional requirement was held not to be a ground “at law or in equity for the revocation of a contract.” 2A:23B-6(a); 9 U.S.C. § 2. The Supreme Court opinion also is significant for its analysis of both statutes’ “gap-filling” function, whether in the commercial, consumer or employment context. Both courts had held that the New Jersey statute applied to this contract.

Ms. Flanzman’s sympathetic status may have swayed the Appellate Division’s analysis: in her 80s, she had worked for Jenny Craig for many years and alleged that her hours had been gradually reduced to such extent as to constitute a constructive discharge in violation of New Jersey’s Law Against Discrimination. The arbitration agreement she signed in 2011 as a condition of her continuing employment began with a straightforward sentence: “Any and all claims or controversies … shall … be settled by final and binding arbitration,” Slip Op. at 5, and included a waiver of her right to a jury trial and court determination of her claims, as required three years later in Atalese v. United States Legal Services Group, L.P., 219 N.J. 430 (2014). It also delegated arbitrability issues to the arbitration. However, the clause did not specify the location, choice of law or other rules for the arbitration, or the arbitral body to administer any claims; nor did it provide a method of selecting an arbitrator or rules—the absence of which the Appellate Division held precluded a “meeting of the minds” or mutual assent required for contract formation in New Jersey. Oddly, the opinion dismissed Section 5 of the FAA and Section 11 of the NJRUAA on the basis that they only addressed appointment of an arbitrator rather than an arbitral forum or institution.

The Supreme Court recognized that, although identifying the arbitrator or forum (such as the AAA or JAMS) as well as the detailed rules governing the arbitration would be useful, these designations may be intentionally omitted for practical reasons. And the Court continued, in any case, they were not necessary for contract formation—whether measured by the “meeting of the minds” rubric or the requirement in Atalese that an arbitration clause fairly indicate to the parties (in certain consumer or employment contracts) the nature of the process that would be replacing a determination by a court and/or jury.

Significantly for other cases, the Court noted that Section 3 of the New Jersey statute provides that it “governs all agreements to arbitrate” other than under a collective bargaining agreement or collectively negotiated agreement (which are covered by the predecessor act). The statute therefore is the “default” law part of all arbitration agreements and, whether an agreement is negotiated or adhesive, all parties are on legal notice of and bound by its provisions. Among those provisions are general descriptions of how an arbitration shall be run. More specific provisions, as in a forum’s rules, are not necessary for contract formation or to place parties on notice of what to expect in an arbitration. This may have particular relevance for another case on appeal, argued September 15, 2020, regarding whether an arbitration clause in an attorney retainer agreement must attach or be accompanied by the rules for the forum specified in the clause. See Delaney v. Dickey, No. A-1726, 2019 N.J. Super. Unpub. LEXIS 1814 (N.J. Super. Ct. App. Div. Aug. 23, 2019), certif. granted, 240 N.J. 194 (2019).

The Supreme Court opinion also is interesting for its discussion of the ways that the common law and other statutes, such as the Uniform Commercial Code or “terms that accomplish a result that was necessarily involved in the parties’ contractual undertaking,” slip op at 19, quoting cases, have been used to fill gaps in contracts in order to give effect to the parties’ intent. As the Court noted, contracts often are “incomplete,” and courts are left to create or rely on background or default rules such as industry norms. Id. Thus, where the parties’ agreement evidences an intent to arbitrate, applying general contract rules is, the Court held, consistent with New Jersey’s policy in favor of arbitration. Left unsaid, to do otherwise would place arbitration agreements on a lesser footing than other contracts. To do so also was held to be consistent with Atalese.

Skuse v. Pfizer, Inc., Electronic Notice and Acceptance by Performance

A month earlier, in Skuse v. Pfizer, Inc.,     N.J. , 2020 N.J. LEXIS 904 (Aug. 18, 2020), the Supreme Court resolved the tension with earlier caselaw created by the Appellate Division’s holding that “acknowledging” receipt by a company-wide email announcing a new policy requiring arbitration was not sufficient for the formation of an arbitration contract.

The company had circulated two emails to all employees announcing the arbitration policy and stating that employees would be deemed to have accepted that policy if they remained in the company’s employ more than 60 days later. The final page of the “Agreement” sent by the first email stated:

“You understand that your acknowledgement of this Agreement is not required for the Agreement to be enforced. If you begin or continue working for the Company sixty (60) days after receipt of this Agreement, even without acknowledging this Agreement, this Agreement will be effective, and you will be deemed to have consented to, ratified and accepted this Agreement through your acceptance of and/or continued employment with the Company.”

The email also included a link to Frequently Asked Questions, with answers such as “The Arbitration Agreement is a condition of continued employment with the Company. If you begin or continue working for the Company sixty (60) days after receipt of this Agreement, it will be a contractual agreement that binds both you and the Company.” This warning was repeated at other locations, including a second email with four “slides.” The third slide stated, in part:

“I understand that I must agree to the Mutual Arbitration and Class Waiver Agreement as a condition of my employment. Even if I do not click here, if I begin or continue working for the Company sixty (60) days after receipt of this Agreement, even without acknowledging this Agreement, this Agreement will be effective, and I will be deemed to have consented to, ratified and accepted this Agreement through my acceptance of and/or continued employment with the Company.”

