by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)
In one of the more famous scenes from the movie, “The Jerk,” Steve Martin‘s character works at a gas station when a deranged sniper starts shooting at him. The sniper misses and the bullets hit cans of oil stacked up next to Martin’s character instead. Clueless to the fact that the man is shooting at him and not the cans, Martin’s character warns everyone: “He hates cans! Stay away from the cans!” If you read enough opinions from New Jersey courts, you might say the same thing about New Jersey and arbitration agreements. It seems like every day there is another decision striking down an arbitration provision. (Like the quote from the movie, this is, of course, not true — i.e., the shooter did not really hate cans and New Jersey courts don’t really hate arbitration agreements — but you get the point.)
The trial court’s decision in O’Keefe v. Edmund Optics, Inc. is one of the latest examples. (I realize this is a trial court decision, and thus not binding on anyone other than the parties to the case, but it is nonetheless instructive.) In that case, plaintiff signed an employment agreement with defendant. The agreement had a two-year term and contained an arbitration provision that required the parties to arbitrate “all disputes” between them.
Five years after signing the employment agreement, plaintiff was terminated. She sued alleging wrongful termination. Defendant moved to dismiss in light of the arbitration provision. Plaintiff argued that the arbitration provision was never renewed and did not survive the end of the agreement’s term because, unlike other provisions in the agreement, it did not contain survivability provisions “extending the enforceability beyond the term of the contract itself.”
The court sided with plaintiff and denied the motion to dismiss.
Defendant’s argued that the arbitration provision survived the term of the employment agreement because: (1) plaintiff’s continued employment was to be on terms set by defendant, and it would “defy logic to find that defendant would continue plaintiff’s employment on terms less favorable to it following the expiration of the[ ] agreement’s term;” and (2) the arbitration provision was not limited to disputes that arose during the term of the written agreement.
The court found the first of these arguments”unpersuasive” because “[a]s a venue, [the] court was no more or less favorable to defendant than an arbitration venue.” Thus the terms of plaintiff’s employment were no less favorable to defendant after the arbitration provision expired than before.
The court also rejected defendant’s second argument, analogizing the situation in O’Keefe to one where an employee leaves a company after the employee’s employment agreement expires, but returns some time later without signing a new agreement. The court noted that there was “no doubt” the agreement would be unenforceable in that situation, and held that “no different a result [was] warranted here.” Thus, once the employment agreement expired, so did the arbitration provision, and “defendant’s arguments based upon a clause of an expired contract” failed.