The New Jersey Supreme Court recently reversed the Appellate Division’s decision in Marilyn Flanzman v. Jenny Craig, Inc., et al. In doing so the Supreme Court overturned the Appellate Division’s decision that companies and individuals entering into an employment agreement with an arbitration agreement in New Jersey must carefully draft the agreements to include a forum for the arbitration or the method and rules for the arbitration or they will run the risk that the arbitration agreement will be unenforceable and invalid. The Appellate Division had originally held that an arbitration provision is unenforceable when the agreement fails to identify where or how the parties are to arbitrate the matter. The Supreme Court Decision rejected the Appellate Division’s broad reading of Atalese v. U.S. Legal Services Group, L.P., which set forth that arbitration agreements must plainly and unambiguously set forth an agreement to arbitrate and to forego the right to litigate in court.
The lawsuit in Flanzman was originally instituted following alleged discrimination against an eighty-six (86) year old worker who was terminated by Jenny Craig, Inc. after working for the company for twenty-six years (26). Plaintiff alleged that she was terminated due to her age, and as such, filed the lawsuit in state court. The defendant, her employer, then filed a motion to compel arbitration at the trial court level based upon an arbitration agreement in the employment agreement which the plaintiff signed in 2011. The arbitration agreement established that the parties would arbitrate all disputes between them “in lieu of a jury or civil trial” and that the arbitration would be binding. Notably, the arbitration agreement failed to identify where the arbitration was to occur.
The trial court in Flanzman originally granted the defendant employer’s motion to compel the arbitration, but on appeal the Appellate Division reversed the trial court’s holding because the arbitration agreement did not select an “arbitral institution.” The Appellate Division held failing “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,” and therefore, there could not have been a “meeting of the minds” between the parties when entering into the agreement. According to the Appellate Division, the decision in Flanzman does not violate the language of the FAA because the Court made it clear that it did not impose additional requirements that would not be applied to other types of contracts.
The New Jersey Supreme Court has now rejected the Appellate Division’s findings and has reversed the Appellate Division’s decision. In doing so, the Appellate Division noted that policies favor arbitration agreements, as set forth and codified in the FAA and NJAA. Both the FAA and NJAA establish “default” provisions which allow courts, upon a party’s application, to rule over the selection and appointment of an arbitrator, should the issue be left open. As such, this has eased the requirements set forth by the Appellate Division’s decision previously imposed upon parties entering into an arbitration agreement that they must ensure that the agreement establishes the arbitration forum or the method and rules by which the matter is to be arbitrated.