United States: Have Your Cake And Eat It, Too? Handbook Contract Disclaimers & Mandatory Arbitration Policies

A New Jersey court recently used the so-called contract "disclaimer" language in an employer's handbook to preclude the employer from enforcing a mandatory arbitration program contained in that same handbook. The court's decision must of course be considered by employers who wish to enforce alternate dispute resolution procedures without falling into the same trap. However, as also shown herein the decision appears contrary to federal policy, enforced by a series of U.S. Supreme Court decisions that strongly favor enforcement of arbitration agreements.

As background, in New Jersey, as in most states, employment is presumed to be "at will," meaning that either the employer or the employee can freely terminate the employment relationship without a reason (cause) to do so. Under certain circumstances, however, express promises contained in an employer handbook can result in contractually binding terms and conditions of employment. There is a simple way to avoid any such binding effect. The employer can include in the handbook a "disclaimer," that is, language denying that it is making any promises or expressing any intent to be bound by statements in the document. See, e.g., Woolley v. Hoffmann-La Roche, 99 N.J. 284, 309 (N.J.), modified, 101 N.J. 10 (1985).

The Morgan Case

In a recent case, an employer's disclaimer language came back to haunt it. In Morgan v. Raymours Furniture Co., N.J. Super. ___ (App. Div. Jan. 7, 2016), the New Jersey Appellate Division held that the presence of language stating that nothing in the handbook was contractually binding against the employer meant that the employer could not enforce a mandatory arbitration procedure also included in the handbook.

The handbook disclaimer read:

Nothing in this Handbook or any other Company practice or communication or document, including benefit plan descriptions, creates a promise of continued employment, [an] employment contract, term or obligation of any kind on the part of the Company (emphasis supplied by Court).

In addition, the court noted that when electronically acknowledging receipt of the handbook, an employee signified only that he or she "received a copy of the Associate Handbook" (emphasis added by Court), and, further, that he or she:

... understand[s] that the rules, regulations, procedures and benefits contained therein are not promissory or contractual in nature and are subject to change by the company (emphasis supplied by Court).

The appellate court felt that the employer wanted to have the benefit of a contract binding the employee on the subject of arbitration but avoid a contract when other parts of the handbook were at issue. The court held that this "proposition [is] to be rejected if for no other reason than it runs counter to the ancient English proverb: 'wolde ye bothe eate your cake, and haue your cake?' [John Heywood, Dialogue of Proverbs (1546)], as well as its corollary, which may have originated with Aesop, 'sauce for the goose is sauce for the gander.'" The court felt that any such result would be inequitable.

The appeals court did not quote any part of the language of the mandatory arbitration procedure. Significantly, the trial court – in language also not referenced by the appeals court – had ruled that the arbitration program clearly would have been enforceable if the language of the program had been placed outside the handbook in a standalone document. Nevertheless, the appeals court determined that because the arbitration program was contained in an employee handbook, in light of the language of the disclaimer and the acknowledgement, the employee had not "clearly and unambiguously waive[d] his right to sue defendants in court."

At first, the court's decision appears reasonable, especially its "can't have your cake and eat it, too" justification, and employers would be well advised to carve out mandatory arbitration programs from disclaimer language.

A more searching scrutiny of the decision in Morgan, however, reveals that the bases for the court's decision are contrary to well-established federal law protecting the right of parties, including employers, to enforce arbitration agreements. A petition for certification already has been filed by the employer (and other defendants), which will provide the state supreme court with an opportunity to correct the lower court's approach.

The Appellate Division Opinion Runs Counter to Federal Law

Federal law strongly favors the enforcement of arbitration agreements. The Federal Arbitration Act, 9 U.S.C. §1 et seq. (FAA), which reflects the "liberal federal policy favoring arbitration," pre-empts state law, and state court opinions applying state law, that run counter to the federal policy of upholding arbitration agreements. AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011); DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 468 (U.S. 2015). Indeed, when a state action can be seen as making it more difficult to enforce an arbitration agreement than other types of contracts, federal law steps in to protect arbitration. Imburgia, 136 S. Ct. at 471.

The court's decision in Morgan follows precisely the approach the U.S. Supreme Court forbids. Moreover, it ignores the so-called "severability doctrine," an arbitration-friendly doctrine that the supremacy of federal law requires state courts to apply to enforce arbitration programs of the type facing the court in Morgan.

The Handbook's Disclaimer Cannot Bar Enforcement of the Arbitration Agreement

The first problem with the court's Morgan decision is what it fails even to address: the federal arbitration "severability doctrine." Federal law requires enforcement of an arbitration agreement without regard to the validity of an overall document in which the arbitration agreement is contained (such as a handbook); instead, severance of the arbitration provision is mandated.

This is explained by the Supreme Court's decision in Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (2010):

[The FAA's] § 2 states that a "written provision" "to settle by arbitration a controversy" is "valid, irrevocable, and enforceable" without mention of the validity of the contract in which it is contained. Thus, a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate. "[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract." Id. at 70-71 (citation omitted; emphasis supplied).

The appellate court in Morgan failed to address the severability doctrine, let alone seek to explain why it did not apply. This issue alone calls the appellate court's ruling into serious question.

As noted above, so far as the trial court was concerned there was no question that the arbitration provision was intended by its terms to be – and legally was – binding on both the employer and the employee. Pursuant to the severability doctrine, the fact that the arbitration provision was contained in a larger document (the handbook) does not preclude its enforcement.

Moreover, the language of the handbook disclaimer certainly appears to be intended simply to state that nothing in the handbook was designed to impose a promise of continued employment or other benefit of employment obligation on the employer, again allowing the separate mandatory arbitration program to bind both, as intended.

As for the electronic acknowledgment provision quoted above, the appeals court ruled that language "which stated only that the employee 'received' and 'underst[ood]' the contents of the company handbook or rules and regulations" could not constitute a clear "waiver of the right to sue that might be found within those materials." The problem with this analysis is that since the arbitration procedure clearly did contain within it a waiver of the right to sue in favor of mandatory arbitration (as the trial court found), the appeals court's conclusion that mere acknowledgment of the contents of that document was unavailing also runs counter to the well-established principle that a party that signs a document is legally bound to its terms, regardless of a later claim that the party neither read nor understood such. The appeals court's refusal to apply that maxim to an agreement that deals with arbitration also runs counter to federal law, which requires that contracts to arbitrate be placed on the same footing as all other types of contracts. Imburgia, 136 S. Ct. at 471; see also id., citing Perry v. Thomas, 482 U.S. 483, 493, n. 9 (1987) (noting that the Federal Arbitration Act preempts decisions that take their "meaning precisely from the fact that a contract to arbitrate is at issue").

Conclusion

Employers seeking to establish mandatory arbitration programs must take the Morgan decision into account and draft disclaimer language that does not undermine arbitration. However, it is hoped that the state Supreme Court will take the opportunity to reverse the appellate decision opinion and bring state law on arbitration in line with controlling federal law.

While Morgan is a New Jersey decision, rulings in other states have also limited an employer's ability to enforce an arbitration agreement in employee handbooks under some circumstances. The employment practices lawyers in Wilson Elser's national team are available to work with employers in structuring a strong arbitration program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Ogletree, Deakins, Nash, Smoak & Stewart
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions