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NJ Supreme Court Slims Down the Requirements for Enforceable Arbitration Agreements

By Nivritha Ketty, Esq., September 15, 2020

In a unanimous ruling last week, the New Jersey Supreme Court held that an arbitration agreement that did not designate an arbitral forum or process for selecting an arbitral forum was valid and enforceable. In Flanzman v. Jenny Craig, an 82-year old former weight loss counselor, alleged that Jenny Craig discriminated against her on the basis of her age by reducing her hours from thirty-five to 3 per week. __ A.3d. __, 2020 WL5491899 (N.J. Sept. 11, 2020).   Jenny Craig moved to dismiss Plaintiff’s claims and compel arbitration pursuant to a 2011 arbitration agreement.  The 2011 arbitration agreement stated in relevant part that “[a]ny and all claims or controversies arising out of or relating to Employee’s employment . . .shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration”  but did not designate an arbitral forum or process for selecting the same. Id. at *4.  The trial court granted Jenny Craig’s motion to dismiss and ordered the parties to arbitrate Plaintiff’s claims.

On appeal, the Appellate Division reversed the trial court’s decision. Citing the New Jersey Supreme Court’s decision in Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), where the Court declared that any waiver of rights provision must clearly and unambiguously waive statutory rights, the Appellate Division held that the “failure to identify in the arbitration agreement the general process for selecting an arbitration mechanism or setting  . . . deprived the parties from knowing what rights replaced their right to judicial adjudication.”  456 N.J. Super. 613, 628 (N.J. Super. Ct. App. Div. 2018).  Accordingly, the Appellate Division found that the 2011 arbitration agreement was not enforceable.

In an opinion written by Justice Patterson, the New Jersey Supreme Court rejected the Appellate Division’s assertion that the arbitral forum or process was an essential contract term pursuant to Atalese. Rather, narrowing the requirements for a valid waiver of rights, the Court declared that the 2011 arbitration agreement met the standard set by Atalese because “it makes clear that the contemplated arbitration would be very different from a court proceeding.” 2020 WL5491899 at *10.  Further, the Court explained that “[p]arties who have expressed mutual assent to the arbitration of their disputes instead of a court proceeding may choose to defer the choice of an arbitrator to a later stage, when they will be in a position to assess the scope and subject of the dispute, the complexity of the proposed arbitration, and considerations of timing and cost.” Id. at *12.

While this decision gives employers some flexibility in drafting arbitral forum and procedural provisions, employers are cautioned not to abandon such provisions entirely.  As the Court noted, these provisions enhance the clarity of arbitration agreements and mitigate the risk of future disputes on these issues.  Moreover, to the extent that an arbitration agreement is unclear or silent with respect to these provisions, the parties may find themselves at the mercy of the default procedures contained in the New Jersey Arbitration Act.





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