District Court Opinion Allows New Jersey Employers to Continue to Utilize Mandatory Arbitration Agreements with Employees and Casts Doubt on Recent Statutory Amendments to New Jersey Law Against Discrimination

On Thursday, March 25, 2021, United States District Judge Anne E. Thompson granted the plaintiffs’ motion for summary judgment in New Jersey Civil Justice Institute et at. v. Grewal.  In granting the plaintiffs’ motion, the district court overturned and found unconstitutional the March 2019 amendments to the New Jersey Law Against Discrimination (“LAD”), which were codified at N.J.S.A. 10:5-12.7, and which preclude employers from requiring workers to arbitrate discrimination and harassment claims. Finding that amendments were preempted by federal law, Judge Thompson sided with the arguments brought by plaintiffs New Jersey Civil Justice Institute and the Chamber of Commerce of the United States of America. Specifically, the court held that the plaintiffs had both standing to sue and that their respective claims were ripe for adjudication.

In its decision, the district court found that Section 12.7 of the LAD Discrimination conflicted with and frustrated the purpose of the Federal Arbitration Act (“FAA”) and violated the Supremacy Clause of the United States Constitution. Judge Thompson made clear that although the New Jersey statute does not mention arbitration by name, Section 12.7 prohibits the waiver of “any substantial or procedural right or remedy,” which contravenes the FAA.

“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 treatments.’” The district court went on to opine that “Defendant has not argued at any point throughout the litigation that Section 12.7 survives the preemption challenge.” Ultimately, Judge Thompson ordered that the Attorney General was permanently enjoined “from enforcing Section 12.7 with respect to arbitration agreements between employers and employees that are governed by the FAA.”

At this juncture, it is not clear whether the Attorney General will appeal the ruling or whether this issue will be reconsidered by the New Jersey legislature.  However, as of now, New Jersey employers may continue to utilize arbitration agreements with employees.

If you have any questions about this alert or would like to speak to an attorney concerning the issue of arbitration agreements, please contact the authors, John L. Shahdanian II and Valentina Scirica, or any of the other members of MARC Law’s Employment Counseling Group.

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