In a matter of first impression, the New Jersey Appellate Division issued a decision invalidating a recently enacted provision of the New Jersey Law Against Discrimination (“LAD”) which prohibited arbitration of LAD claims. The Appellate Division determined this provision of LAD was preempted by the Federal Arbitration Act (“FAA”) because the state and federal laws conflicted. The Appellate Division left other provisions of the amendment intact.

In Antonucci v. Curvature, Plaintiff’s employer merged with Curvature. As part of the integration process, the employees received Curvature’s code of ethics and conduct and employee handbook. Plaintiff was required to read and acknowledge the documents and record his electronic acknowledgment. Among the documents sent to him was Curvature’s arbitration agreement which provided, in relevant part, that Plaintiff agreed to arbitrate all employee-related claims. Although Plaintiff never signed the arbitration agreement, he was informed that his continued employment with Curvature constituted his acknowledgment and agreement.

Less than a year later, Curvature terminated Plaintiff and he filed suit in state court alleging discrimination and wrongful termination under the LAD. Curvature filed a motion to dismiss and compel arbitration. Plaintiff challenged the enforceability of the arbitration agreement and asserted the newly enacted provisions of LAD rendered the agreement unenforceable. The trial court granted Curvature’s motion and compelled arbitration. The trial court found the arbitration agreement enforceable, and held, that the newly enacted section of the LAD (Section 12.7) was preempted by the FAA. Plaintiff appealed.

The two issues before the Appellate Division were (1) whether the parties entered a binding agreement to arbitrate their employment disputes, and (2) whether the FAA preempts Section 12.7 of the LAD. The Appellate Division quickly disposed of the first question on the same grounds laid out by the trial court, finding that the agreement was both “valid and enforceable.”

With respect to preemption, the Appellate Division began its analysis by interpreting both the FAA and LAD. The Court acknowledged, that although Section 12.7 does not expressly refer to the term arbitration, its application to “substantive and procedural right[s]” nevertheless covers arbitration agreements. After finding Section 12.7 applies to arbitration agreements, the Appellate Division found that the LAD’s restriction on the ability to compel arbitration directly conflicts with the FAA. Because federal law must always trump conflicting state law, the Court found Section 12.7 invalid in the context of arbitration.

Importantly, however, the Appellate Division noted that not all applications of Section 12.7 are preempted. For example, attempts to shorten the statute of limitations for bringing a claim under the LAD would not be enforceable "because it would waive a substantive or procedural right related to a claim of discrimination." The Appellate Division also made clear that its decision was limited to arbitration agreements governed by the FAA, while leaving the door open to whether Section 12.7 conflicts with agreements governed by the New Jersey Arbitration Act.

Employers who seek to utilize arbitration to resolve disputes with their employees should ensure that there is language in the agreement stating that it is governed by the FAA. This will avoid ambiguity and uncertainty in the future.

While a matter of first impression before the New Jersey Appellate Division, the result is not surprising. Its reasoning follows a pattern of similar rulings across the country. Also, the decision is consistent with a decision issued last year from the federal court in New Jersey finding that Section 12.7 is preempted by the FAA in the context of arbitration, and enjoining the state’s Attorney General from enforcing the law.

However, this win for arbitration agreements may be short lived if President Biden signs an amendment to the FAA which was passed by both houses of Congress that prohibits the arbitration of certain claims. For more information regarding the potential amendment, please see our prior post here.