By: Chantal N. Guerriero, Esq. and Ty Hyderally, Esq.

On March 25, 2021, the U.S. District Court for the District of New Jersey issued a ruling which has permanently enjoined the New Jersey Attorney General from enforcing N.J.S.A. § 12.7, an amendment to the New Jersey Law Against Discrimination (LAD). This statute effectively prohibited the use of pre-dispute arbitration agreements in New Jersey. The ruling in New Jersey Civil Justice Institute et al. v. Grewal, issued by Judge Thompson, concluded that § 12.7 is preempted by the Federal Arbitration Act (FAA), 9 U.S. Code Title 9.

N.J.S.A. § 12.7 reads, “[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.” Whereas the FAA was enacted in order to promote the enforcement of arbitration agreements.  An arbitration agreement is a contract, whereby signing, you agree to give up your right to bring certain claims to court. Rather, you agree that you may raise any of those claims only in an arbitration proceeding.  When claims are brought, they go to arbitration more quickly, and it often costs less than it would to bring those claims to court, which is why it is a method favored by employers.

In New Jersey Civil Justice Institute et al. v. Grewal, Plaintiff, the New Jersey Civil Justice Institute (NJCI), asserted that many of its members enter into pre-dispute arbitration agreements with their employees. Further, Plaintiff, the Chamber of Commerce of the United States (Chamber), routinely advocates on matters regarding federal arbitration law and anti-business regulatory actions and also asserted that many of its members, which operate in New Jersey, enter into pre-dispute arbitration agreements with their employees. Thus, both parties brought suit against New Jersey Attorney General Grewal, claiming that § 12.7 is preempted by the FAA and is therefore invalid under the Supremacy Clause of the United States Constitution.

The District Court agreed that since the FAA is a federal statute, any state law that conflicts with it or frustrates its purpose violates the Supremacy Clause.  Further, while § 12.7 does not explicitly mention arbitration, it does prohibit the waiver of “any substantive or procedural right or remedy.”  This includes the right to file a complaint to be heard before a jury. N.J.S.A. § 10:5-13(a)(1)-(2). The District Court, citing Kindred Nursing Ctrs. Ltd. P’ship v. Clark, ruled that since the waiver of the right to go to court and receive a jury trial is the defining characteristic of arbitration agreements, § 12.7 effectively singles out arbitration agreements unfavorably, and § 12.7 is thus preempted by the FAA.

This ruling is significant for both employers and employees.  While this is positive for employers, as they are not prohibited from forcing employees to sign pre-dispute arbitration agreements, employees still have rights and remedies.  This ruling does not mean that employees cannot bring claims of discrimination, retaliation, or harassment against their employers.  Rather, it means that if they sign an arbitration agreement, these claims can only be brought in an arbitration proceeding.

In addition, other New Jersey employment laws contained in Senate Bill 121 are still in place and protect employees. This includes the non-disclosure provision, which prohibits any provision in any “employment contract or settlement agreement which has the purpose or effect of concealing the details relating to a claim of discrimination, retaliation or harassment.” C.10:5-12.7.  This further includes the anti-retaliation provision, which prohibits employers from taking any retaliatory action on the grounds that the person does not enter into an agreement or contract that contains a provision deemed against public policy and unenforceable pursuant to the bill. C.10:5-12.10. Prohibited retaliatory actions include failure to hire, discharge, suspension, demotion, discrimination in the terms, conditions, or privileges of employment, or any other adverse action against an employee.

Employees should keep in mind that despite this ruling, injured employees are still able to bring claims of discrimination, retaliation, or harassment against their employers under the LAD. The LAD prohibits discrimination in the workplace, as well as prohibits employers from undertaking action against any employee for discriminatory reasons.  Further, arbitration often is less costly than court litigation.  Thus, if procedures are followed in good faith by the parties, arbitration can be a more favorable means of bringing an employment claim, without having to go through a court trial.

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