Who, What, When, Where, and Why: Does It Really Matter?
In Flanzman, the issue before the court was whether an agreement to arbitrate was valid if it lacked specific detail as to how the arbitrator would be selected or if it failed to contain a designation of any particular arbitration forum or rules.
The facts of this case are straightforward. Flanzman worked for Jenny Craig for close to 27 years. In 2011, she signed an arbitration agreement with Jenny Craig, which stated that all disputes, including discrimination claims, must be resolved through “final and binding arbitration” rather than a jury or other civil trial.
In 2017, when Flanzman was 82 years old, her weekly hours were reduced from 35 down to 3. As a result, Flanzman filed an age discrimination suit. Jenny Craig filed a motion to compel arbitration, which the trial court granted. Flanzman appealed.
On appeal, Flanzman argued that the arbitration agreement was unenforceable because it did not designate a specific arbitrator, arbitration organization, or process for such a designation. The Appellate Division agreed, finding that the arbitration clause was never formed because the employee could not give informed assent. The Appellate Division further clarified that even though no magic words were required, if the parties do not identify an “arbitral institution (such as AAA or JAMS),” they should at least identify the process for selecting a forum. The court noted:
Selecting an arbitral institution informs the parties, at a minimum, about that institution’s arbitration rules and procedures. Without knowing this basic information, parties to an arbitration agreement will be unfamiliar with the rights that replaced judicial adjudication. That is, the parties will not reach a “meeting of the minds.”
For that reason, the Appellate Division reversed the trial court and invalidated the arbitration agreement, because it did not identify the arbitral forum the parties would use to arbitrate their dispute, and held that the case had to proceed in court.
In a unanimous decision, the New Jersey Supreme Court overturned the Appellate Division’s ruling and reinstated the trial court’s order referring Flanzman’s case to arbitration. In so holding, the court reiterated the principle that arbitration agreements should be enforced only if the parties “clearly and unambiguously” agreed to its terms and if the agreement “in some general and sufficiently broad way” explains “that the plaintiff is giving up her right to bring her claims in court or have a jury resolve the dispute.”
However, in finding that the arbitration agreement was enforceable, the court concluded that an arbitration agreement does not need to designate an arbitral forum (such as the American Arbitration Association or JAMS) or describe the “process for selecting an arbitration mechanism or setting” because the New Jersey Arbitration Act “provides a default procedure for the selection of an arbitrator and generally addresses the conduct of the arbitration, clearly express[ing] the Legislature’s intent that an arbitration agreement may bind the parties without designating a specific arbitrator or arbitration organization or prescribing a process for such a designation.” N.J. Stat. Ann. § 2A:23B-11.
Thus, because the court is empowered to appoint an arbitrator when the parties to an arbitration agreement have not agreed upon one or designated an arbitrator selection procedure, the New Jersey Supreme Court concluded that the absence of arbitrator selection language within the body of the agreement is not, in and of itself, ground to void an arbitration agreement.
Failure to Read Email Is No (ex)Skuse
In Skuse, the issue before the court was whether Pfizer provided a former employee sufficient language in an emailed document to require that she resolve all company issues through arbitration as opposed to litigation.
In this case, Skuse alleged that she was fired for refusing to accept a vaccine because it went against her religious beliefs. In response to Skuse’s lawsuit, Pfizer filed a motion to dismiss the action and compel arbitration. Pfizer argued that Skuse electronically received and completed a training module presenting the company’s mandatory binding arbitration policy and that her continued work for the company constituted an assent to be bound by the policy. The plaintiff received two emails explaining her employer’s new arbitration program (which linked to the agreement) and a “frequently asked questions” document, and she took a “training module” that required her to “acknowledge” that her continued employment for 60 days would manifest her assent to arbitration. In response, Skuse argued that she never expressed an agreement to the arbitration policy and did not waive any of her rights to litigate against Pfizer under the state’s anti-discrimination and employment laws. The trial court granted Pfizer’s motion compelling arbitration.
On appeal, the Appellate Division determined that Pfizer could not demonstrate that Skuse knowingly and voluntarily agreed to submit her employment discrimination claims to arbitration, because she was asked to “acknowledge” (not “accept”) the agreement within the training module. In addition, the Appellate Division was persuaded by the fact the agreement was sent to all employees within a litany of other emails, and it was unknown how much attention Skuse paid to that specific email.
