Binding Arbitration in Your Employee Handbook—Enforceable? Maybe Not!

Apr 22, 2022 | Blog

Nearly all employers today have employee handbooks which set forth both employee rights and obligations. In the past, we have discussed why some of these provisions may or may not be deemed lawfully enforceable. For example, depending on which party sits in the White House, the National Labor Relations Board (NLRB) has had varying opinions on certain subjects. What many (if not most) employers would see as necessary and reasonable workplace rules have at times been found by the NLRB to violate employees’ “Section 7 rights” (e.g., “Do not discuss ‘customer or employee information’ outside of work, including ‘phone numbers [and] addresses’”).

The typical employee handbook invariably states, to the effect, that nothing in the handbook should be construed as creating a contract of employment and that employees should understand that, notwithstanding anything in the handbook, they remain “employees-at-will.” This means that they can resign their employment at any time with or without notice, and the employer reserves the right to terminate that employee at any time with or without notice, with or without any particular reason (provided, of course, the reason is a lawful one). Thus, while the handbook generally sets forth employee entitlements such as insurance, vacations, holidays, etc., the handbook also will state that nothing is guaranteed since no contract is being created. Again, this is fairly standard in many, if not most, employee handbooks today.

Another provision which is very common in today’s employee handbook is binding arbitration as the sole remedy for when an employee feels aggrieved for what she or he may feel is a violation of a federal, state, or local law prohibiting, for example, discrimination in employment. An employer facing a lawsuit alleging such violations will move to dismiss on the theory that the employee’s exclusive remedy is binding arbitration. And, typically, the employer will likely be successful.

 That is: if the employer is not in New Jersey! In a March 23, 2022, decision, the NJ Superior Court for Passaic County rejected the employer’s arguments that the case should be dismissed even though the employee had agreed, via a handbook provision, to submit discrimination claims to binding arbitration (Ramadan v. Lippolis Electric, Inc., Docket No. PAS-L-002064-20). The handbook in question was very specific that “all claims… accruing at any time including, but not limited to, claims pursuant to all Federal, State and Local statutory employment statutes…must be submitted to binding arbitration….” and further, “No party shall have the right to bring…any Covered Claim in any forum including any court of law….”

While the foregoing language seemed very clear as to the intent of the employer, the Court further noted the following language in the handbook: “This handbook does not create a contract for employment….”; “This handbook is not to be construed as an employment contract”; “Accordingly, neither the handbook  nor any other communication by a management representative is intended in any way to create a contract of employment”; and finally, “Furthermore, I understand that this handbook or any other written or verbal communication by a management representative is neither a contract of employment nor a legally-binding agreement.” Thus, the Court found this language, too, to be very clear with respect to the employer’s intent.

However, the Court obviously was troubled by what it viewed as the inequity of these seemingly inconsistent handbook provisions. In rejecting the employer’s arguments, the Court stated, “You cannot state that a document is not a legally binding agreement and that it is a legally binding agreement depending on the reason enforcement is sought. It is either an enforceable agreement or it is not.”  Accordingly, the Court denied the employer’s motion for summary judgment.

So, where does that leave employers in New Jersey (or elsewhere for that matter if the issue comes before another state’s court)? It is quite possible that an employer may still obtain an enforceable binding arbitration agreement with employees covering alleged unlawful discrimination (or restrictive covenants, etc.) but, at a minimum, those agreements should be separate and apart from the employee handbook. And even then, the employee handbook would have to be worded so as not to negate the separate arbitration agreement(s).

It is suggested that employers review their employee handbooks and related policies and make necessary revisions thereto in order to best accomplish the end goal of having related employment controversies resolved through binding arbitration rather than through the courts. If you have any questions concerning your handbooks or employment policies, or would like assistance in reviewing and revising same, please contact Philip S. Mortensen.