Contact: Steven B. Harz, Esq., Chairman
Labor & Employment Law Group
(201) 342-6000
NEW JERSEY SUPREME COURT MAKES IT MORE DIFFICULT
FOR EMPLOYERS TO ENFORCE ARBITRATION PROVISIONS REQUIRING EMPLOYEES
TO ARBITRATE EMPLOYMENT RELATED CLAIMS
Dear Clients and Friends:
On February 13, 2003, the New Jersey Supreme Court
issued a major decision regarding the enforceability of agreements
requiring an employee to arbitrate all claims related to employment.
The practical effect of the Court’s decision in Leodori v. CIGNA
Corporation will likely make it more difficult for employers to
require arbitration for employment related claims unless a
waiver-of-rights provision exists which shows the employee’s intent
to agree to arbitrate all statutory claims arising out the
employment relationship or its termination. It must also demonstrate
that the employee generally understands the type of claims included
in the waiver.
Plaintiff, Paul Leodori, began working for
Insurance Company of North America (INA), CIGNA’s sister company, in
June 1995. During the course of his employment, Leodori served as an
in-house attorney at INA’s Division of Legal and Public Affairs
(L&PA). About one year before Leodori began his employment, L&PA
adopted an arbitration policy that required arbitration as a final
means for resolving employment-related disputes between INA and its
employees. About one year after Leodori began his employment with
the company, in August 1996, INA sent a revised policy via
inter-office mail and U.S. mail to all L&PA employees, including
Leodori. The revised policy also identified arbitration as the final
method by which the company and its employees would resolve issues
related to employment.
A subsequent L&PA handbook, which contained a
similar arbitration clause, was distributed in June 1998 to all
employees, including Leodori. That handbook was distributed with an
Acknowledgment Form which did not contain any language specifically
referring to arbitration. Rather, the form, which Leodori signed,
merely contained an Acknowledgment of receipt of the handbook and a
recitation that the recipient understood that the handbook included
information on “division” policies.
One month later, in July 1998, the company
distributed another handbook to Leodori and other employees,
entitled “You and CIGNA.” That handbook also contained a purported
agreement to arbitrate all employment disputes. The opening page of
the handbook signaled the importance of two terms of employment
addressed in the handbook, one of which was the agreement to
arbitrate employment-related claims. An Acknowledgment Form also
accompanied the “You and CIGNA” handbook, similar to the one that
accompanied the L&PA handbook. Leodori signed that acknowledgment.
He did not, however, sign a separate “Employee Handbook Receipt and
Agreement” form that accompanied the handbook, which described the
arbitration agreement as a term of employment.
Leodori alleged that during the course of his
employment, he became aware of actions by certain officers or
employees of the company that he believed were illegal or improper.
He alleged that after he reported those actions to the general
counsel, as well as to others within the company, INA suspended him
with pay and transferred him to CIGNA’s payroll. The company hired a
retired appellate judge to investigate Leodori’s claims. In May
1999, after receiving a report from the former judge concluding that
neither the facts nor the law supported Leodori’s claims, Leodori
was terminated.
Following his termination, in February 2000,
Leodori filed a complaint in the New Jersey Superior Court alleging
that the company had violated CEPA (the New Jersey Whistleblowers
Statute) by firing him because of what he had discovered and
reported. The trial court dismissed that complaint, finding that the
parties had entered into a binding agreement to arbitrate their
dispute. Leodori filed a similar action in the court in June 2000,
which also was dismissed. Leodori appealed. In an unreported
decision, the Appellate Division reversed the trial court’s
dismissal of Leodori’s first complaint. As a result, the panel
concluded that the second complaint was moot.
The company appealed to the New Jersey Supreme
Court. The Supreme Court considered the enforceability of the
waiver-of-rights provision contained in the employee handbook
distributed by defendant, CIGNA. That provision requires all
employees to resolve employment-related claims by submitting them to
arbitration.
In recognizing the recent court decisions holding
that parties to an agreement may waive statutory remedies in favor
of arbitration, the Supreme Court held that in order to enforce a
waiver-of-rights provision in this setting, some concrete
manifestation of the employee’s intent, as reflected in the text of
the agreement itself, is required. In addition, to pass muster, a
waiver-of-rights provision should at least provide that the employee
agrees to arbitrate all statutory claims arising out the employment
relationship or its termination, and should also reflect the
employee’s general understanding of the type of claims included in
the waiver. The unanimous Supreme Court concluded that the
unambiguous waiver-of-rights provision set forth in CIGNA
Corporation’s employee handbook, requiring all of its employees to
resolve employment-related disputes through arbitration, is not
enforceable against Leodori, the plaintiff-employee, where that
employee did not sign a form agreeing to the provision and where the
record contains no other clear evidence of his agreement to that
waiver-of-rights provision.
As a result of this decision, it will be more
difficult for employers to enforce an arbitration provision unless
it provides some explicit indication that the employee intended to
abide by that provision. In order for an employer to ensure the
enforcement of arbitration provisions in employee handbooks,
employees must sign or otherwise explicitly indicate that the
employee agrees to waive the employee’s right to a jury trial and
agrees that arbitration will determine any employment related
claims.
If you have any questions with regard to the
application of the Leodori v. CIGNA Corporation case to your Company
or with respect to any other labor and employment law matter, please
do not hesitate to contact Steven B. Harz, Esq. at (201) 342-6000 or via e-mail at
sharz@hertenburstein.com.
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