NJ Supreme Court Finds State Arbitration Law Applies to FAA-Exempt Workers

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Carlton Fields

The New Jersey Supreme Court issued a combined opinion in two cases arising from arbitration agreements in employment contracts. The plaintiffs in the respective cases claimed they fell within section 1 of the Federal Arbitration Act (FAA), also known as the “exemption clause,” and thus that their disputes were not subject to arbitration. The question in both cases was whether the disputed arbitration clauses would still be enforceable under the New Jersey Arbitration Act (NJAA), even assuming section 1 of the FAA applied. The court answered in the affirmative, thereby reversing the appellate decision in one case and affirming it in the other.

Section 1 of the FAA states that the FAA shall not “apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Citing a 2019 decision by the U.S. Supreme Court, the court held that section 1 applies only to transportation workers engaged in interstate commerce. It was undisputed that the plaintiffs in one of the subject cases were exempt. The court remanded the other case for a determination whether the plaintiffs fell within section 1. Nonetheless, the court explained that, absent preemption, New Jersey arbitration agreements have been automatically subject to the NJAA since 2003. The court held that the NJAA is nearly identical to the FAA and incorporates the same policies strongly favoring arbitration. The court therefore rejected the notion that the arbitration clauses at issue were not (or otherwise could not be) governed by the NJAA merely because they did not expressly invoke the statute. Moreover, having determined that the NJAA is not preempted by the FAA, the court ruled that the NJAA may apply to arbitration agreements even if parties to the agreements are exempt from arbitration under section 1 of the FAA.

Arafa v. Health Express Corp., No. 083174, and Colon v. Strategic Delivery Solutions, LLC, No. 083154 (N.J. July 14, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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