The U.S. Court of Appeals for the Third Circuit recently issued a precedential decision reviving the suit and declaring that the wage-and-hour claims were not subject to arbitration because the arbitration agreement could not apply to statutory employment
On appeal, Moon argued that New Jersey state law required an arbitration clause to clearly and unmistakably establish that it applies to statutory claims arising from the employment relationship. The arbitration agreement at issue in this case merely required the parties to arbitrate “a dispute” under the agreement. There was no explicit reference to arbitration of statutory claims. As a result, the appellate court rejected the club’s demand for mandatory arbitration. The court relied on three principles under New Jersey law to determine the enforceability of an arbitration agreement in the employment context.
First, a waiver-of-rights provision should, at a minimum, provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination, seeGarfinkel v. Morristown Obstetrics & Gynecology, 773 A.2d 665, 672 (N.J. 2001). Here, the arbitration agreement failed to specify that the dancers agreed to arbitrate all statutory claims arising out of the employment relationship or termination.
Second, the court wrote, the arbitration agreement should also reflect the employee’s general understanding of the type of claims included in the waiver, e.g., workplace discrimination claims. Again, the agreement used by the club here failed to reference the types of claims waived by the provision, let alone refer to waiver of rights relating to discrimination claims and wage and hour claims.
Third, for an agreement to be valid, it must explain the difference between arbitration and litigation, in clear and unambiguous language. “The parties must know that there is a distinction between resolving a dispute in arbitration and in a judicial forum,” as in Atalese v. U.S. Legal Services Group,99 A.3d 306, 315 (N.J. 2014); Martindale v. Sandvik , 800 A.2d 872, 884 (N.J. 2002), (enforcing an arbitration clause because it, inter alia, “addressed specifically a waiver of the right to a jury trial, augmenting the notice to all parties to the agreement that claims involving jury trials would be resolved instead through arbitration.”).
The club argued in this case that the foregoing principles apply only to agreements involving “employees” and not ”independent contractors.” The club also argued that deciding the arbitration question would essentially force the court to determine the merits of the dancers’ employee misclassification claims. The Third Circuit rejected both arguments out of hand, relying on U.S. Supreme Court precedent from 70 years ago that declared that a court would need to determine what the employee does in order to resolve the separate wage-and-hour claims, as in Rutherford Food v. McComb , 331 U.S. 722, 729 (1947), (“Where the work done, in its essence, follows the usual path of an employee, putting on an ‘independent contractor’ label does not take the worker from the protection of
The dancers who filed this suit will get to present their claims in open court, instead of a private arbitration. Given the working conditions, it really is no surprise why the club wanted to limit the remedy to a private setting. The court did not set any new precedent here, nor did it create any new law. That should come as no surprise, either, as trial and appellate courts throughout the nation have been consistently and vigilantly upholding workers’ wage and hour rights, particularly in the context of worker misclassification.
This decision is important for other reasons. First, it reinforces the notion that an employee, even if misclassified as an independent contractor, cannot waive statutory rights without clear and unambiguous language in an employment agreement. Second, for an arbitration agreement to apply to all disputes arising out of the employment context, including discrimination claims, the clause better be ironclad, with knowing and voluntary waivers, to be enforceable. Lastly, this decision stands as a reminder that employers cannot just force employees to sign away rights and expect that waiver to be valid. When you force an employee to pay to come to work that should be all the indication necessary to know that something is not quite right here. •