Jacob v. Clark Associates LLC

Background

Joshua Seltzer and Aaron Jacob sued Clark Associates, LLC, doing business as “Clark & Fox,” John M. Clark, and Terri Ferrante. The opinion describes Clark & Fox as a law firm operated by Clark and Ferrante, where the plaintiffs formerly worked. The plaintiffs principally alleged that they were wrongfully terminated after reporting what they believed was another employee’s fraudulent overbilling of a client. They also alleged violations of the Computer Fraud and Abuse Act and the Stored Communications Act based on alleged unauthorized access to and deletion of data from their personal email accounts.

The defendants moved to compel arbitration under the Federal Arbitration Act. The plaintiffs moved to stay an arbitration demand that the defendants had served based on the same underlying events. The defendants argued that the plaintiffs had signed arbitration agreements through the firm’s employee handbook. The plaintiffs argued that the handbook did not create a binding agreement to arbitrate.

Legal framework

To decide whether to compel arbitration, the court considered whether the parties agreed to arbitrate, whether the dispute fell within the agreement’s scope, and, for federal statutory claims, whether Congress intended those claims to be arbitrable. Whether an arbitration agreement exists is governed by state contract law. The court applied New York law for purposes of its analysis without deciding whether New York or New Jersey law governed, explaining that the evidence was insufficient even under the defendants’ view of New York law.

The court explained that the Federal Arbitration Act does not require arbitration when the parties never agreed to arbitrate. The court treated the motion to compel similarly to a summary-judgment motion, asking whether a genuine dispute of material fact prevented judgment as a matter of law.

Arbitration documents

The first page of the operative employee handbook stated that its policies were management guidelines only, that the firm could revise or delete them without notice, and that the handbook was not intended to create contractual obligations except for the at-will-employment policy. The handbook later described an arbitration program covering employment-related disputes, including statutory claims, contract claims, tort claims, retaliation claims, and wrongful-termination claims. It also described procedures for filing an arbitration request and selecting an arbitrator.

Both plaintiffs signed acknowledgments stating that they had received the handbook, agreed to read and comply with it, understood that its policies were management guidelines only, and understood that it was not intended to create contractual obligations.

Ruling on the motion to compel arbitration

The court held that the handbook and acknowledgments did not show mutual assent to a binding arbitration agreement. The court relied on the handbook’s express disclaimers of contractual rights and duties, its description of the policies as guidelines, and the firm’s right to change the handbook without notice. The court also noted that the handbook did not state that agreeing to arbitrate was a condition of employment.

The court contrasted this handbook with agreements enforced in other cases that expressly made compliance with arbitration a condition of employment. It further observed that the handbook specifically identified other policies as conditions of employment, making the absence of similar language in the arbitration section significant. The court concluded that the arbitration provision did not create an enforceable contract restricting the plaintiffs to arbitration.

Ruling concerning the pending arbitration

The court agreed with the plaintiffs that they were not required to continue defending themselves in the arbitration initiated by the defendants. The court distinguished cases involving enforceable arbitration provisions that gave both parties an option to arbitrate. Here, the court concluded that the arbitration provision itself was not enforceable and, at most, described a process that could be used by consent.

The court stated that there was no need to stay the arbitration proceedings because the plaintiffs had no duty to defend against the defendants’ claims in arbitration. In the conclusion, the court denied the defendants’ motion to compel arbitration, stated that the plaintiffs were not required to participate in the arbitration, instructed the Clerk to terminate the open motions, and scheduled a status conference.