Why Employers Shouldn’t Snooze on Enforcing Arbitration Provisions

Why Employers Shouldn’t Snooze on Enforcing Arbitration Provisions

Time is of the essence when seeking to enforce an arbitration provision since arbitration is intended to speed up the dispute resolution process…

Time is of the essence when seeking to enforce an arbitration provision since arbitration is intended to speed up the dispute resolution process.  As highlighted in a recent decision by the New Jersey Appellate Division, snoozing or failing to act quickly enough could result in waiving your rights. The appeals court held in Tevin Welcome v. Huffmaster Staffing Inc. that an employer waived the opportunity to compel arbitration by failing to assert the arbitration clause for more than ten months.

Arbitration Provision in Employment Application

Plaintiff Tevin Welcome (Plaintiff or Welcome) completed an online application for a job as a driver with Huffmaster Staffing, Inc. The employment application contained a form arbitration provision, under which the job applicant agreed that any dispute arising out of his employment would be resolved through arbitration instead of judicial adjudication. 

After starting to work for the company as a van driver, Welcome became concerned the company was not enforcing COVID-19 mask and safety precautions. He allegedly complained about this to his superiors, and they discharged him soon thereafter. Welcome subsequently filed suit against the company and several of its principals (collectively, the “Defendants”) under the state’s Law Against Discrimination and the Conscientious Employee Protection Act.

Defendants’ answer included thirteen affirmative defenses, none of which mentioned the arbitration provision. Defendants also filed a demand for a trial by jury. Over the next ten months, the parties exchanged document discovery and interrogatory responses, and some motion practice occurred. Eight days after the company took the Plaintiff’s deposition, the company raised the arbitration clause for the first time, moving to dismiss the lawsuit and compel arbitration. The trial court compelled arbitration, and the Plaintiff appealed.

Court Refuses to Compel Arbitration

The Appellate Division reversed. It held that the Defendants, “by their conduct within the court case and their lengthy inattentiveness to their company’s own contractual provision, waived the opportunity to compel arbitration.” 

“If arbitration is designed to be a faster and more efficient process, the delay in this case of nearly a year before the company took action to compel it represents a poor counter-example,” the court wrote. “We ought not encourage or endorse such lateness where it could have been easily avoided by the company or its advocates more carefully checking its own files and forms.”

In reaching its decision, the court conducted the multi-faceted analysis prescribed by the New Jersey Supreme Court in Cole v. Jersey City Medical Center, 215 N.J. 264, 280-81 (2013). The New Jersey Supreme Court instructed in Cole that when analyzing whether a party has waived its right to arbitration, a court “must focus on the totality of the circumstances.” Courts should consider, among other things, the following seven enumerated factors: 

(1) the delay in making the arbitration request; (2) the filing of any motions, particularly dispositive motions, and their outcomes; (3) whether the delay in seeking arbitration was part of the party’s litigation strategy; (4) the extent of discovery conducted; (5) whether the party raised the arbitration issue in its pleadings, particularly as an affirmative defense, or provided other notification of its intent to seek arbitration; (6) the proximity of the date on which the party sought arbitration to the date of trial; and (7) the resulting prejudice suffered by the other party, if any. 

The Appellate Division ultimately concluded that the Cole factors “strongly weigh against permitting defendants’ belated invocation of their company’s boilerplate arbitration provision.” In support, it cited that Defendants presented no tenable justification for the 10-month delay in seeking to enforce the arbitration provision. “The company and its representatives had plaintiff’s employment application containing the arbitration provision accessible within their own files,” the court wrote. “The company at least had constructive notice of it from the outset. It was the company’s own self-created form document and was not unique to this plaintiff.”

The Appellate Division also found it “ironic” that Defendants argued, in an effort to legitimize the arbitration provision, that the provision is prominent and clear on its face, and that it should have been noticed by the Plaintiff himself. “The same ability-to-notice should reciprocally apply to the company, which, after all, drafted and inserted the provision into the job application,” the court wrote. “It appears the provision was simply overlooked, for no good reason. As a matter of guidance, we should not endorse or lightly excuse such inattentiveness.”

The Appellate Division also emphasized that the pleadings filed by Defendants, including thirteen affirmative defenses, gave no hint the company would be invoking arbitration. The appeals court also questioned Defendants’ litigation strategy, noting that it was puzzling why defendants did not immediately raise the arbitration provision with Plaintiff’s attorney once they noticed it but instead said nothing about it until after they had extracted his deposition testimony. That timing “resulted in an uneven situation in which defendants got to complete a key deposition of the opposing party, but plaintiff did not get to depose the two named defendants with the benefit of the rules of court and the possible oversight of a Superior Court judge if intervention were needed,” the court wrote.

Message for NJ Employers

New Jersey companies would benefit from not snoozing on any documents that relate to its rights and obligations, as well as those of its employees.   If you are involved in a legal dispute with an employee, it is imperative to quickly and thoroughly review any related documents and legal agreements to determine your rights and obligations. The lesson from Cole is applicable to many documents that relate to employer rights and employee obligations that, at first glance, seem inconsequential. An experienced employment attorney can then help you determine the next steps based on the facts of the dispute and the applicable controlling documents.

If you have questions, please contact us

For assistance with any needs your company may have regarding such employment disputes please contact me, Arianna Mouré, at 201-896-4100.