Court Opinion

ID: 9857248
Source: CourtListenerOpinion
Date Created: 2023-09-24 14:23:12.341069+00
Date Added: 2024-06-11T09:38:20.393887
License: Public Domain

STEIN, J.,
dissenting.
The issue in this appeal is whether an employee should be bound by a mandatory arbitration agreement contained in an application form that she signed when she initially applied for a job with her employer. The majority has concluded that the arbitration agreement is enforceable. In my view, because of the vast disparity in bargaining power between an employer and a job applicant, a waiver of the right to jury trial and consent to arbitration contained in a job application form should be unenforceable as a matter of public policy.
I
When plaintiff Maureen Martindale applied for a job with defendant Sandvik, Inc. in 1994, she was required to complete and *98sign a form called “Application for Employment.” The application included a standardized arbitration agreement that stated:
AS A CONDITION OF MY EMPLOYMENT, I AGREE TO WAIVE MY RIGHT TO A JURY TRIAL IN ANY ACTION OR PROCEEDING RELATED TO MY EMPLOYMENT WITH SANDVIK.
I UNDERSTAND THAT I AM WAIVING MY RIGHT TO A JURY TRIAL VOLUNTARILY AND KNOWINGLY, AND FREE FROM DURESS OR COERCION.
I UNDERSTAND THAT I -HAVE A RIGHT TO CONSULT WITH A PERSON OF MY CHOOSING, INCLUDING AN ATTORNEY, BEFORE SIGNING THIS DOCUMENT.
I AGREE THAT ALL DISPUTES RELATING TO MY EMPLOYMENT WITH SANDVIK OR TERMINATION THEREOF SHALL BE DECIDED BY AN ARBITRATOR THROUGH THE LABOR RELATIONS SECTION OF THE AMERICAN ARBITRATION ASSOCIATION.
As written, the agreement does not appear to require defendant to arbitrate any dispute that arises with an employee. Although plaintiff does not dispute that she was given an opportunity to ask questions about the application and to take it home for further review if she so desired, she recalls being told that she was required to sign page four of the application, which included the arbitration agreement.
Plaintiff subsequently was hired by defendant and worked as a Benefits Administrator until she went on disability leave because of complications with a pregnancy. Although plaintiff was granted a family and medical leave of absence after giving birth, she was informed before her leave commenced that her position was being eliminated as a result of a change in the organization of defendant’s holding company. Plaintiff received her last disability payment in November 1996.
Subsequent to her termination, plaintiff filed claims under the New Jersey Family Leave Act, N.J.S.A 34:11B-1 to -16, and the New Jersey Law Against Discrimination, N.J.S.A 10:5-1 to -49. Defendant moved to stay the proceedings and to compel arbitration based on the arbitration agreement in the Application for Employment plaintiff signed prior to being hired. The trial court granted the motions and dismissed plaintiffs complaint without prejudice, but the court granted a stay pending appeal. The *99Appellate Division affirmed the dismissal and the order compelling arbitration. We granted certification. 169 N.J. 610, 782 A.2d 427 (2001).
II
A
Our courts have been steadfast in declining to enforce contracts that violate the public policy of our State.
In Kuzmiak v. Brookchester, Inc., 33 N.J.Super. 575, 588, 111 A.2d 425 (1955), the Appellate Division held that an exculpatory provision in an apartment lease between a landlord and tenant was “contrary to public policy.” The provision stated:
The Landlord shall in no event and under no circumstances be or become liable for any loss or damage which may occur to the tenant, his family, servants or guests or the property of either or any of them, however such damage or loss may arise and whether such property be contained in the demised premises, in the storage room, or in any other portion of said building or any place appurtenant thereto.
[Id. at 579, 111 A.2d 425.]
The tenant sued the landlord based on personal injuries she sustained when she fell down the apartment’s stairway, alleging that her fall resulted from the stairway’s negligent construction. The trial court granted summary judgment for the defendant based on the exculpatory provision. The Appellate Division reversed, acknowledging its authority to invalidate exculpatory provisions in landlord and tenant contracts on public policy grounds. Id. at 585, 111 A.2d 425. In determining whether or not the provision at issue should be enforced, the court stated that a “basis for declaring invalid a bargain, otherwise valid, which exempts one from future liability, is where a relationship exists in which the parties have not equal bargaining power; and one of them must accept what is offered or be deprived of the advantages of the relation.” Ibid, (citations omitted). The court observed that, “[ujnder present conditions, the comparative bargaining positions of landlords and tenants in housing accommodations within many areas of the state are so unequal that tenants are in no *100position to bargain” and that “an exculpatory clause which purports to immunize the landlord from all liability would be contrary to public policy.” Id. at 588, 111 A.2d 425.
In Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 386, 161 A.2d 69 (1960), this Court invalidated an express automobile warranty that sought to “limit [a] manufacturer’s liability to replacement of defective parts, and which diselaim[ed] all other warranties, express or implied[.]” The plaintiff automobile buyer and his wife sought recovery from the defendant automobile manufacturer and dealer for personal injuries sustained while driving an allegedly defective automobile soon after it was purchased. Although recognizing the basic principle of the freedom of parties to contract, we concluded that, “in the framework of modern commercial life and business practices, such rules cannot be applied on a strict, doctrinal basis.” Ibid. We observed:
The conflicting interests of the buyer and seller must be evaluated realistically and justly, giving due weight to the social policy evinced by the Uniform Sales Act, the progressive decisions of the courts engaged in administering it ____[and] the bargaining position occupied by the ordinary consumer in such an economy. The history of the law shows that legal doctrines, as first expounded, often prove to be inadequate under the impact of later experience. In such case, the need for justice has stimulated the necessary qualifications or adjustments.
[Ibid, (citations omitted).]
Although we acknowledged the argument that the buyer had accepted the exclusion of liability for personal injuries in return for the replacement of defective parts, we determined that “[a]n instinctively felt sense of justice cries out against such a sharp bargain.” Id. at 388,161 A.2d 69. We concluded that a standardized form disclaiming an implied warranty oí merchantability when there was such a “gross inequality of bargaining position[s],” was “so inimical to the public good as to compel an adjudication of its invalidity.” Id. at 391, 404, 161 A.2d 69.
In Vasquez v. Glassboro Service Ass’n, Inc., 83 N.J. 86, 104-05, 415 A.2d 1156 (1980), we invalidated a provision in a migrant farm worker’s employment contract. The plaintiff farm worker came to New Jersey from Puerto Rico to perform seasonal farm work and resided in the living quarters at the defendant farmer’s association *101labor camp. On the day the worker was discharged he was informed that, pursuant to his employment contract, he would have to gather his belongings and leave immediately. He was not allowed to remain at the labor camp overnight. In assessing the validity of the eviction provision in the employment contract, we acknowledged the inequality of bargaining power between migrant farmworkers and their employers. Id. at 103, 415 A.2d 1156 (citing Kuzmiak and noting that “[a] migrant farmworker has even less bargaining power than a residential tenant”). We analogized a migrant farmworker with “a consumer who must accept a standardized form contract to purchase needed goods and services.” Ibid. We found that “[n]either farmworkers nor consumers negotiate the terms of their contracts,” and “[i]n both instances, the contracts affect many people as well as the public interest.” Ibid. In finding the employment contract unenforceable we stated:
The unconscionability of the contract inheres not only in its failure to provide a worker with a reasonable opportunity to find alternative housing, but in its disregard for his welfare after termination of his employment. The inherent inequity of the contract arouses a sense of injustice and invokes the equitable powers of the courts.
[Id. at 104,415 A.2d 1156.]
We also have addressed whether unconscionable provisions in contracts should be invalidated based on public policy concerns in several other contexts. See Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 555, 236 A.2d 843 (1967)(invalidating provision in contract for purchase of realty that obligated owners to pay broker’s commission where “consummation of sale [was] frustrated by the inability or the unwillingness of the buyer”); Solari Industries, Inc. v. Malady, 55 N.J. 571, 576, 264 A.2d 53 (1970)(holding that noncompetitive agreements in employment contracts must be reasonable under all relevant circumstances in order to prevent injury to public); Shell Oil Co. v. Marinello, 63 N.J. 402, 409, 307 A.2d 598 (1973), cert. denied, 415 U.S. 920, 94 S.Ct. 1421, 39 L.Ed.2d 475 (1974)(invalidating termination provision in oil company’s lease and dealer agreement because grossly “disproportionate bargaining position” between parties created unfair agreement *102that violated public policy); Karlin v. Weinberg, 77 N.J. 408, 423, 390 A.2d 1161 (1978)(refusing to enforce noncompetitive agreement in employment contract beyond period of time needed to protect employer’s practice); Gladden v. Cadillac Motor Car Div., 83 N.J. 320, 334-35, 416 A.2d 394 (1980) (invalidating as unconscionable warranty between consumer and tire manufacturer that limited manufacturer’s liability to refund for or replacement of damaged tires).
B
The majority notes that many of the courts that “have considered the adhesive effect of arbitration provisions in employment applications or employment agreements ha[ve] upheld the arbitration provision contained therein despite potentially unequal bargaining power between employer and employee.” Ante at 90, 800 A.2d at 880. We note, however, that two recent federal court decisions have invalidated similar agreements based on the inherently unequal bargaining positions of employers and prospective employees.
