[co-author: David Mell]

Three recent decisions in New Jersey shed new light on the ongoing tension between the Federal Arbitration Act (“FAA”) and the standard of review utilized by the New Jersey courts concerning the enforceability of arbitration agreements.  Congress passed the FAA almost a century ago to address the hostility courts had towards private arbitration and put arbitration agreements “on equal footing” with other contracts.  In New Jersey, however, courts have been reaching decisions that appear to be at odds with the FAA and are increasing their focus on “mutual assent” – whether or not parties have reached a “meeting of the minds.”

Can Mutual Assent Be Found in an Email?

          Two recent decisions by the United States District Court for the District of New Jersey, Schmell v. Morgan Stanley & Co., Inc. and AT&T Mobility Services LLC v. Jean-Baptiste, address mutual assent where the company’s arbitration agreement was presented to employees by email.

Facts in Schmell

Mr. Schmell was employed as a Senior Vice President with Morgan Stanley from January 2006, until his termination in October 2017.  Schmell filed a complaint in the Superior Court of New Jersey, Monmouth County alleging wrongful termination.  Morgan Stanley subsequently removed the case to federal court and moved to compel arbitration pursuant to its Convenient Access to Resolutions for Employees (“CARE”) Arbitration Agreement.

Morgan Stanley’s CARE Agreement was sent out to employees through their work email address.  In relevant part, the email informed employees “that the program was mandatory unless they opted out and that their continued employment without opting out constituted acceptance” of the arbitration agreement (emphasis added).  The CARE Agreement was also available on Morgan Stanley’s internal human resources portal.  Schmell continued his employment without opting out and, in opposing the motion to compel arbitration, claimed that he never read the email and did not recall reviewing it, stating that he could receive possibly hundreds of emails in a given day.

The District Court’s Decision in Schmell

In the first of three separate decisions (Schmell I), the District Court Judge found that there was an unresolved question as to whether Schmell had notice of the CARE Agreement and denied Morgan Stanley’s initial motion to compel arbitration.  In particular, the Court noted that the notice question raised a genuine issue as to whether “there was a meeting of the minds [so that Schmell] could mutually assent to the terms of the CARE program.”  In a second decision (Schmell II), the Court ordered limited discovery to address this notice question, the goal being to “properly evaluate whether there was a meeting of the minds on the agreement to arbitrate.”  In the third-and-final decision (Schmell III), the Court ruled that the limited discovery had established that Schmell did indeed have notice of the email and, consequently, the CARE Agreement.  Therefore, although Schmell failed to opt out or otherwise respond to the email, such notice, particularly that the CARE program was mandatory, combined with his continuing employment without opting out, constituted his assent to be bound by the arbitration agreement.

Facts in Jean-Baptiste

          Ms. Jean-Baptiste was employed as an Assistant Store Manager for AT&T at the time she filed her complaint in the Superior Court of New Jersey, Union County alleging gender and race discrimination in violation of the New Jersey Law Against Discrimination.  AT&T removed the case to federal court and filed a motion to compel arbitration, pursuant to an agreement that had been presented to Jean-Baptiste by email in March 2016.  The email informed Jean-Baptiste that participation in the arbitration program was optional and also established a deadline for employees to opt out of the agreement, stating “[i]f you do not opt out by the deadline, you are agreeing to the arbitration process as set forth in the Agreement.” (emphasis added). Prior to the opt-out deadline, Jean-Baptiste accessed the arbitration agreement and clicked on a button that read “Review Completed.”  In opposing AT&T’s motion to compel arbitration, Jean-Baptiste argued that she never affirmatively agreed to be bound by the arbitration agreement and that her mere silence could not be construed as her assent to the terms.

The District Court’s Decision in Jean-Baptiste

The District Court, in considering whether Jean-Baptiste’s silence constituted her assent to the arbitration agreement, applied New Jersey contract principles, particularly that the enforceability of such an agreement could only result from an “explicit, affirmative agreement that unmistakably reflects the employee’s assent.”  The Court also cited the opinion in Schmell I, that such affirmation “need not be an actual signature, but must demonstrate a willingness and intent to be bound by the arbitration provision.”

The District Court’s decision addressed the differences between Ms. Jean-Baptiste’s case and the facts in Schmell. Whereas Mr. Schmell was notified that participation in the CARE Agreement was mandatory and that his continued employment without opting out signified assent to the agreement, the email sent by AT&T to Ms. Jean-Baptiste contained no such notification.  The District Court highlighted the fact that AT&T specifically told Jean-Baptiste that the decision to participate was “entirely up to her” and that there would be “no adverse consequences” if she chose not to participate in the program.  As such, the District Court found that Jean-Baptiste’s decision to continue her employment had nothing to do with her assent (or lack thereof) to the optional arbitration program and emphasized that “the burden of obtaining affirmative acceptance . . .  rests with employers.”

Shed the Pounds and the Arbitration Provision

In Flanzman v. Jenny Craig Inc., the New Jersey Appellate Division found that an arbitration provision between weight loss company Jenny Craig and a former employee was unenforceable because the agreement failed to identify where or how the parties would arbitrate their dispute.

Facts in Flanzman

Ms. Flanzman was employed with Jenny Craig for 26 years as a weight loss counselor before she was terminated at the age of 86.  She filed a complaint in Superior Court of New Jersey, Bergen County alleging age discrimination and discriminatory discharge in violation of the New Jersey Law Against Discrimination.  Jenny Craig moved to compel arbitration pursuant to an agreement that Ms. Flanzman had signed in 2011 – 20 years after she had been hired – as a condition of her continued employment.  The problem with Jenny Craig’s arbitration agreement, however, was that it failed to specify the forum in which the parties could bring their claims.

Trial and Appellate Decisions

The trial court found that the absence of a specified arbitration forum did not render the agreement unenforceable, instead it allowed Ms. Flanzman to choose the body that would conduct the arbitration.  The Appellate Division, however, reversed this decision, holding that the parties could not have reached a “meeting of the minds” without knowing what rights would replace their right to judicial resolution of their dispute and, therefore, the agreement lacked mutual assent.  The basis for the Appellate Division’s decision was adapted from the New Jersey Supreme Court’s decision in Atalese v. United States Legal Services Group, L.P., which instructed the lower courts to “take particular care in assuring the knowing assent of both parties to arbitrate, and a clear mutual understanding of the ramifications of that assent.”

Thus, since Jenny Craig’s arbitration agreement did not identify where and how the parties would arbitrate the dispute (such as, through the American Arbitration Association, or by creating a process for the selection of an arbitrator), this failure doomed the agreement.  Jenny Craig may still seek review by the New Jersey Supreme Court, which has as recently as September 2018 taken up cases to clarify the interplay between New Jersey contract law and the FAA.

Bottom Line

Courts applying New Jersey’s contract-principle approach to arbitration agreements have made it clear that courts will not assume that employees have intended to waive their right to a jury trial unless the agreements reflect their assent in unambiguous terms.  Likewise, employers should not assume that the bare existence of an arbitration agreement will be sufficient to compel arbitration.  As the Court noted in Schmell and Jean-Baptiste, employers bear the burden of obtaining their employee’s affirmative assent.  While, in some circumstances, an employee’s silence may be construed to signify assent, the better approach is to use the most unambiguous means possible – such as a signature.  As you can see, ambiguity on this issue leads to consequences that cut against the benefits of arbitration – such as speed in resolving disputes, relative informality, and cost-effectiveness.  Furthermore, Flanzman instructs that, in addition to requiring mutual assent to arbitrate, the parties must also have a mutual understanding as to the rights that will be afforded in arbitration, to replace those that have been waived.