Morgan Stanley offices

A federal judge in Trenton, New Jersey, has denied Morgan Stanley's motion to compel arbitration of a wrongful termination suit, finding room for debate over whether the company's email delivery of the mandatory arbitration policy to employees constitutes notice and assent.

The company sent an email to all employees in September 2015 describing a new policy that subjected employment disputes to mandatory arbitration. The company says it sent a copy to the plaintiff, Craig Schmell, who was then a senior vice president in Morgan Stanley's Red Bank, New Jersey, office, but Schmell said he did not recall seeing the message.

Schmell, who joined the company in 2006, began working on a self-help book in 2015. Titled “The Uninvited: How I Crashed My Way into Finding Myself,” the book was written with a co-author, Pulitzer Prize winner Ellis Henican.

In the book, Schmell detailed past struggles with alcohol and drugs as well as antics such as smoking marijuana inside the Kremlin, getting backstage access during the Grammy awards and talking his way into a ride in Ronald Reagan's presidential motorcade.

When he provided a draft of the manuscript to his superiors in June 2017, they allegedly threatened to fire him and requested edits in exchange for his continued employment.

To appease his employer, Schmell agreed to the edits. He agreed to remove any mention of Morgan Stanley, of his use of what were termed “hard” drugs and his detention by police at age 16.

However, the company later decided that the edits were insufficient and told Schmell he would be fired if the book were published, since it creates a reputational risk, the suit claims. On Aug. 8, 2017, he was told he would be terminated if the book was published.

He was fired on Oct. 31, 2017, and his suit claimed his firing constituted discrimination based on his status as a recovering addict, and history of past drug use.

Morgan Stanley, citing New Jersey case law, argued Schmell's continued employment after receiving the policy constitutes acceptance of the arbitration term. U.S. District Judge Anne Thompson said that, given the defendant's inclusion of an opt-out procedure, Schmell appeared to have assented by continuing to work for the company after the arbitration policy was announced. However, Thompson said, unlike the New Jersey case law cited by Morgan Stanley, in the present case there was an underlying dispute about whether Schmell received notice of the policy.

Schmell certified that he had no recollection of opening or receiving the email announcing the arbitration policy, although Morgan Stanley presented evidence that he was working on the day the message was sent and that he was accessing his email. The company maintained that such evidence was adequate.

“Plaintiff's certification presents a genuine dispute of material fact as to whether he was on notice of the agreement to arbitrate such that there was a meeting of the minds and he could mutually assent to the terms of the CARE program,” Thompson said. “And without adequate notice, there is a genuine dispute of material fact as to whether the alleged assent through continued employment without opt-out was knowing and voluntary. Therefore, the Court cannot find that Plaintiff is bound to arbitrate pursuant to this agreement,” Thompson said.

Joshua Bauchner of Ansell, Grimm & Aaron in Woodland Park, who represents Schmell, said email dissemination of arbitration agreements has been held valid under New Jersey law, but only where there was a mechanism for affirmative manifestation of assent or where the employee did not dispute receiving the notice.

Bauchner said the decision's guidance on the validity of email delivery of arbitration notice to employees “is going to have some far-reaching impact because a lot of employers are doing this now.”

The lawyers for Morgan Stanley, Kerrie Heslin and Ryan Carlson of Nukk-Freeman & Cerra in Chatham, New Jersey, did not return calls seeking comment.