United States: Arbitration Program Gets Straight AAA's Despite Failing In JAMS

On March 1, 2016, the New Jersey Appellate Division upheld a decision to compel an employee to arbitrate her dispute with Raymours Furniture Inc. ("Raymours") before the American Arbitration Association ("AAA") after JAMS refused to administer the arbitration because the employer's arbitration program conflicted with the JAMS Minimum Standards of Procedural Fairness.


In Bowman v. Raymours Furniture Inc., the employee-plaintiff was a customer-care coordinator who had executed an agreement to submit all employment-related disputes to arbitration before  JAMS or AAA.  Importantly, Raymours' arbitration agreement provided that if it was deemed inconsistent with the administrator's rules, the agreement's terms would control the arbitration.  

In October of 2013, Bowman alleged that she was subjected to a discriminatory comment from her supervisor.  She reported the incident to the Human Resources Department, and also filed a complaint with  local police.  Bowman further alleged that as a result of her complaints, she was subject to "unfair scrutiny, harassment, and shunning."  Bowman then filed a demand for arbitration with JAMS on September 26, 2014, asserting claims of unlawful discrimination and retaliation. 

Around this time, Raymours and JAMS realized that JAMS' Minimum Standards of Procedural Fairness were inconsistent with a 180-day limitation period contained in the Raymours program. Under Raymours' arbitration program, plaintiffs must file their claims within 180 days after the claim allegedly arises.  On the other hand, JAMS' Minimum Standards of Procedural Fairness requires that the same limitations period available in court  be available to the claimant.  Although the case did not clarify exactly why JAMS and Raymours' arbitration programs conflicted, under the NJ Law Against Discrimination, the limitations period could be up to two years.  JAMS asserted that it could not administer the matter unless Bowman or Raymours were willing to waive their positions with regard to the limitations period, which neither of them were willing to do.  So, Raymours filed a demand for arbitration with AAA, whose rules were not inconsistent with the arbitration program.

The plaintiff jumped on this opportunity, alleging breach of contract in a separate court action.  On Raymours' motion to compel arbitration, the court found that the issue of whether the arbitration agreement was breached was not an issue properly before the court because the matter had not been identified in the arbitration agreement as one for the court to resolve -- that is, it did not concern "the validity of the arbitration agreement, the scope of the agreement, or the parties' execution of the agreement."  As a result, the judge compelled arbitration with the AAA, and the plaintiff appealed.

Appellate Division Decision

The Appellate Division took an encouraging position for employers using arbitration agreements. Citing the Federal Arbitration Act, and "federal and state policies favoring arbitration," the court held that "courts must place arbitration agreements on equal footing with other contracts and enforce them according to their terms."  Under this reasoning, the Appellate Division held that the "trial court correctly determined that the parties had entered into a binding agreement to arbitrate employment-related claims, according to the terms of the Program."  Furthermore, the trial court properly determined that the plaintiff's discrimination claims were subject to arbitration under the arbitration agreement.  

The plaintiff tried to argue that the dispute raised issues for the court to decide, but the Appellate Division held that it did not have authority to decide who will administer the arbitration as it is not an issue that pertains to "the validity, enforceability or scope of the Program."  Thus, the court declined to rule on whether Raymours breached the arbitration agreement by filing arbitration with AAA. Even though the plaintiff insisted that she "alone had the authority to choose the 'Administrator,'" the court deferred these issues to arbitration pursuant to Raymours' arbitration program. The Appellate Division was satisfied that Raymours did not "refuse to arbitrate" with the plaintiff pursuant to Raymours' arbitration program; but rather, only filed for arbitration with AAA after JAMS refused to administer the arbitration. 

Outlook for Employers

Employers should be encouraged that the New Jersey Appellate Division refused to invalidate the arbitration agreement because the employer commenced arbitration with AAA when it could not proceed with JAMS.  This turns the tide of recent courts that have been aggressive in invalidating arbitration agreements based on the standards in Atalese v. U.S. Legal Services Group LP.  New Jersey employers should exercise the utmost caution in the arbitration arena, and periodically review their agreements with employment counsel to ensure enforceability.

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.

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Samuel Sverdlov
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