By Francine Foner, Esq. and Ty Hyderally, Esq.

As discussed in an earlier blog, on March 18, 2019, Governor Philip D. Murphy signed into law Bill S-121, intended to benefit New Jersey employees by, among other things, amending the New Jersey Law Against Discrimination, N.J.S.A. §10:5-1 et seq. (“NJLAD”), to prohibit employers from requiring their employees to prospectively waive statutory rights and remedies for claims of discrimination, retaliation or harassment. N.J.S.A. 10:5-12.7 (“Section 12.7”). (https://www.employmentlit.com/2019/03/22/strike-three-for-waivers-in-new-jersey).

Under this new law, a New Jersey employer (other than in the context of collective bargaining agreements) cannot require an employee to sign an arbitration agreement which prospectively waives the employee’s right to a jury trial under the NJLAD, or any other statute or case law. N.J.S.A. 10:5-12.7 (b). In addition, “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.” N.J.S.A. 10:5-12.7 (a).

On August 30, 2019,  the New Jersey Civil Justice Institute and the Chamber of Commerce of the United States of America (“Plaintiffs”), purporting to represent the interests of their members operating businesses in New Jersey, as well as other New Jersey businesses, brought an action in the New Jersey Federal District Court against the New Jersey Attorney General (“AG”), Gurbir S. Grewal, seeking a permanent injunction against enforcement of Section 12.7 as applied to arbitration and a declaration that Section 12.7 is preempted by the Federal Arbitration Act (“FAA”). On January 7, 2020, the AG filed a motion to dismiss the action, upon two grounds: (1) that the Plaintiffs lack standing because they have not alleged that they suffered any actual harm or are in imminent danger of suffering an injury; and (2) that the Plaintiffs’ claims are not “ripe,” because they are based upon “future hypothetical facts that do not yet exist.”

The same day that the AG filed its motion to dismiss, the Plaintiffs filed a motion for summary judgment, asking the Court to enter a permanent injunction against enforcement of Section 12.7 as applied to arbitration, and a declaration that Section 12.7 is preempted by the FAA. The Plaintiffs argue that the enforcement of Section 12.7 would violate the Supremacy Clause in the United States Constitution, which provides that Federal laws take priority over conflicting state laws.  According to the Plaintiffs, Section 12.7 is preempted by the FAA (i.e., Section 12.7 should not be enforced), because it is a state law which conflicts with § 2 of the FAA.  Section 2 of the FAA provides that a “written provision in * * * a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, *   *   *  shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. § 2.

But does Section 12.7 really conflict with §2 of the FAA? Section 12.7 does not purport to invalidate arbitration agreements or their validity generally. Rather, Section 12.7 deems prospective waivers of statutory and common law rights and remedies, including the right to a jury trial, in employment contracts, to be against public policy and therefore unenforceable. The LAD further prohibits retaliation against non-union employees for refusing to prospectively waive the right to a jury trial under the LAD, or other laws which provide for the right to a jury trial. N.J.S.A. 10:5-12.10. The FAA does not state that it grants employers the power to force employees to agree to arbitrate disputes arising between them as a condition of employment. And there is certainly precedent in New Jersey setting conditions upon the enforceability of arbitration agreements. See e.g., Kernahan v. Home Warranty Adm’r of Florida, Inc., 236 N.J. 301, 307, 2019 N.J. LEXIS 3, *4, 2019 WL 166309 (“The statutory policies of the FAA and New Jersey law are in synchronicity. In this state, when called on to enforce an arbitration agreement, a court’s initial inquiry must be — just as it is for any other contract — whether the agreement to arbitrate all, or any portion, of a dispute is “the product of mutual assent, as determined under customary principles of contract law.” Citing Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430, 442 (2014).

As stated in Section 2 of the FAA, arbitration provisions are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.”  9 U.S.C. § 2.  (emphasis added). In enacting Section 12.7, the Legislature determined that prospective waivers of statutory rights or remedies in employment agreements is against public policy and therefore are unenforceable. Unenforceability of a contract based upon such public policy considerations constitutes “grounds as exist at law or in equity for the revocation of any contract.”  Thus, Section 12.7 and the FAA are in harmony, and enforcement of S-121 should not be enjoined.

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