The Ninth Circuit invalidated a mandatory arbitration agreement contained in an employment application in Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir.2002), cert. denied, — U.S.-, 122 S.Ct. 2329, 153 L.Ed.2d 160 (2002). The plaintiff signed the agreement when applying for a job as a sales clerk with Circuit City. The court determined that the arbitration agreement was unconscionable because it was a contract of adhesion:
Circuit City, which possesses considerably more bargaining power than nearly all of its employees or applicants, drafted the contract and uses it as its standard arbitration agreement for all of its new employees. The agreement is a prerequisite to employment, and job applicants are not permitted to modify the agreement’s terms they must take the contract or leave it.
[Id. at 893.]
The court also noted that the agreement, which required only the employees but not Circuit City to arbitrate their claims, lacked the “ ‘modicum of bilaterality’ ” required for contracts to be enforce*103able under California law. Id. at 894 (quoting Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669, 692 (2000)). In addition to being a “one-sided obligation,” the agreement at issue also restricted employees from seeking punitive damages and imposed a strict one-year statute of limitations for legal disputes. The agreement also explicitly required employees to share the cost of an arbitrator’s compensation.
In Cooper v. MRM Investment Co., 199 F.Supp.2d 771 (M.D.Tenn.2002), a Tennessee federal district court held that a mandatory arbitration agreement that an employee was required to sign in order to obtain employment was a contract of adhesion and unenforceable under Tennessee law. The employee was hired to work for a Kentucky Fried Chicken (KFC) franchise that was owned by MRM Investment Company (MRM). The plaintiff filed a lawsuit against MRM, alleging that one of the MRM owners sexually harassed her and that she was constructively discharged. Both claims were dismissed pursuant to the arbitration agreement that was included in her employment contract. Although the agreement signed by the employee does not appear to have been included in a job application, the court’s discussion of the burdens facing prospective employees helps underscore the unfairness of mandating such concessions in employment applications. The court stated that
[t]his agreement is a form contract, drafted by KFC’s attorneys, offered to Plaintiff on a ‘‘take it or leave it” basis. Plaintiff had no choice. She either had to accept the job based on the terms outlined in the KFC Arbitration Agreement, or she had to find another job Especially in today’s economy, the choice to “leave it” often amounts to no choice at all. Indeed, if she “leaves it,” she probably forgoes the opportunity for employment.
[Cooper, supra, 199 F.Supp.2d at 778.]
The court further recognized that “[t]he pressure facing a prospective employee coupled with the uniform incongruity in bargaining positions between the employer and employee” distinguished the situation from other contexts in which arbitration agreements had been upheld. Ibid. Moreover, the court noted that the defendant employer “imposed [the agreement] on a *104prospective employee precisely at the time that he or she is most willing to sign anything just to get a job.” Cooper, supra, 199 F.Supp.2d at 780.
The agreements in Cooper and in the matter before us both provide that the American Arbitration Association’s (AAA) labor arbitration rules would govern any proceeding that arose because of a dispute between employer and employee. Although neither agreement specifically refers to the parties’ respective responsibilities for fees and costs, the court in Cooper pointed out that the AAA’s labor arbitration rules require the parties to pay certain fees and costs. Cooper, supra, 199 F.Supp.2d at 781. Each party must pay a $100 initial administrative fee. AAA Labor Arbitration Rule 43. Moreover, unless they agree otherwise, both parties are responsible for the arbitrator’s compensation. Ibid. As acknowledged by the court in Cooper, “[Requiring a party to pay fees and costs, over and above what that party would have to pay in a court, may deprive that party of the right to vindicate his or her rights.” Cooper, supra, 199 F.Supp.2d at 781. Furthermore, in Cole v. Burns International Security Services, 105 F.3d 1465, 1485 (1997), the Court of Appeals for the District of Columbia held that an employee “could not be required to agree to arbitrate his public law claims as a condition of employment if the arbitration agreement required him to pay all or part of the arbitrator’s fees and expenses.” Although the United States Supreme Court has held that requiring a plaintiff to partially fund the cost of arbitration does not render an arbitration clause automatically unenforceable, Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 92, 121 S.Ct. 513, 522-23, 148 L.Ed.2d 373, 384 (2000), it is clear that such costs could impose a significant burden on an employee’s ability to prosecute a claim.
C
In enacting the Federal Arbitration Act (FAA), “Congress declared a national policy favoring arbitration” for dispute resolution and “withdrew the power of the states to require a judicial *105forum for the resolution of claims [that] the contracting parties agreed to resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1, 12 (1984). As acknowledged by the majority, the FAA specifically allowed states to continue to regulate contracts, including contracts containing arbitration agreements, based on general contract principles. Ante at 85, 800 A.2d at 877. Therefore, as observed by the court in Circuit City Stores, supra, its decision to invalidate the arbitration agreement in an employee application was not inconsistent with the FAA because “unconscionability is a defense to contracts generally and does not single out arbitration agreements for special scrutiny.” 279 F.3d at 895. (citing Doctor’s Assoc. Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 1657, 134 L.Ed.2d 902, 909 (1996), where United States Supreme Court “specifically mentioned unconscionability as a ‘generally applicable contract defense[ ]’ that may be raised consistent with § 2 of the FAA”).
