An arbitration clause signed by an exotic dancer did not cover her statutory claims under the FLSA and state wage-and-hour laws, ruled the Third Circuit. Finding that the parties did not agree to arbitrate arbitrability and that the arbitration clause referenced contract disputes—not statutory rights—the appeals court concluded that her statutory wage claims did not fall within the scope of the contract’s arbitration provision. Accordingly, it reversed a district court’s judgment that the employee had to arbitrate her statutory claims (Moon v. Breathless Inc. aka Vision Food & Spirits dba Breathless Men’s Club, August 17, 2017, Greenaway, J., Jr.,).
When the exotic dancer began performing at an adult entertainment club, she agreed to rent performance space and signed an independent dancer rental agreement. The contract contained an employment provision and an arbitration clause. Under the employment provision, the dancer agreed that she was an independent contractor, not an employee of the club. The arbitration clause provided that neither party had the right to litigate disputes in court or have a jury trial. Rather, they were limited to arbitration on an individual basis.
In August 2015, the dancer sued the club alleging violations of the FLSA, New Jersey Wage Payment Law (NJWPL), and the New Jersey Wage and Hour Law (NJWHL). The club moved to dismiss the suit on the ground that the contract’s arbitration clause foreclosed the dancer from seeking relief in the district court. Initially, the district court denied the motion and ordered the parties to engage in limited discovery. After discovery, the club moved for summary judgment in favor of arbitration, which the district court ultimately granted, concluding that the dancer’s claims fell within the scope of the arbitration clause.
Contract formation. On appeal, the dancer asked the Third Circuit to determine whether her claims fell within the scope of the contract’s arbitration provision. Under U.S. Supreme Court precedent, state law applies when deciding whether the parties agreed to arbitrate a certain matter. Courts apply ordinary state-law principles that govern the formation of contracts. In this instance, the parties agreed that New Jersey law applies, so the appeals court had to decide two questions under New Jersey law: First, should a court decide whether the parties should submit this issue to arbitration? Second, if the parties have contracted to allow a court to decide arbitrability, have the parties agreed to arbitrate the claims at issue here? The appeals court answered the first question in the affirmative and the second question in the negative.
Arbitrability. Under New Jersey law, “the law presumes that a court, not an arbitrator, decides any issue concerning arbitrability.” To overcome this presumption, an arbitration clause must contain “clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.” The New Jersey Supreme Court applied these principles in Morgan v. Sanford Brown Institute. In Morgan, the New Jersey high court found that an arbitration clause did not strip the court of its authority to decide arbitrability.
Here, the Third Circuit determined that the arbitration clause at issue fell below the standard set by Morgan, as the parties did not agree to arbitrate arbitrability. In Morgan, the arbitration clause referenced arbitrability but did not clearly delegate the issue to the arbitrator. In this case, the arbitration clause failed even to mention arbitrability. Further, the club conceded in the district court that courts must decide issues of arbitrability. As such, the appeals court established its power to decide the arbitration clause’s scope.
Statutory rights. To cover a statutory right under New Jersey law, an arbitration clause must do three things. First, it must identify the general substantive area that the arbitration clause covers—to pass muster, a waiver-of-rights provision should at least provide that the employee agrees to arbitrate all statutory claims arising out of the employment relationship. It must reference the types of claims waived by the provision: It should reflect the employee’s general understanding of the types of claims included in the waiver, e.g., workplace discrimination claims. But it need not mention the specific statutory rights at issue. Third, it must explain the difference between arbitration and litigation.
“Under this agreement.” In controlling cases, Garfinkel v. Morristown Obstetrics & Gynecology Assocs. and Atalese v. U.S. Legal Servs. Grp., the New Jersey Supreme Court has found language in arbitration clauses referencing disputes related to the “agreement” applicable only to contract claims. In this case, the arbitration clause at issue also referenced contract disputes—not statutory rights. The language of the arbitration clause only includes “a dispute between dancer and club under this agreement.”
Because the arbitration clause here resembled those at issue in Garfinkel and Atalese, and because the dancer’s claims arose under statutes rather than the contract, the appeals court found that the arbitration clause did not cover her statutory wage-and-hour claims. Thus, the judgment of the district court was reversed and remanded.
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