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New Jersey’s Different Treatment of Employee Arbitration Agreements and Insurance Policies is Difficult to Reconcile

New Jersey and Federal law have established a strong legal policy in favor of arbitration. New Jersey’s courts, like the federal courts, regularly uphold arbitration agreements in employment contracts. They have repeatedly enforced these agreements and do not consider them “contracts of adhesion.” This is starkly different than how New Jersey’s courts treat insurance policies, and ignores the long-established legal principles upon which its analysis of insurance policies rests.

Contracts of adhesion are agreements where the two parties have unequal bargaining power, and the party with the greater leverage forces “oppressive or unconscionable” terms on the other. They are often presented on a “take it or leave it” basis. When a New Jersey court finds a contract of adhesion, it will strain to protect the weaker party, whether by construing the agreement against the stronger party, eliminating unfair or oppressive terms, or voiding it in its entirety.

In Martindale v. Sandvik New Jersey’s Supreme Court ruled that despite forcing an employee at the company’s Fair Lawn plant to give up her constitutionally protected right to a trial by a jury of her peers, the agreement was not “oppressive or unconscionable.”

An employee and employer, especially a large, multi-national corporation such as Sandvik, simply do not have equal bargaining power. There is a large labor pool for employers to choose from, especially in these troubled times. This gives the employer the upper hand. Employers can – and do – tell employees to agree to arbitration or go look for work elsewhere; this is no choice at all for most employees. Indeed, this is all the more true when an arbitration requirement is adopted as a policy after an employee has already started work and is given the choice of either agreeing to arbitration or being out of a job, despite the years, and often decades, invested by the employee.

Given the inherent unequal bargaining power, it is difficult to understand why New Jersey’s courts – which are generally protective of worker rights – refuse to protect employees in this area, which involves a forced surrender of a constitutionally protected right.

This treatment stand in stark contrast to New Jersey courts’ treatment of insurance policies. New Jersey’s courts have held that as a general rule insurance policies are contracts of adhesion because they are given on a take it or leave it basis, presented on pre-prepared forms with unchangeable terms, customers in many cases are required by law or necessity to carry insurance, and there is inherently unequal bargaining power. As New Jersey’s Supreme Court explained in Sparks v. St. Paul Insurance Co., “They [insurance policies] are contracts of adhesion, prepared unilaterally by the insurer, and have always been subjected to careful judicial scrutiny to avoid injury to the public.”

It is difficult to reconcile the different treatment. The compulsion to sign is greater for an employee than an insured – a person needs to eat, so they need a job; even though a driver is required to carry auto insurance, she can always take the bus to work. Indeed, enforcement of an insurance policy generally will not deprive the insured of a constitutionally protected right, while enforcement of an arbitration agreement will take away an employee’s right to a jury of her peers.

While having employment disputes decided in arbitration allows court to spend more time on the cases on their already overcrowded dockets, New Jersey’s courts should not back away from protecting employees – and employers – who if they choose to exercise their constitutionally protected right to a trial by a jury of their peers.

McLaughlin & Nardi, LLC’s attorneys are experienced in representing both employers and employees in all aspects of their employment relationship, from hiring to litigation and arbitration. To learn more about what we can do to help, please visit our website or contact one of our lawyers at (973) 890-0004.