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US Mandatory Arbitration Agreement for Online Services in ClickWrap Agreements

by | Sep 11, 2023 | Business Law |

What is Arbitration?

New Jersey law favors the enforcement of mandatory arbitration agreements with certain limitations. 

Arbitration is the adjudication of your employment action through a private process administered by a private entity such as the American Arbitration Association or JAMS or numerous other arbitration service providers.  The arbitration takes place with one or three arbitrators, in a private proceeding, with limited discovery.  Once the arbitration is concluded, the arbitrator’s decision is final and binding upon the parties.  The decision has to be confirmed by the Superior Court of New Jersey.  Arbitration proceedings waive your right to have a trial with a judge in the Superior Court and preclude you from receiving a trial by a jury of your peers.  

While our courts prefer to enforce an arbitration agreement to remove the case from their docket, they may only do so in situations where the arbitration clause is properly written and duly noticed to the person against whom it is being enforced.  In particular, courts want an arbitration clause to make it clear that the parties are waiving their right to a jury trial.  The clause must specify the name of the company that will provide the arbitration services, the state/county where the arbitration will take place, the number of arbitrators/neutrals that will preside, and identify the rules which will control the arbitration proceeding.  Most importantly, the company seeking enforcement of the arbitration agreement must prove that the individual was actually provided with notice of the arbitration clause and was conscious of its existence.

Beware of ClickWrap Agreements

In Santana v. SmileDirectClub, LLC, in the context of “ClickWrap” commercial agreements, the New Jersey Appellate Division found the SmileDirectClub arbitration clause to be enforceable where the arbitration clause was contained in a hyperlink document called “Informed Consent” and that scrolling through the “ClickWrap” agreement showed the words “AGREEMENT TO ARBITRATE” in bold font and capital letters.  The arbitration agreement was enforced.

Beware the docusign clickwrap contract that you will surely encounter anytime you are registering for an online service.  For instance, Amazon has a binding arbitration clause that is quite difficult to find on its website but which has been routinely enforced by courts being asked to compel arbitration and enforce the clause.  Scroll through the entire agreement to understand exactly what you are agreeing to your defense later, that you never saw the language, will not be effective.  The US Supreme Court and NJ Courts do not allow ignorance of the facts or the law as a valid defense.

Arbitration Clauses in the Context of Employment Law

In the context of employment law, you are likely to see arbitration clauses contained in employment agreements and/or severance agreements.  They may also appear in stock and/or option grant agreements or plan documents.  Often, the arbitration clause is triggered by the redemption of stock or exercise of options or the acceptance of a severance payment.  While you may not have a lot of choice, absent a severance negotiation, you must be acutely aware of where these arbitration clauses are and what they require of you.  While the mere existence of an arbitration clause doesn’t mean that it is enforceable, you must be aware of it.  In particular, for national and global companies, the arbitration clause may impose a jurisdictional obligation that is unduly burdensome on you as the employee.  Most of these clauses are designed to provide an imbalance advantage for the employer and if possible, you should avoid signing on to any agreement that contains an arbitration clause. The Hamilton Law Firm can help navigate these challenges. Contact us today to get started.