• NJ Employers Re-Think Arbitration Agreements
  • January 27, 2004 | Author: Alicia A. Zonetti
  • Law Firm: Fox Rothschild LLP - Princeton Office
  • The New Jersey legislature has enacted a new arbitration act (the "Act"), applicable to nearly all arbitration agreements, that may reduce arbitration's appeal to employers as an alternative to full-scale court litigation of employee disputes. The wide-sweeping amendments make arbitration seem much more like litigation, and apply to all arbitration agreements made on or after January 1, 2003, except those made pursuant to collective bargaining agreements. As of January 1, 2005, it will be retroactive to all such arbitration agreements made after July 4, 1923. In light of the new Act, employers should re-think their dispute resolution practices and should certainly consult with legal counsel to review their existing arbitration agreements.

    What Is Arbitration?
    Arbitration is a method of private dispute resolution where parties agree to submit their dispute to one or more "neutral" persons for resolution, rather than submit the dispute to a judge or jury. Because arbitration agreements are just that -- agreements -- until recently, they could vary greatly, depending on the situation and the parties involved. Variations often include:

    • the types of disputes to be arbitrated;
    • the discovery, if any, permitted;
    • the timeframe for bringing a claim;
    • the remedies available; and
    • identification of the arbitrating body to which the dispute must be submitted.

    Under the old version of the arbitration act, which remains applicable to arbitration provisions in collective bargaining agreements, arbitration typically was a quicker and cheaper method of resolving employee disputes as compared to litigation. Discovery usually was restricted, with few, if any, depositions taken. In contrast, litigation often involves substantial discovery, such as document production and depositions, which translates into increased expenditures of time and money. Additionally, in cases where employees prevailed, arbitrations typically resulted in lower verdicts and generally did not permit fee-shifting for the prevailing party. The new Act, however, alters much of the employer's ability to impose those limitations.

    Because the old act was silent as to discovery rights in arbitrations, employers typically included provisions in their arbitration agreements restricting discovery and the arbitrator's authority to permit it. The new Act gives arbitrators the authority to permit whatever discovery they deem appropriate. Considering that evidence such as personnel files, employee evaluations, and other relevant documents typically are in the hands of the employer, these broader discovery provisions will mostly benefit employees by giving them access to what they otherwise might not have been able to acquire. Broader discovery rights are likely to expand the length and cost of the arbitration process, making it less attractive as an efficient, cost-effective method of dispute resolution.

    Higher Employee Awards
    The new Act also provides arbitrators with the authority to award punitive damages and attorneys' fees if those remedies are permitted under the law applicable to the claims at issue. Consequently, an employee who now successfully arbitrates a claim of employment discrimination under the New Jersey Law Against Discrimination (the "LAD") can now recover his or her reasonable attorneys' fees, as well as punitive damages, just the same as if that claim had been litigated in court. In allowing for punitive damages and fee shifting, the new amendments could very likely result in higher awards for employees who prevail on their claims.

    Employer Advantages
    Not all of the new amendments will benefit employees. One significant pro-employer change is a provision giving arbitrators the authority to resolve claims in a summary manner. This provision will allow arbitrators to resolve some or all of the claims involved in an arbitration before the proceeding reaches the actual hearing stage. Summary disposition often is a very useful tool for employers defending against claims because it provides them with a means to dismiss claims where employees have failed to make either the necessary allegations in their pleadings or acquire enough evidence to prove their claims. Like summary judgment in litigation, summary disposition can be used to pare down the case before it reaches the final arbitration hearing stage, saving time and money by reducing the number of claims to be addressed. The summary process typically benefits employers more than it benefits employees because it more often than not results in employee claims being dismissed rather than resolved in the employee's favor. It can also help lead to settlement of the remaining claims.

    Some provisions of the new Act may work to benefit both employers and employees, depending on the situation. For example, arbitrators now will be able to authorize parties to conduct depositions that can be admitted as evidence at the arbitration hearing. These depositions effectively allow parties to capture the testimony of a witness who would be otherwise unavailable to testify at the hearing and submit that testimony to the arbitrator for consideration. Significantly, the parties may not waive this provision until after a controversy arises -- in other words, employers may not have employees waive this provision in their arbitration agreement.

    In view of the substantial changes encompassed by the new Act, and the fact that some of the statutory provisions can be waived while others cannot, employers are wise to consult with their legal counsel concerning what provisions in their arbitration agreements may or may not be enforced. Employers also may want to revise their arbitration agreements, or enter into new agreements with their existing employees, in light of these changes. At a bare minimum, employers should take this opportunity to review their existing arbitration agreements to determine whether they best suit their own unique situations. Doing so will allow employers to consider their business needs and interests against the relevant (and ever changing) legal landscape to determine whether and how arbitration may be right for them.