(Editor’s Note: This article by Beth P. Zoller and Katie Ann Insinga appears in the latest issue of Labor and Employment Law Quarterly. Section members can log in to read the full edition here.)
Two recent cases, one in the Third Circuit and one from the New Jersey Supreme Court, provide guidance and clarification with respect to arbitration issues in New Jersey.
Cornelius v. CVS Pharm. Inc.
In Cornelius v. CVS Pharm. Inc.,¹ the Third Circuit evaluated whether a claim fell within the purview of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act,² the type of evidence to be reviewed by the court, and when to discern if the parties had entered into a valid arbitration agreement under New Jersey law.
The plaintiff, Cornelius, worked for CVS for over 40 years and was promoted to store manager of the CVS location at issue in June 2017.³ The plaintiff alleged that, starting in 2018, her supervisor intentionally targeted her “with severe and pervasive negative treatment, intentionally because she [was] a woman[,] […] unfairly denied her promotions and pay increases, favored her male employees and counterparts,” abused her by sending unnecessary text messages, overworked her, and undermined her relationship with store employees.⁴ She raised “many complaints to CVS” between 2019 and 2020 and was ultimately discharged in 2021.⁵
In August 2022, the plaintiff filed a gender discrimination claim with the Equal Employment Opportunity Commission, received a right-to-sue letter in February 2023, and filed her lawsuit in April 2023.⁶ In May 2023, CVS moved to compel arbitration.⁷ The plaintiff countered that the arbitration agreement was unenforceable under the EFAA.⁸ The United States District Court for the District of New Jersey stated that because her claims did not constitute a “sexual harassment dispute” within the meaning of the EFAA, the EFAA did not apply.⁹ The District Court “further held that the parties voluntarily entered into a valid and enforceable agreement to arbitrate” and rejected the plaintiff’s claim that the agreement was unconscionable.¹⁰
On appeal, the Third Circuit agreed, although on different grounds, that the EFAA did not apply to the plaintiff’s claim.¹¹ The text of the EFAA instructs that it applies to any dispute or claim that arises or accrues on or after the EFAA was enacted (March 3, 2022).¹² Although the plaintiff conceded that her claim accrued prior to her separation from CVS in November 2021, before the EFAA’s effective date, the plaintiff maintained that her dispute with CVS arose when she filed an external complaint with the EEOC in August 2022.¹³ However, the Third Circuit dismissed this argument and agreed with CVS, finding that the plaintiff’s “dispute arose prior to March 3, 2022[,]” because she submitted her written internal complaints to CVS and CVS allegedly “disagreed with [her] position as to [the alleged] conduct[,]” sided with the supervisor, and dismissed her complaints, as well as failed to remedy the hostile work environment.¹⁴
Thus, the Third Circuit found that the dispute arose long before the March 3, 2022, effective date of the EFAA and, as such, the EFAA was not applicable.¹⁵ Notwithstanding this, the Third Circuit remanded the case to the district court on a separate issue unrelated to the EFAA.¹⁶
Takeaways
This case has some practical implications with respect to the application of the EFAA in the Third Circuit. Here, the Third Circuit determined that a “dispute” arises, and the EFAA applies, only when an employee communicates dissatisfaction and the employer expressly or implicitly rejects or opposes that position.¹⁷ Even without litigation or a formal investigation, because CVS rejected Cornelius’ internal complaints before March 3, 2022, this dispute arose prior to the EFAA’s March 3, 2022, effective date.¹⁸ Thus, the court concluded that the dispute arose before the EFAA applied and, as such, there was no bar to arbitration.¹⁹
Other Circuits
However, the same issue regarding the applicability of the EFAA has been reviewed by other circuit courts, with some different results and reasoning.
In Famuyide v. Chipotle Mexican Grill, Inc.,²⁰ the Eighth Circuit affirmed the district court’s order denying a motion to compel arbitration and permitted the employee the right to pursue litigation in court.²¹ The Eighth Circuit determined that under the language of the EFAA, the dispute only arose when the employee formally filed suit, which in this case occurred after March 3, 2022 (here, in July 2022).²²
The Eighth Circuit rejected Chipotle’s argument that a dispute arose on Nov. 23, 2021, when the employee’s co-worker sexually assaulted her in the restroom at the restaurant, because at that point Famuyide had not asserted any right, claim, or demand against Chipotle; Chipotle had not registered disagreement with any position of Famuyide’s such that there was no conflict or controversy between company and employee as of Nov. 23, 2021; and no “dispute” between the parties could have been submitted to arbitration at that time.²³
Further, the Eighth Circuit rejected Chipotle’s argument that a dispute had arisen when the employee and the company’s attorneys exchanged exploratory correspondence in February 2022 because “[h]er lawyers did not assert that Chipotle violated Famuyide’s rights[] and they did not demand compensation or payment from the company[][;] thus there was no conflict or controversy between the parties[] and no ‘dispute’ that could have been submitted to arbitration in February 2022.”²⁴
In Memmer v. United Wholesale Mortgage, LLC,²⁵ the Sixth Circuit reviewed the EFAA’s language and distinguished a “claim” from a “dispute,” recognizing that even if a claim accrued before the act, the relevant “dispute” might arise later, such as when the employee files an EEOC charge or takes another formal step after March 3, 2022.²⁶ The court stated that “[a] dispute may arise between the parties about the harassment, but if the harassment continues, a continuing violation, such as a hostile work environment claim, might subsequently accrue due to the later events.”²⁷ Ultimately, determining when a dispute arises is a “fact-dependent inquiry” that considers the context of the case.²⁸ As such, the Sixth Circuit remanded the case to the district court to factually determine when the dispute arose, as the timing of the dispute dictates whether the EFAA is applicable.²⁹
