Arbitration Agreement Nullified by Employee Handbook Disclaimer According to NJ District Court

Employers often use arbitration programs with employees to elect a forum that eliminates jury trials and class actions. A New Jersey District Court recently found that the employer’s handbook containing a provision which, gives the employer the exclusive ability to change the provisions of the handbook without notice to employees, invalidated an employee’s arbitration agreement.


In Raymours Furniture Co. v. Rossi, Civ. No. 13-4440 (DNJ January 2, 2014), Plaintiff Raymour Furniture filed a complaint to compel arbitration in Federal District Court after Defendant Rossi threatened to sue the employer for discrimination, retaliation and constructive dismissal. When Rossi started employment, she signed a handbook receipt acknowledging that the employer may change its policies at any time. Years later, Raymour Furniture instituted an arbitration program by which employees signed arbitration agreements requiring employees to submit all employment-related claims to final and binding arbitration. Rossi signed an electronic receipt of the agreement. The following year, Raymour Furniture updated the agreement and required employees to again acknowledge receipt, which Rossi did.


Although the District Court exercised jurisdiction over the matter pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 4 and because the underlying employment claims arose under the Americans with Disabilities Act and Title VII of the Civil Rights Act of 1964, the Court ultimately granted Rossi’s motion to dismiss Raymour Furniture’s complaint finding that there did not exist an enforceable arbitration agreement between the parties. The Court reasoned that under the FAA, an arbitration agreement must be – in addition to other characteristics – irrevocable. Before mandating arbitration, a court must find a valid agreement to arbitrate which covers the dispute at issue. Moreover, under NJ law, a party must “clearly and unambiguously” agree to arbitrate a disputed claim. Agreeing with Rossi, the Court concluded that the arbitration program was not enforceable because the handbook states (1) that it does not create a contract and (2) that the employer may unilaterally change its policies. The court suggested that had the handbook disclaimer carved out the arbitration policy, the employer’s attempt to force the employee to arbitrate could have succeeded.

The Raymour Furniture case warns employers utilizing mandatory arbitration programs to harmonize the provisions in its employee handbook with its arbitration agreement and program to ensure that the agreement provides for an irrevocable election by the employee and a clear and unambiguous agreement despite any employee handbook disclaimer reserving the employer’s ability to make unilateral changes to workplace policies.

Gibbons Employment & Labor Law Department attorneys regularly handle discrimination and related matters and litigation.

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