Ill
The narrow question for the Court is whether we should allow employers to extract concessions in a job application form, such as a waiver of the right to a jury trial, from prospective employees. Contrary to the majority’s conclusion, I would hold that the standardized arbitration agreement that job applicants were required to sign as a prerequisite to consideration for employment with defendant is unenforceable as a matter of public policy.
Based on plaintiffs education and experience in human resources, as well as the fact that plaintiff was given an opportunity to review and ask questions about the application, the majority concludes that the application was not offered on a take-it-or-leave-it basis. Ante at 91, 800 A.2d at 881. Moreover, the majority points to the absence of any evidence that the employer would have rejected plaintiffs application if she had refused to sign the agreement. Irrespective of plaintiffs alleged sophistication, that defendant possessed considerably more bargaining pow*106er than did plaintiff as a prospective employee is obvious. Our common experience informs us that individuals faced with a need to find employment would be unlikely to refuse to sign a pre-printed employment application'containing a mandatory arbitration clause if signing the form was a precondition to further consideration for the job. Moreover, as was the case in Circuit City Stores, supra, because the arbitration clause in defendant’s application form lacked mutuality, plaintiff’s employer “was free to bring suit in court or arbitrate any dispute with its employees.” 279 F.3d at 893. The lack of mutuality in the agreement exacerbates its inequity.
On prior occasions we have determined that public policy demands invalidation of agreements resulting from inequitable bargaining positions. See Vasquez, supra, 83 N.J. at 104, 415 A.2d 1156 (stating that “[t]he inherent inequity of [a] contract arouses a sense of injustice and invokes the equitable powers of the courts”). In Kuzmiak, supra, the court took judicial notice of an ongoing housing shortage in recognizing that the bargaining power between landlords and tenants was “decidedly unequal.” 33 N.J.Sur per. at 587, 111 A.2d 425. In the subsequent Vasquez opinion, this Court held that “[a] migrant farmworker has even less bargaining power than a residential tenant.” Vasquez, supra, 83 N.J. at 103, 415 A.2d 1156.
In concluding that the insertion of a mandatory arbitration agreement in an application for employment does not violate our state’s public policy, the majority asserts that we previously have held that national and state policies favor arbitration. Ante at 91-92, 800 A.2d at 881. However, to hold that a mandatory arbitration agreement in an employment application violates public policy does not disfavor arbitration, but rather recognizes “the inherent inequity,” Vasquez, supra, 83 N.J.' at 104, 415 A.2d 1156, in requiring an individual to sign an agreement that substantially alters his or her rights at such a particularly vulnerable time when they are under pressure to find employment. Moreover, the two cases relied on by the majority to illustrate that arbitration is a *107favored process for dispute resolution in our state, Barcon Associates v. Tri-County Asphalt Corp., 86 N.J. 179, 186-87, 430 A.2d 214 (1981) and Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282, 633 A.2d 531 (1993), did not implicate an arbitration clause imposed by a party with superior bargaining power. As the court observed in Cooper, supra, “[t]he pressure facing a prospective employee coupled with the uniform incongruity in bargaining positions between the employer and employee” distinguishes the situation from other contexts in which arbitration agreements have been validated and upheld. 199 F.Supp.2d at 779.
IV
In my view, public policy requires this Court to invalidate a mandatory arbitration agreement, or any analogous agreement of consequence, that a prospective employee is forced to sign as a condition of being considered for a job. “Grossly unfair contractual obligations resulting from the use of such expertise or control by the one possessing it, which result in assumption by the other contracting party of a burden which is at odds with the common understanding of the ordinary and untrained member of the public, are considered unconscionable and therefore unenforceable.” Ellsworth Dobbs, supra, 50 N.J. at 554, 236 A.2d 843. Although the issue is not before us, I would assume that after an employee is hired an employer would be free to enter into an employment agreement that provides for arbitration of disputes, provided no disabling unfairness is implicated in the negotiation or terms of the agreement. We should not countenance a practice by which employers take unfair advantage of prospective employees by requiring their consent to arbitration agreements contained in printed employment application forms as a precondition to being considered for a job.
Justice LONG and Justice ZAZZALI join in this opinion.
*108For affirmance — Chief Justice PORITZ and Justices COLEMAN, VERNIERO and LaVECCHIA — 4.
For reversal — Justices STEIN, LONG and ZAZZALI — 3.