The New Jersey Supreme Court reversed the Appellate Division and compelled arbitration. In so holding, the court agreed with Pfizer, noting that both the Federal Arbitration Act and New Jersey Arbitration Act favored arbitration of claims pursuant to contract, finding that the agreement clearly informed Skuse that by her continuing to be employed for 60 days after receiving the agreement, the agreement would become effective and she would waive her right to pursue employment discrimination claims against Pfizer in court. More succinctly, the agreement explained unambiguously that Skuse’s continued employment after the agreement’s effective date would be deemed to constitute her assent, and it stated in bold font that her “acknowledgment” was not required for the agreement to be enforced.
Accordingly, the court concluded that “Pfizer clearly explained to Skuse the rights that she would relinquish if she remained employed after the policy’s effective date and thereby assented to the Agreement’s terms.” Thus, because Skuse remained employed longer than 60 days, the agreement to arbitrate was enforceable.
Mutual Assent Is the Key to Enforceability
On October 7, 2020, the Appellate Division remanded the Falco case for reconsideration in light of the New Jersey Supreme Court’s recently issued opinions in Flanzman and Skuse.
In Falco, the plaintiff was injured at the defendant’s trampoline park after signing a “Participant” agreement that included an arbitration clause. The trial judge relied on the Appellate Division’s holding in Kleine v. Emeritus at Emerson and found that the parties in Kleine had agreed upon a “forum for arbitration [that] was no longer available,” which had warranted reversal of an order compelling arbitration. Thus, the trial judge determined the clause was invalid because there was “no meeting of the minds” when the plaintiff signed the agreement due to the fact that two years prior to signing the agreement, the designated arbitration company, JAMS, became ineligible for providing services in New Jersey.
On appeal, after the parties had briefed their arguments, the New Jersey Supreme Court reversed Flanzman. As a consequence, the Appellate Division remanded the matter to the trial judge, noting “we do not suggest what the outcome of the remand should be, only that we believe that the parties’ and the motion judge’s consideration of the issues presented would benefit from the additional guidance provided by the Supreme Court.”
On remand, the trial court granted the defendant’s motion to reconsider and compelled the plaintiff to proceed with her claims through arbitration. The trial court explained:
This Court agrees with Defendant that regardless of its inclusion and unavailability, based upon the Supreme Court’s decision in Flanzman, the use of JAMS cannot be considered an essential term that would prevent mutual assent. Further, as there is no evidence that the involvement of a specific organization is an essential term of the parties’ agreement, the unavailability of JAMS in the present case should not pose as an obstacle to the enforceability of the arbitration agreement. After reviewing the language of the arbitration agreement between the parties, this Court agrees with Defendant that there is no limiting language that makes JAMS the exclusive arbitral forum. Therefore, under Flanzman, nothing here makes the availability of JAMS an essential term of the agreement.
Practice Pointers
New Jersey courts have clearly affirmed that arbitration is a favored mechanism for resolving disputes between parties. To be enforced, however, an agreement to arbitrate must sufficiently explain that the parties are waiving their right to bring claims in court and must reflect that the parties have “clearly and unambiguously” agreed to its terms. The trilogy of cases discussed above demonstrates that New Jersey courts will not deem an agreement to arbitrate unenforceable if the agreement fails to specify an agreed-to arbitrator or arbitral forum, given that the New Jersey Arbitration Act can fill the gap for those procedures and they are not essential terms to the agreement to arbitrate.
More importantly, the New Jersey Supreme Court provided a few guidelines to assist parties in drafting enforceable agreements to arbitrate in the future, and the following should be addressed for the court to conclude that the agreement to arbitrate is enforceable:
- “[A] detailed description of the contemplated arbitration in an arbitration agreement enhances the clarity of that agreement.” Flanzman, slip op. at 2.
- “If the parties identify a specific arbitrator or arbitrators or agree to retain an arbitrator affiliated with a given arbitration organization who will apply that organization’s rules, they may avoid future disputes.” Id. at 24–25.
- “[I]t may be advantageous for parties to designate in their agreement an arbitral organization but also provide an alternative method of choosing an organization should the parties’ primary choice be unavailable. . . . In many settings, such a provision could provide a sound and practical basis to proceed.” Id. at 2, 25.
With this explicit guidance, the court has clearly set the parameters for those looking to draft enforceable arbitration agreements, and heeding this guidance will ensure that your agreements to arbitrate are enforced.
