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

The New Jersey Appellate Division recently affirmed a trial court’s finding that an employer’s actions and inactions resulted in its waiving the right to compel arbitration of a former employee’s claims for retaliation under the Law Against Discrimination (“LAD”), N.J.S.A. 10:5-1 to – 50, and the Conscientious Employee Protection Act (“CEPA”), N.J.S.A. 34:19-1 to – 14. Herrera v. Paramount Freight Sys., Inc., 2024 N.J. Super. Unpub. LEXIS 951, *7, 2024 WL 2683967 (App. Div. May 24, 2024).

In 2016, Renaissance Trading, Inc. (“Renaissance”) hired Walter Herrera (“Mr. Herrera”) as a Transportation Manager. In 2018, Mr. Herrera and other employees of Renaissance became employees of a related company, Paramount Freight Systems, Inc. (“Paramount”). In both 2016 and 2018, Defendants alleged that Plaintiff signed the same acknowledgment form in which he agreed to submit to arbitration “all claims or controversies arising out of my employment or its termination including but not limited to discipline and discharge; breach of any contract or covenant whether express or implied; torts; discrimination (including but not limited to race, color, sex, sexual orientation or preference, religion, national origin, age, marital status, handicap or disability, veteran or citizenship status); sexual harassment; retaliation under the Conscientious Employee Protection Act or at common law; and for violation of any federal, state, or local government law, statute, regulation or ordinance (“Claims”).” The language of the acknowledgements also included “This Procedure bars litigation in any court of any claim that could be arbitrated under the Procedure…… I expressly waive all rights to a trial by jury in any such litigation.” (emphasis added).  Id. at *5-7.[1]  In 2020, Mr. Herrera was promoted to the position of Director of Transportation in 2020.

After experiencing health issues which caused him to miss work, on February 8, 2021, Mr. Herrera underwent surgery. After recovering from surgery, on February 22, 2021, Mr. Herrera returned to work. The following day, February 23, 2021, Mr. Herrera was terminated from his employment.

On February 21, 2022, Mr. Herrera filed a complaint alleging retaliation under the LAD and CEPA against Renaissance, Paramount and individuals James Paternoster, alleged President of Renaissance and/or Paramount, and Mr. Herrera’s supervisor, and Rosario Coniglio, alleged owner of Renaissance and/or Paramount (collectively, “Defendants”). Mr. Herrera alleged that Defendants terminated Mr. Herrera because of his request for the reasonable accommodation of a medical leave until February 22, 2021 in violation of the LAD, and in retaliation for his multiple complaints about Defendants’ illegal and unsafe practices that put the company’s drivers and the public at serious risk, in violation of CEPA.

Defendants filed an Answer to the Complaint in which they alleged twenty-two affirmative defenses, but not one of the defenses claimed that the matter should be arbitrated or mentioned the existence of an agreement to arbitrate. Further, in their Answer Defendants included a certification required by New Jersey Court Rules that stated “this matter in controversy is not the subject of any other action pending in any Court or of a pending arbitration proceeding. Further, no other action or arbitration proceeding is contemplated and no other party should be joined in this action.” (Emphasis added). Id. at *8.

Defendants then proceeded to engage in litigation and discovery with Mr. Herrera. It was not until Defendants had already “participated over the course of 510 days in discovery” that Defendants sought to compel arbitration of Mr. Herrera’s claims, in response to a motion filed by Mr. Herrera’s attorneys to compel discovery. Id. at *9. The trial court denied Defendants’ cross-motion to compel arbitration, rejecting Defendants’ arguments, which included that the Court had misapplied the factors relevant to waiver of a right to arbitration, and that Mr. Herrera had caused the majority of the delay.

The Appellate Division agreed with the lower court’s finding that the actions and inactions of Defendants resulted in a waiver of their right to arbitration of Mr. Herrera’s claims under the totality of the circumstances. In reaching this conclusion, the Appellate Division relied upon the “totality of the circumstances test” applicable to whether a party has waived its right to arbitration, as established by the New Jersey Supreme Court in Cole v. Jersey City Medical Center, 215 N.J. 265 (2013).  The Appellate Division explained that while no one factor is determinative, “[a]mong other factors, Cole instructs courts to consider: (1) the delay in making the arbitration request; (2) the filing of any motions, particularly dispositive motions, and their outcomes; (3) whether the delay in seeking arbitration was part of the party’s litigation strategy; (4) the extent of discovery conducted; (5) whether the party raised the arbitration issue in its pleadings, particularly as an affirmative defense, or provided other notification of its intent to seek arbitration; (6) the proximity of the date on which the party sought arbitration to the date of trial; and (7) the resulting prejudice suffered by the other party, if any.” Id. at 12-13, citing Cole at 280-81.

Applying these factors to the Defendants’ conduct, the Appellate Division concluded that, on balance, these factors weighed “strongly in favor of waiver” of the right to arbitrate. First, the Appellate Division observed that “the sixteen-month delay between plaintiff’s February 2022 filing of the complaint and the employers’ June 2023 cross-motion to compel arbitration was extensive.”  Second, the Appellate Division stated that “no motions were filed before the parties’ respective motions in May and June of 2023, so this factor weighs against waiver.”  The third factor regarding litigation strategy was unknown, but the Appellate Division noted that the delay was draining to the plaintiff’s resources, which could benefit Defendants. As to the Fourth factor, there had not been significant discovery conducted, although the Appellate Division discussed that this was in part due to Defendants seeking multiple discovery extensions. The Appellate Division found that the fifth factor also strongly supported a finding of waiver, since Defendants had “asserted more than two dozen affirmative defenses with their answer, none of which mentioned a lack of jurisdiction due to the binding arbitration provisions.” In addition, Defendants included a certification in the Answer to the Complaint which explicitly stated to the court and Mr. Herrera’s counsel that no arbitration was contemplated. The sixth and seventh factors were not relevant to the court’s analysis because no trial date had been set and the court found that prejudice to Mr. Herrera was relatively insignificant. Id. at *13-15.  Based upon a balancing of these factors, the Appellate Division held that the trial court correctly found that Defendants had waived their right to compel arbitration, under the totality of circumstances. Id. at *15.

This decision reflects that despite the existence of an employer’s mandatory arbitration policy, there may be circumstances that would provide a basis for waiver of mandatory arbitration under New Jersey’s totality of the circumstances test. Because each situation depends upon the particular facts presented, consulting with an attorney can help you to understand and protect your rights.

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[1] Mr. Herrera denied that he had ever signed the acknowledgment forms, but that issue was not reached as the court denied arbitration on the basis of waiver.