New Jersey’s ban on mandatory arbitration provisions has faced several setbacks since it was enacted in 2019, and now it has faced another. A case recently before the New Jersey Appellate Division concerning Section 12.7 of New Jersey’s Law Against Discrimination has resulted in a ruling that it is pre-empted by the Federal Arbitration Act.

Section 12.7 does not explicitly ban employers from including provisions in employment agreements that would mandate arbitration of claims arising from employment-related issues. Instead, it provides a general bar on, “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.” This clearly achieves the same effect and additionally prohibits the waiver of any rights or remedies provided under the same.

Though the law avoids ever using the term arbitration directly when it went before a U.S. District Court in the case of Inst. v. Grewal early in 2021, the court found that even an implicit ban on arbitration provisions is pre-empted by the F.A.A. Specifically, “Because the waiver of the right to go to court and receive a jury trial is the “primary characteristic,” or “defining trait” of arbitration agreements, Section 12.7, in effect, ‘singles out arbitration agreements for disfavored treatment.'” 

As a result, it is pre-empted by the F.A.A., and enforcement of the state law is enjoined permanently. Learn More

This case alone answered most questions that employers may have had, but now a new case before the appellate division, Antonucci v. Curvature Newco, Inc, has reaffirmed this stance. The case centered upon an employee’s complaints of discrimination by his employer, which would be covered by an agreement to arbitrate, which both parties recognized the existence of. The court’s ruling, similarly to the previous case, found that the F.A.A. would pre-empt Section 12.7. Specifically, the appellate court found that “L.A.D.’s procedural prohibition, which would preclude arbitration, is preempted when applied to an arbitration agreement governed by the F.A.A.” As a result, the court affirmed the plaintiff’s agreement to arbitrate.

Both of these rulings have provided a clear indication that the F.A.A. pre-empts any ban New Jersey’s Law Against Discrimination may place on mandatory arbitration agreements governed by federal law. The only matter which remains to be seen is whether or not the law still may apply to arbitration agreements made under the New Jersey Arbitration Act.

Pre-employ offers free resources to help you stay compliant with your hiring practices. Check out our guide on 5 Tips To Avoid FCRA Non-Compliance to keep your company up-to-date.

Sources