NJ Appeals Court Invalidates Arbitration Clause in Employment Agreement

NJ Appeals Court Invalidates Arbitration Clause in Employment Agreement

Josiah Contarino

On March 25, 2024, the New Jersey Appellate Division ruled that an arbitration clause in the plaintiff’s employment agreement was ambiguous and, thus, unenforceable. Ogunyemi v. Garden State Med. Ctr., No. A-1703-22 (N.J. App. Div. Mar. 25, 2024).

The dispute arose out of the plaintiff’s job as a pain specialist with defendants. Id. at 2. To obtain that job, the plaintiff signed a ten-page employment agreement on March 29, 2021. Id. at 2-3. The plaintiff’s first day of work was September 1, 2021. Id. at 4. Plaintiff alleged she was sexually assaulted shortly thereafter at an October 8 welcome party that took place at another doctor’s house. Id. Plaintiff was later terminated on November 9 due to “ceased operations.” Id. at 4 n.2

The plaintiff filed a lawsuit against defendants on May 9, 2022. Id. at 5. The defendants responded by filing a motion to compel arbitration under the employment agreement. Id.

Section 27 of the employment agreement was titled “VENUE, ARBITRATION AND ACCEPTANCE OF SERVICE OF PROCESS.” Id. at 3.

Each party to this Agreement hereby agrees and consents that any legal action or proceedings with respect to this Agreement shall only be brought in the courts of the State of New Jersey in Ocean County. . . . [E]ach such party hereby (i) accepts the jurisdiction of the aforesaid courts . . . Except as set forth in Section 11 hereof [“Termination”], any claim, controversy or dispute between you and CSJPR[1] (including without limitation CSJPR’s affiliates, shareholders, employees, representatives, or agents) arising out of or relating to your employment, the cessation of your employment, or any matter relating to the foregoing (any “Controversy”), shall be submitted to and settled by arbitration before a single arbitrator . . . The foregoing requirement to arbitrate Controversies applies to all claims or demands by you, including without limitation any rights or claims you may have under any employment law whatsoever, including, but not limited to . . . the New Jersey Law Against Discrimination (“LAD”) . . . or any other federal, state or local laws or regulations pertaining to your employment, the termination of your employment or this Agreement. YOU UNDERSTAND AND AGREE THAT THIS ARBITRATION PROVISION WAIVES YOUR RIGHT TO A JURY TRIAL FOR ANY AND ALL CLAIMS, INCLUDING STATUTORY EMPLOYMENT CLAIMS.

Id. at 3. Referenced by Section 27, Section 11, titled “TERMINATION,” provided:

This Agreement may be terminated upon the happening of any of the following events: . . . . (l) [Y]ou are unable to perform the essential functions of your position due to physical or mental illness, disability, or incapacity, with or without a reasonable accommodation it being recognized that your inability to perform your essential job functions for any prolonged period of time, usually twelve (12) weeks or more, will result in an undue hardship to the operations of CSJPR; or CSJPR is dissolved, ceases operations or files for bankruptcy.

Id. at 4

Ruling Section 27 unenforceable, the court highlighted that the paragraph included “a series of difficult to decipher and contradictory sentences”; included 887 words in 36 unbroken lines; and included “mutually inconsistent means for dispute resolution”—both in court and in arbitration. Id. at 9-10. The court’s “one dispositive conclusion” about Section 27 was that it was “not written in plain, clear, and understandable language.” Id. at 11. The conflicting methods to resolve disputes appeared to be “standalone provisions,” each rendering the other “meaningless, making the employment agreement ambiguous when read as a whole.” Id. at 12.

The court decision also included a concurrence, where one judge out of the three agreed with the result but not the reasoning underlying it. Id. at 14. Judge Rose did not find the arbitration clause ambiguous but instead found it contrary to public policy because it attempted to compel arbitration of a discrimination, retaliation, or harassment claim, which section 12.7 of the NJ Law Against Discrimination precludes. Id. at 19, 24. Judge Rose also analyzed, but found not to apply as time-barred, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. Id. at 15.

This decision serves as a warning to companies that wish to arbitrate disputes with their employees. An arbitration clause with internal conflict risks being found ambiguous and thus unenforceable.

Josiah Contarino is a senior associate at Dhillon Law Group Inc. where he practices commercial litigation, First Amendment, Second Amendment, defamation, and election law matters in state and federal courts.

Skip to content