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Mandatory Arbitration Agreements – New Jersey Court Finds a Loophole

Distressed Woman.jpgMany employees and consumer enter into arbitration agreements with their employers and companies that provide goods and services. This agreement, or a clause in a larger agreement, guarantees that the parties will go to arbitration rather than take their claims to trial. But arbitration agreements are like any other contract; they must meet certain requirements to be valid. One of these is specificity – so that all parties are aware of what rights they are getting and giving up. Courts in New Jersey and all over the country have invalidated contracts for lack of clarity in this area.

 

A New Jersey Appeals Court faced this lack of clarity issue recently in Flanzman v. Jenny Craig, Inc., when an 82 year old woman was fired from her job with Jenny Craig, Inc., a popular weight loss, weight management and nutrition company. She worked there for 26 years. During this time, the company slowly started to reduce her hours until she was only working 3 hours a week, eventually leading to her termination. 

The woman filed suit, claiming age discrimination and termination, among other claims. In response, Jenny Craig filed an application with the court to compel arbitration, since their employment relationship was covered by an arbitration agreement. The arbitration agreement did not include a “forum” – or location – for the arbitration to take place. 

Typically, arbitration agreements outline the rights that each party is giving up and getting in exchange. For example, the employee is giving up her right to a jury trial and the employer is giving the employee a job. This exchange shows a “meeting of the minds,” meaning that both sides  are aware of their rights under the agreement. The courts held that this “meeting of the minds” standard could not be met without the parties knowing the “forum” for arbitration. 

First, designation of a forum can indicate the type of rules that would be used. That’s important. A forum that uses the rules of the American Arbitration Association, for example, will differ from those that use the rules of the Judicial Arbitration and Mediation Services. Where a forum is not included in an agreement, an arbitration clause might explain how one will be chosen. 

But here, Ms. Flanzman was deprived of knowing exactly what rights replaced her right to go to court and get a jury trial. The Appeals Court decided that without this knowledge, both  parties were unable to fully understand the ramifications of signing it.  The agreement was found to be invalid. 

Arbitration agreements still must meet the requirements of all contracts, meaning that both sides must have clear knowledge concept of what rights are given up and granted.

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