Further, in Olivieri v. Stifel,³⁰ the Second Circuit applied the continuing violation doctrine to hostile work environment claims, holding that while some acts predated the EFAA, ongoing retaliatory or harassing conduct after March 2022 caused the claim to re-accrue and “essentially [be] reborn,” and thus the EFAA applied to bar arbitration.³¹
Fazio v. Altice USA
In Fazio v. Altice USA,³² the New Jersey Supreme Court addressed the issue of waiver of arbitration agreements and whether, when, and how an arbitration clause could be enforced by relying on habit or routine business practice as evidence.³³
In 2019, the plaintiff, Fazio, a quadriplegic with “significant limitations, including difficulty breathing,” and thus unable to wear a mask, purchased cellular services from an Altice retail store.³⁴ A salesperson provided the plaintiff with a receipt that did not mention an arbitration agreement but stated that a copy of all documents and agreements would be sent electronically to the email address provided during account creation, which allegedly included a customer service agreement with arbitration provisions.³⁵ A week later, the plaintiff bought a cell phone at an Altice retail store and signed a retail installment contract which “did not mention anything about waiving his right to a jury trial or to sue in court.”³⁶
In June 2021, during the COVID-19 pandemic, the plaintiff visited an Altice retail store for an issue with his cell phone.³⁷ He was denied entry for failing to wear a face mask and the store employees called the police.³⁸ Subsequently, in October 2022, the plaintiff filed suit under the New Jersey Law Against Discrimination, alleging “that the Altice retail store is a place of public accommodation; the store employees discriminated against him by refusing to accommodate his medical condition and by calling the police; the employees harassed him because of his physical inability to wear a face mask; and the employees ‘created a spectacle’” that emboldened other customers to harass the plaintiff based on his disability.³⁹
Thereafter, “Altice filed a motion to compel arbitration and dismiss the complaint for failure to state a claim.”⁴⁰ Altice provided an affidavit from the Senior Director of Business Process Management for Altice retail stores who certified that he was familiar with Altice’s and Optimum Mobile’s business practices and generally certified that after procuring business cellular service, an individual would receive a copy of the customer service agreement by email.⁴¹ Altice further relied on the retail installment contract, which incorporated the terms of the customer service agreement.⁴²
The plaintiff challenged the “probative weight” of this affidavit, asserting “it was not his burden to show he never received the customer service agreement” and certifying that after searching his email account, he found no email concerning the arbitration clause.⁴³
The trial judge dismissed the complaint and compelled arbitration.⁴⁴ The Appellate Division of the Superior Court of New Jersey affirmed the order and, while acknowledging “that neither party produced an email forwarding to [the] plaintiff a copy of the customer service agreement,” found that the plaintiff’s uninterrupted use of the cellular service for two years constituted evidence of a binding agreement.⁴⁵
However, on appeal, the New Jersey Supreme Court reversed.⁴⁶ The Court noted that while a party may present “evidence of a specific, repeated, and regular business habit or practice” to establish that a business acted in conformity with that practice and as evidence of a business’s routine practices (e.g., routinely sending arbitration agreements by email) to create a rebuttable presumption that the same practice was followed in a specific instance, Altice in this matter failed to establish this practice with enough specificity.⁴⁷
In particular, Altice failed to show with enough specificity that customer service representatives routinely discussed the arbitration agreement with customers and did not list how, when, or from whom the emails containing the customer service agreements were routinely sent.⁴⁸ The affidavit “did not set forth what either Altice’s or Optimum Mobile’s specific business practices were regarding how customers were provided with service agreements.”⁴⁹ Thus, Altice could not rely on this allegedly routine business practice as evidence that Fazio actually received the arbitration agreement.⁵⁰ Moreover, Altice could provide no direct proof that Fazio had ever received the agreement.⁵¹
In order to establish assent to arbitration, an organization must establish that an individual actually received the arbitration agreement and consented to its terms, which may be established by concrete evidence of receipt and consent or by routine business practice under New Jersey Rule of Evidence 406. While evidence of a routine business practice may be admissible to establish that arbitration agreements were provided to consumers and/or employees, the practice must be established with sufficient detail describing the who, what, when, and how of the routine behavior. Vague claims lacking specificity, as the Court concluded the defendant had raised in Fazio, will not suffice to establish that a consumer or employee actually received the agreement in question.
Takeaways
This case highlights that organizations must meet a high standard of clarity when establishing that an individual assented to arbitration and waived their right to a jury. Once again, this case demonstrates that New Jersey courts will follow the ruling in Atalese v. U.S. Legal Servs. Grp., L.P.,⁵² in which the court held that arbitration clauses must include an explicit waiver of the parties’ rights to seek relief in a court of law as a prerequisite to enforceability.⁵³
In Atalese, the Court found that an arbitration clause in a consumer contract was unenforceable because it failed to clearly inform the consumer that she was waiving her right to sue in court.⁵⁴ The court maintained that arbitration agreements must include clear and unambiguous language explaining the waiver of the right to a judicial forum.⁵⁵ Thus, the court invalidated the arbitration clause based on lack of clarity and informed consent.