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New Jersey Federal Court Strikes State Law and Upholds Validity of Arbitration Agreements

Posted: March 30, 2021

The trickle-down effects of the Supreme Court’s endorsement of employee arbitration agreements in 2018 continue to inform judicial opinions across the country, most recently being used to invalidate a New Jersey prohibition of prospective jury trial waivers in workplace discrimination cases.

On March 18, 2019, the New Jersey legislature amended its Law Against Discrimination (“NJLAD”), declaring contracts that waive any substantive or procedural right or remedy relating to a claim for discrimination unenforceable, including the prospective waiver of a right or remedy under the NJLAD. Several months after this amendment was enacted, the New Jersey Civil Justice Institute and the U.S. Chamber of Commerce filed suit against the state attorney general seeking to enjoin enforcement of the amended statute. Specifically, they argued the anti-arbitration provisions of the NJLAD were preempted by the Federal Arbitration Act (FAA) because the law effectively prohibited “pre-dispute arbitration agreements between employers and their employees” that fell under the purview of the FAA. 

Citing numerous Supreme Court decisions stating the FAA’s clear “favor [for] arbitral dispute resolutions” and the restrictions placed on states from enacting laws in conflict with the FAA’s language or purpose, the district court agreed the FAA superseded the amended NJLAD, and deemed its new provisions unenforceable in certain circumstances. Specifically, the court found the legislature’s attempt to circumvent the federal preference for arbitration by merely failing to expressly prohibit arbitration agreements was insufficient to find the law enforceable. Rather, the court found the prohibition of a prospective waiver of “any substantive or procedural right or remedy,” which includes the statutory right to file suit in court and receive a jury trial, effectively “singles out arbitration agreements for disfavored treatment.” Accordingly, the Court ruled the anti-arbitration section of the NJLAD violated the Supremacy Clause of the U.S. Constitution, and that the New Jersey Attorney General was enjoined from prohibiting arbitration agreements between employers and employees that are governed by the FAA.

This decision marks another in a recent trend of similar rulings following the Supreme Court’s Epic Systems decision in 2018. Federal district courts in New York and California came to similar conclusions in 2019 and 2020, respectively, and a New Jersey state court followed suit in January of this year. Further, absent congressional action or an unexpected jurisprudential shift at the Supreme Court, this trend is expected to continue in other states with similar anti-arbitration laws.

If you have any questions about this decision, or if you seek assistance regarding employee contracts or arbitration agreements, please contact an attorney in Saul Ewing Arnstein & Lehr’s Labor and Employment Practice Group.