Agreements To Arbitrate Are Invalid If Contained In An At-Will Employee Handbook

Employers: think you have a valid arbitration agreement in your employee handbook? Think again. On January 7, 2016, the New Jersey Appellate Division affirmed the trial court’s determination that a former employee’s acknowledgment that he received a copy of an employee handbook that contained a mandatory arbitration agreement did not result in a waiver of his right to sue where that same handbook also included an “at-will” disclaimer expressly stating that the handbook did not constitute a contract.

Specifically, in the case Morgan v. Raymours Furniture Co., A-2830-14T2, 2015 WL 9646045 (N.J. Super. Ct. App. Div. Jan. 7, 2016), the plaintiff sued his former employer in court for, among other things, age discrimination and wrongful termination. The employer moved to compel arbitration based upon an arbitration clause contained in the company’s handbook stating that the employee waived his right to sue. The Appellate Division affirmed the denial of the motion to compel arbitration due to the fact that the employee handbook also contained a specific disclaimer noting that the handbook is not a contract. Indeed, the handbook stated that “nothing in this Handbook . . . creates a promise of continued employment, an employment contract, term or obligation of any kind on the part of the Company.” Similarly, when electronically acknowledging receipt of the employee handbook, the employee indicated that he understood that the “rules, regulations, procedures and benefits contained therein are not promissory or contractual in nature and are subject to change by the company.”

Employers typically include such disclaimers in employee handbooks, making it clear that the handbook is not a contract of employment, in order to prevent claims by employees for breach of contract and claims that the employee cannot be discharged without cause. However, the court in Morgan stressed that employers cannot have it both ways and use a handbook as a contract for compelling arbitration and simultaneously assert that the very same handbook does not create any contractual employment rights.

So what does this mean for employers? The Morgan decision does not eliminate an employer’s ability to require its employees to agree to arbitration. Rather, the decision simply means that the agreement to arbitrate cannot be contained within a handbook which disclaims being a contract. Accordingly, an employer who desires to have its employees be subject to an agreement to arbitrate should have its employees execute a separate agreement to arbitrate that is not in any way part of the employee handbook. This separate agreement to arbitrate should clearly and unambiguously state that the employee will arbitrate all claims against the employer and that the employee waives the right to sue in court.

For more information on this topic or if you would like us to review your employee handbook and employment agreements, please contact a Chiesa Shahinian & Giantomasi PC attorney or the author listed below.

Melissa A. Salimbene | Member of the Firm | msalimbene@csglaw.com | (973) 530-2092