New Jersey Court Rules that Arbitration Agreements Must Address the Forum for Arbitration

On October 17, 2018, New Jersey’s Appellate Division, in a published decision, refused to enforce an arbitration clause in an employment agreement where the clause did not select a forum for arbitration thereunder or describe a process for selecting such a forum.  In Flanzman v. Jenny Craig, Inc. et al., the plaintiff, after being terminated at the age of eighty-two, sued her former employer for employment discrimination pursuant to New Jersey’s Law Against Discrimination.

The employer then moved to compel arbitration, relying on an arbitration agreement signed by the plaintiff several years before in order to maintain her employment.  The broadly worded arbitration clause unmistakably provided that the parties agreed that “in lieu of a jury or civil trial,” they would settle any disputes between them – whether based upon statute or common law, contract or tort – “by final and binding arbitration.”  The agreement did not, however, identify a forum for the arbitration.

The trial court granted the motion to compel arbitration based upon the arbitration clause, but, on appeal, the Appellate Division reversed.  The court reasoned that, where an arbitration agreement does not select an “arbitral institution,” such as the American Arbitration Association (“AAA”) or Judicial Arbitration and Mediation Services (“JAMS”), the parties will not know basic information concerning the rights and procedures that would replace judicial adjudication, and thus, the parties will not have had the requisite “meeting of the minds” for enforcement of the agreement.   The court further explained that institutions like the AAA or JAMS have well-established arbitration rules and procedures for different types of disputes, and by specifically selecting one of these arbitral institutions, the parties are informed about the rights and procedures that will replace the rights that they have waived by agreeing to arbitration.

The court took pains to clarify that it was not imposing any special requirements on the type of language parties must use (as such requirements would violate the Federal Arbitration Act, which has been interpreted to prohibit courts from subjecting arbitration agreements to more burdensome requirements than other types of contracts).  To that end, the court cited, as an example, an out-of-state decision upholding an arbitration agreement where the agreement identified a forum and thereafter a process for selecting a forum should the named forum become unavailable.

It remains to be seen whether the Flanzman decision will be reviewed by the Supreme Court of New Jersey.  It is, however, consistent with a recent trend whereby New Jersey courts carefully scrutinize arbitration agreements, particularly in the employment context.  New Jersey-based employers are therefore well-served to remain abreast of these legal developments to ensure the enforceability of arbitration agreements.  And, following Flanzman, such agreements should identify an arbitral institution such as JAMS or AAA for the forum of the arbitration or, alternatively, should describe the method of and rules (or the process for selecting the method and rules) for any subsequent arbitration.