After that paragraph, the slide contained a button instructing the employee to “CLICK HERE to acknowledge” the new policy, as indicated earlier in the slides.

A dispute arose when Ms. Skuse, a corporate flight attendant, declined to be vaccinated for yellow fever on religious grounds. (The vaccine contained animal products, the ingestion of which was contrary to her Buddhist faith.) The company allegedly refused an accommodation, and she was terminated. When she sued for violation of New Jersey’s Law Against Discrimination, the company successfully moved to compel arbitration. The trial court relied on Jaworski v. Ernst & Young U.S. LLP, 441 N.J. Super. 464 (App. Div. 2015), which had held that continuing employment could constitute assent to an announced arbitration policy. Ms. Skuse said the trial court should assume she had received the emails.

On appeal, the Appellate Division reversed, 457 N.J. Super. 539 (App. Div. 2019), holding that there must be an affirmative acceptance of the arbitration requirement by use of “agree” or similar word. Implied agreement, or agreement by performance, was held “inadequate,” 457 N.J. Super. at 542, despite Jaworski and other cases holding that agreement could be indicated by accepting employment, or continuing to work, with knowledge of the arbitration policy.

The Supreme Court reversed, noting that courts may not subject arbitration agreements to “more burdensome requirements than those governing the formation of other contracts.” Slip Op. at 19, quoting Leodori v. CIGNA Corp., 175 N.J. 293, 302 (2003). It then reaffirmed Martindale v. Sandvik, Inc., 173 N.J. 76, 88-89 (2002), for the proposition that continued employment can “constitute sufficient consideration to support certain employment-related agreements,” and Weichert Co. Realtors v. Ryan, 128 N.J. 427, 436 (1992), that “assent” to an offer can be by words or “by conduct, creating a contract implied-in-fact.”

Given the prior caselaw, the question became whether it was appropriate to notify employees by emails sending attachments and slides termed “training,” and whether the employee need only “acknowledge” receipt of the email notice (by clicking a button in the electronic message) rather than “agree” to be bound by the terms set out in the communications. Leodori had held that where the company says that assent is to be indicated by signing the handbook at issue, acknowledging receipt or other methods of purported “assent” are not sufficient for contract formation. In Skuse, the Supreme Court held that the concerns evident in Leodori were not present, since Pfizer had informed the employees that assent would be communicated by continued employment, rather than by a signature or clicking “agree.” While characterizing the communication as a “training” module was a misnomer, it was held not “misleading” in this context. Emails were held to be a regular means of corporate communication, and employees who do not read their emails do so at their own risk. Consistent with standard contract principles, not reading a contract or clause does not negate contract formation where assent is otherwise present.

By amplifying the differences between Martindale and Leodori, in the context of mass email communications and click-wrap solicitations, Skuse gives employers clearer guidance regarding distributing an arbitration program and the means of obtaining employees’ assent, all marked as consistent with standard contract formation principles.

FAA Section 1 Exemption

In July, the New Jersey Supreme Court sided with most courts to have addressed the issue and held that, even when a litigant may come within the exemption from coverage of the Federal Arbitration Act because of Section 1 of the Act, 9 U.S.C. § 1 (“nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”), state arbitration law still may be relied upon to enforce an arbitration agreement between the parties. Colon v. Strategic Delivery Solutions, LLC,     N.J.   , 2020 N.J. LEXIS 807 (Jul. 14, 2020).

As set out in R. Bartkus, New Jersey Supreme Court Decides FAA Section One Issue (ABA Litigation Section, ADR Committee Practice Points, Sept. 2, 2020), after the U.S. Supreme Court held in New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019), that independent contractors could be “workers” within the terms of Section One (see above), at least one court in New Jersey had held that arbitration was foreclosed entirely for those parties. As was argued in the New Jersey Supreme Court, plaintiffs contended that the FAA preempted the “field” of arbitration so that if a worker could not be required to arbitrate under the FAA, then he or she could not be forced to arbitrate under any other law. The Court rejected that argument holding that, in effect, whether the arbitration should go forward would be determined under the New Jersey Revised Uniform Arbitration Act, N.J.S.A.

2A:23B-1, et seq., as if the FAA had not existed. The Court remanded to determine whether the contractors were, based on evidence of their actual work, exempt from the FAA. Notably, a concurrence and dissent warned that New Jersey might still find class action arbitration waivers unconscionable when not preempted by the FAA.

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Taken together with a case decided last term sustaining the delegation principle, Goffe v. Foulke Mgmt. Corp., 238 N.J. 191 (2019), see R. Bartkus, New Jersey Supreme Court Rights Course of Arbitrability (ABA Litigation Section, ADR Committee Articles, Aug. 7, 2019), the New Jersey Supreme Court has shown that New Jersey’s public policy favoring arbitration, although limited by the traditional contract requirement of mutual assent and a knowing waiver of statutory and constitutional rights in cases such as Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (2014), is not a mere shibboleth. Standard contract principles will be applied.

Robert E. Bartkus, of counsel to McCusker, Anselmi, Rosen & Carvelli, P.C. in Florham Park, N.J., and New York City, concentrates on arbitrating commercial and other business disputes. He is co-author, with Hon. William A. Dreier (P.J.A.D.)(ret.), of the New Jersey Arbitration Handbook (2020 ed.). Bartkus also is a Fellow of the College of Commercial Arbitrators.

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