Jury Trial Waivers: A Better Alternative Than Arbitration?

March 23, 2016Articles Law360

Employers seeking alternatives to jury trials have traditionally looked to arbitration agreements. In the Third Circuit and New Jersey, as is the case elsewhere, there is a strong presumption in favor of arbitrability, and courts regularly uphold employee arbitration agreements.

However, arbitration is not the panacea once envisioned. Yes, generally, matters proceed to resolution quicker in arbitration than in a jury trial. Yes, arbitration enables employers to avoid unpredictable jury verdicts. And yes, arbitration offers greater privacy than the judicial system. But what about the significant arbitration costs (which largely need to be borne by employers), the difficulty in disposing of cases on summary judgment (if such motions are even permitted), the perception that arbitrators tend to “split the baby,” and the lack of a meaningful appeal process?

Perhaps a better option for employers seeking to avoid jury trials is a jury trial waiver, where a bench trial, rather than an arbitration, is the alternative. While national case law on the issue is sparse and varied, the argument is, if employers can compel employees to resolve employment discrimination claims entirely outside of the judicial process via arbitration, why can’t we ask employees to swap an arbitrator for a judge?

The New Jersey courts have looked at this issue several times, most recently on Feb. 25, 2016, in Martelack v. Toys R Us, 2016 (DNJ Feb. 25, 2016). There, a district court judge held that a jury trial waiver contained in a “privacy agreement,” a component of the online employment application process, was unenforceable. The (apparently) bolded, fine print clause read as follows:

To the extent permitted by law, if I am hired, I agree as a condition of any employment to waive my right to a jury trial in any action or proceeding related to my employment or the termination of my employment with the Company. I am waiving my right to a jury trial voluntarily and knowingly, and free from coercion. I understand that I have a right to consult with a person of my choosing before signing this application.

In in the Third Circuit, as the court explained, a jury trial waiver is enforceable if it is “knowing and voluntary,” meaning: (1) there is no gross disparity in bargaining power between the parties; (2) the parties are sophisticated business entities; (3) the parties had an opportunity to negotiate the contract terms; and (4) the waiver provision was conspicuous. Tracinda Corp. v.DaimlerChrysler AG, 502 F.3d 212, 222 (3d Cir. 2007). While none of these factors are dispositive on their own, the presumption is against waiver. Id.

Weighing the four factors, the court concluded that the Toys R Us waiver was neither knowing nor voluntary, in that: (1) there was a gross disparity in bargaining power between Toys R Us and Martelack [a part-time cashier later promoted to human resources supervisor]; (2) the privacy agreement was a standard form that Martelack was required to accept to process her application; (3) there was no true opportunity for Martelack to negotiate the terms of the waiver; and (4) the provision was not conspicuous, in that it was located in the middle of the privacy agreement and in the same text size as the remainder of the agreement.

Interestingly, three years ago, the same jury trial waiver, with the same employer, was found to be enforceable in an unpublished decision by a New Jersey state court. In Farrell v. Toys R Us 2013 (NJ Super. Law Div. March 22, 2013), the jury trial waiver was signed by an assistant manager, but was located in its own separate paragraph, immediately under a capped statement that read: “PLEASE READ AND SIGN.” However, the waiver language was not otherwise capped nor set off in bold or italics. Otherwise identical to the Martelack waiver, it provided:

To the extent permitted by law, if I am hired, I agree as a condition of any employment to waive my right to a jury trial in any action or proceeding related to my employment or the termination of my employment with the Company. I am waiving my right to a jury trial voluntarily and knowingly and free from coercion. I understand that I have a right to consult with a person of my choosing before signing this application.

Rather than use the Third Circuit’s “knowing and voluntary” jury waiver test, the Farrell court, without expressly stating, used the test applicable to employee arbitration agreements, namely: (1) is there a valid agreement to [waive a jury]; and (2) does the dispute fall within the agreement. See Century Indemnity Co. v. Certain Underwriters at Lloyd’s, 584 F.3d 513, 523 (3d Cir. 2009); Garfinkel v. Morristown Obstetrics & Gynecology Associates PA, 168 N.J. 124, 132 (2001). While the employee arbitration test incorporates basic contractual defenses, including adhesion/unconscionability, it is less stringent than the “knowing and voluntary” test.

In finding the Farrell jury waiver enforceable, the court noted: (1) the job application constituted a valid contract; (2) it covered discrimination claims because it contained language regarding “employment or termination of employment”; and (3) the waiver provision was set off as a separate paragraph and appeared under enlarged print. In explaining its decision, the Farrell court correctly noted that “[e]nforcement of civil jury waivers would be consistent with our pro-arbitration policy ... [agreement to a bench trial cannot logically be treated less favorably than agreement to ... arbitrate, or litigate in a forum that will not use a jury.]” Martelack, supra, citing Lee v. Tenafly Associates LLC, 2012 (NJ Super. App. Div. June 8, 2012).

It is difficult to fully reconcile Martelack and Farrell, and one has to wonder whether the Third Circuit’s “knowing and voluntary” test can consistently result in enforceable jury trial waiver clauses in the federal courts of the Third Circuit. In this author’s opinion, given that arbitration and jury waiver agreements both waive jury trials, they should be treated similarly.

Jury Trial Waiver Drafting Tips

In order for your bench trial jury trial waiver to have the greatest chance of being enforced, it should incorporate all of the following:

  1. The language needs to be straightforward and clear, indicating that the employee is waiving his/her right to a jury trial, and that all disputes regarding the individual’s employment or termination thereof will be decided by a judge.
  2. It should bind both the employee and employer.
  3. It should be signed by the employee.
  4. It needs to be part of a separate document (ideally not part of an employee handbook) and in close proximity to the employee’s signature.
  5. The language (especially if incorporated into a larger document) needs to be conspicuous, i.e., set off in at least two of the following: capital letters, large font, bold and italics.
  6. The language either has to identify the particular employment law statutes at issue or refer generally to “statutory employment discrimination” claims — and include actions relating to the waiver agreement or a breach thereof, and actions relating to employment and termination of employment.
  7. There should be language indicating that the employee had a reasonable period of time to review the waiver, and that he/she signs it voluntarily, without coercion or duress.
  8. There should be language indicating that the employee was encouraged to consult with an attorney prior to signing the waiver, and was provided an opportunity to ask questions regarding the waiver.
  9. Consider adding language that nothing contained in the jury trial waiver is designed to interfere with or preclude the employee from filing a charge with a federal, state or local administrative agency.

Finally, given the uncertainty surrounding jury trial waivers, to the extent employers want to increase the odds they will not wind up in front of a jury, another option is to include both a jury trial waiver and an arbitration clause in the agreement/application, indicating that if the jury trial waiver is deemed unenforceable, the arbitration clause governs. A severability clause should also be added, to support partial enforcement.

Prior to implementing an arbitration or jury trial waiver program, you should consult with legal counsel.

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