Pre-dispute employment arbitration agreements are enforceable in New Jersey, according to a recent ruling

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On March 18, 2019, New Jersey amended the New Jersey Law Against Discrimination (NJLAD) to include a provision that rendered unenforceable any “provision in an employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment.” On August 30, 2019, business advocates filed a lawsuit in the District of New Jersey, N.J. Civ. Justice Inst. v. Grewal, arguing that the Federal Arbitration Act (FAA) preempts this amendment by effectively prohibiting the enforcement of pre-dispute arbitration agreements between employers and their employees for claims under the NJLAD.

On March 25, 2021, U.S. District Judge. Anne E. Thompson ruled that the FAA does preempt the NJLAD amendment to the extent it would impede the use of employment arbitration agreements governed by the FAA. In her decision, Judge Thompson relied on Section 2 of the FAA, which forecloses state legislatures from attempting to undercut the enforceability of arbitration agreements. Judge Thompson found that even though the amendment does not expressly preclude arbitration, its enforcement may undercut the FAA in practice. Accordingly, the court enjoined New Jersey from enforcing the amendment with respect to arbitration agreements between employers and employees that are governed by the FAA. According to the U.S. Supreme Court’s decision in Circuit City Stores, Inc. v. Adams, the FAA governs all employment contracts except for those involving transportation employees. Thus, the impact of Judge Thompson’s ruling is far-reaching.

While this opinion may be appealed, it is welcome news for New Jersey employers who maintain pre-dispute arbitration agreements. For now, at least, pre-dispute arbitration agreements are enforceable as to NJLAD claims.

 

*Shannon Finnegan, a Law Clerk in the New York office, contributed to this post.

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