Alan Schorr’s Employment Case of The Week ending January 3, 2014

Raymours Furniture Company, Inc. v. Rossi, Civil No. 13-4440 (JBS) (D.N.J., January 2, 2014)

Our law firm got the year off to a great start with an important victory in a declaratory action to compel arbitration. In Raymours Furniture Company, Inc. v. Rossi, the District Court held that an overly broad “Woolley” disclaimer coupled with an employer’s reservation of the right to change or modify policies without notice to the employee defeated the employer’s attempt to compel an employee to arbitrate any discrimination and retaliation claims she might have. Although the decision was a huge victory for Ms. Rossi, the news was not all good for other employees, because the Court also ruled that a telephone call complaining about discrimination is enough to create Federal subject matter jurisdiction for a declaratory action regarding forced arbitration of claims.

The procedural background in this case is remarkable. The controversy began when I picked up the phone and called the in-house counsel for Raymour & Flanigan. We knew each other from previous litigation, so I figured a quick phone call would resolve what I believed was a simple issue. The issue was that Sandra Rossi, who had been a furniture salesperson for Raymours since 2000, alleged that she had complained about being harassed due to her disability (back and hip problems). After the complaint, she alleged that she was transferred to a store substantially further away despite being an excellent salesperson at a store that was near her house for nearly twelve years. She requested to remain at her store because her medical conditions rendered her incapable of driving to and from the more distant location.

When Raymours would not accommodate, there was a second discussion between counsel in which a verbal settlement demand was made. There was never any written communication prior to the commencement of action by Raymours. Raymours immediately filed a demand for arbitration with AAA. When Rossi advised that she refused to participate in the arbitration because she had not even made a claim yet, Raymours decided to file a declaratory action in U.S. District Court for an order compelling arbitration of Mr. Rossi’s “claims”. In its Complaint, Raymours claimed jurisdiction due to diversity based upon the allegation that the claims made by Ms. Rossi could state a claim under the Americans With Disabilities Act (ADA) or Title VII.

Since arbitration issues are decided summarily, the Court quickly set a briefing schedule, and the parties filed cross-motions. Raymours filed a motion to compel arbitration and Rossi filed a motion to dismiss. While the cross-motions were pending, AAA decided to move ahead with the arbitration, despite the absence of any claim by the employee. Rossi made a request to the Court for an emergency stay of the arbitration, which was granted after oral argument.

On January 2, 2014, Judge Simandle denied Raymours’ motion to compel and granted Rossi’s motion. In doing so, however, the Court ruled that jurisdiction was proper even though Ms. Rossi never made a Federal claim and adamantly argued that she did not wish to bring a Federal claim, and never would have done so, and would have made sure an individual defendant would be named in order to defeat diversity. The Court ruled that because hypothetically she could have brought a claim under the ADA, that hypothetical action was enough to confer Federal jurisdiction.

Having taken jurisdiction, the Court held that there was no agreement to arbitrate because (1) the employer’s manual which contained the arbitration policy contained a broad disclaimer that nothing in the manual was intended to create a contract; and (2) there was no mutuality of obligation – the employer expressly reserved the right to change or modify its policies without advance notice and at its sole discretion.

The Court provided a very thorough legal analysis with regard to Woolley v. Hoffman-La Roche, Inc., which held that employment handbooks can create a binding contract unless there is an express disclaimer. Here, Raymours made the disclaimer in order to avoid having a binding contract, but never made an express exception for the arbitration policy, an error which the Court ruled was fatal to their claim.

This case was an excellent result for Ms. Rossi, who will now be able to bring a lawsuit in Court if she so chooses. But the Court, in exercising subject matter jurisdiction based only upon a hypothetical Federal cause of action that was never asserted, may open the floodgates for employers to haul employees into Federal Court any time a demand letter is sent, or even when an internal complaint of discrimination is made. If every verbal complaint of discrimination represents a hypothetical Federal cause of action, then attorneys representing employees who work for employers that have an arbitration policy may decide to forgo a demand letter and file directly in State Court in order to avoid having Federal Court decide the arbitration issue.

Plaintiff’s (employer’s) counsel: Edward T. Groh, in-house counsel, Raymours Furniture Company, Inc. d/b/a Raymour & Flanigan.

Defendant’s (employee’s) counsel: Alan H. Schorr; Alan H. Schorr & Arykah A. Trabosh on the brief, Alan H. Schorr & Associates, PC.

U.S. District Court Judge: Jerome B. Simandle, U.S.D.J.