Employment Arbitration provisions: Alive and well in New Jersey

For more than 15 years opponents of mandatory arbitration have introduced legislation to ban waivers of employee’s rights and remedies relating to certain employment claims. More specifically, when Section 12.7 of the New Jersey’s Law Against Discrimination (“NJLAD”) was enacted in March 2019, it impacted arbitration agreements to which employees and employers had agreed. More specifically, Section 12.7 provided:

  • “A provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable.”
  • “No right or remedy under the [LAD] or any other statute or case law shall be prospectively waived.”

While the word “arbitration” is not located in Section 12.7, it essentially precluded the enforceability of employer-employee contractual arbitration agreements. Employers could no longer enforce arbitration agreements for claims of discrimination, retaliation or harassment. Employees who knowingly agreed to give up their right to litigate in court, were no longer bound by that agreement. In response to this mandate, a nonprofit group, consisting of small businesses and related associations, instituted a lawsuit against the NJ Attorney General arguing that Section 12.7 of NJLAD was preempted by the Federal Arbitration Act.

On March 25, 2021 Senior U.S. District Judge Anne Thompson of New Jersey District Court issued a ruling in N.J. Civil Justice Institute v. Grewal, holding that section 12.7 of the NJLAD, is preempted by the federal Arbitration Act (FAA) and therefore unenforceable. This ruling barred the State of New Jersey from enforcing the statutory provision that precluded employers from enforcing arbitration relating to discrimination and harassment claims. For now, this finding solidifies the right of employers to compel arbitration of claims, where the employee has contractually agreed to this dispute resolution process.

Based on Judge Thompson’s ruling, employers may continue to contract with employees to mandate arbitration of employment-related disputes, and those provisions will likely be enforced. This ruling further codified the Federal court’s notoriously favorable view of arbitration. The advantages of arbitration provisions in employment agreements provide a more expeditious and usually more simplified alternative resolution to disputes. Furthermore, arbitration can avoid costly litigation in court.

Why is this relevant?

Judge Thompson’s ruling enforces the fact that arbitration is still enforceable when the parties agree to the alternative dispute resolution, especially in employment related settings. However, it is still important to make sure that the language contained in this arbitration provisions are clear and properly alert the employee that he/she is giving up the right to litigate his/her claims in Court and have it adjudicated by a jury. It is crucial to be prepared and understand ramifications for entering into employment agreements with mandatory arbitration clauses.

How Frier Levitt Can Help

Frier Levitt has extensive experience drafting and reviewing employment agreements, to ensure our clients protect their legal interests. Contact us today to learn more about how you can properly prepare and avoid unwanted exposure to potential disputes.

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