HR Management & Compliance

Sign on Dotted Line: Arbitration Agreement Enforceability Against Predecessor Company

The New Jersey Appellate Division recently vacated a September 2020 trial court order dismissing a former employee’s lawsuit and compelling him to arbitrate his Conscientious Employee Protection Act (CEPA) claims against his former employer’s predecessor. In so doing, the appellate court found the trial court must first determine whether the arbitration agreement was binding on the former vice president and, if so, whether his former employer was in fact the agreement’s assignee.

Source: create jobs 51 / shutterstock

Facts

Robert Hampton began serving as the vice president of business development at MS Electronics/MSE Corporate Security, Inc. (MSE), on February 16, 2016. Before beginning his employment, he signed various agreements, including an arbitration agreement prepared by the employer. The agreement’s arbitration and equitable relief clause provided:

Except as provided in Section 9(b), I agree that any dispute or controversy arising out of, relating to, or concerning any interpretation, construction, performance, or breach of this agreement, shall be settled by arbitration with a single arbitrator to be held in Edison, New Jersey, in accordance with the Employment Dispute Resolution Rules in effect of the American Arbitration Association (AAA). The company and I shall each pay one-half of the costs and expenses of such arbitration, and each of us will separately pay for our counsel fees and expenses.

The arbitration agreement also stated that by signing, Hampton was waiving his right to a jury trial for the resolution of all disputes relating to all aspects of the employer-employee relationship, including (but not limited to) the following three claims:

  • Any and all claims for wrongful discharge, breach of contract (both express and implied), and breach of the covenant of good faith and fair dealing (both express and implied);
  • Any and all claims for violations of any federal, state, or municipal statute; and
  • Any and all claims arising out of any other laws and regulations relating to employment or employment discrimination.

The agreement also included a “Successor and Assigns” provision that made it “binding upon [the employee’s] heirs, administrators, executors and other legal representatives, . . . for the benefit of the Company, its successors and assigns.” Most important, even though Hampton acknowledges signing the agreement, MSE never countersigned and instead left the signature line blank.

Meet the New Boss, Same as the Old Boss?

In August 2017, MSE’s assets were bought by ADT. As a result, Hampton became an ADT employee. His position remained the same, and he was never presented with any new employment contracts.

In August 2019, ADT’s vice president met with Hampton to discuss several business accounts. During the meeting, Hampton essentially “blew the whistle” when he voiced his concern about ADT not submitting payroll reports required by the New Jersey Prevailing Wage Act with respect to a business account.

On August 21, the vice president let Hampton know his employment with ADT was being terminated and his last day at the company would be August 23, which was ultimately extended by one week. According to Hampton, the vice president never gave a reason for firing him.

In March 2020, in contravention of the arbitration agreement, Hampton filed a lawsuit alleging ADT violated CEPA by terminating him in retaliation for engaging in protected activities, namely, disclosing, refusing to participate in, and/or objecting to its illegal activities. He further demanded a jury trial.

Trial Court’s Decision

In upholding the arbitration agreement, the trial court held:

  • It was enforceable despite MSE’s missing signature;
  • Hampton knowingly agreed to arbitrate certain claims;
  • ADT was the agreement’s “assignee” (i.e., the person or entity to whom a right or liability is legally transferred); and
  • The “arising out of any other laws” language in the agreement’s catchall provision encompassed Hampton’s CEPA claim against ADT.

Thus, Hampton’s lawsuit was dismissed, and he was compelled instead to participate in the arbitration proceedings.

Appellate Court’s Decision

The Appellate Division held the trial court should have considered whether the arbitration agreement is enforceable because contract formation issues should be resolved by the trial court, not an arbitrator. Because of the “unresolved controlling facts,” the lower court’s dismissal of Hampton’s complaint was precluded under the law.

The Appellate Division also determined the trial court’s finding that ADT is the arbitration agreement’s assignee isn’t supported by the “limited record,” and additional fact-finding is needed. As a result, the appellate court threw out the trial court’s order and sent the case back for further consideration of the threshold issues. Hampton v. ADT, LLC, et al.

Bottom Line

The Appellate Division has made clear that even when an arbitration agreement provides otherwise, the trial court (not the arbitrator) should determine the agreement’s enforceability. To avoid costly litigation, be sure your agreements clearly convey the intention to be binding on the parties.

It also should go without saying you should always countersign all employment arrangements, including arbitration agreements. As Hampton’s case illustrated, mistakes can prove fatal to an agreement’s enforceability.

For more information regarding this decision and best practices for implementing arbitration agreements for your workforce, please contact John C. Petrella, chair of Genova Burns‘ employment law and litigation practice group, at jpetrella@genovaburns.com or Dina M. Mastellone, chair of the firm’s human resources practice group, at dmastellone@genovaburns.com.