Note to Drafters: Arbitration Clauses Must Specify Forum and Process

November 20, 2018

In Flanzman v. Jenny Craig, Inc., Docket No. A-2580-17T1, 2018 WL 5914420 (N.J. Super. Ct. App. Div. Nov. 13, 2018), the court invalidated an arbitration agreement because the parties failed to identify an arbitration forum and/or a process for conducting the arbitration. 

Essential to the court’s decision was that the agreement did not identify in any fashion “a mechanism – or setting” for the parties to utilize to arbitrate their dispute.  The arbitration clause at issue provided as follows:

Any and all claims or controversies arising out of or relating to [plaintiff’s] employment, the termination thereof, or otherwise arising between [plaintiff] and [defendant] shall, in lieu of a jury or other civil trial, be settled by final and binding arbitration.  This agreement to arbitrate includes all claims whether arising in tort or contract and whether arising under statute or common law including, but not limited to, any claim of breach of contract, discrimination or harassment of any kind. 

. . . .

 (Id. at *1.)  The court held that this clause failed because it did not identify an arbitral institution or general process to be used to arbitrate the dispute.  It noted that in order for contracting parties to waive their rights to a judicial adjudication in favor of an arbitration, the arbitration agreement must in some fashion address the rights that are replacing such judicial adjudication.

             The court then set forth language that the parties could have used in order to have an enforceable arbitration agreement.  For example, they could simply have specified an arbitral institution such as AAA or JAMS (which already have their own rules and procedures).  Alternatively, the parties could have identified a particular arbitrator(s).  The court’s point was that there needs to be something that addresses the rights that replace the right to a judicial adjudication.