United States: New Jersey Court Rules Federal Arbitration Act Preempts State Law Against Discrimination, Allowing Employers To Compel Arbitration – For Now

In the wake of the #MeToo movement, the New Jersey Legislature amended the Law Against Discrimination (LAD) on March 18, 2019, and restricted the ability of employers to keep confidential the details of claims of discrimination, retaliation and harassment. The 2019 LAD amendment also deems any employment contract (other than a collective bargaining agreement) against public policy and unenforceable if it contains a waiver of any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment. While this provision appears to negate an employer's ability to compel arbitration of LAD claims, we previously noted that the LAD's ban on arbitration was likely to be preempted by the Federal Arbitration Act (FAA). On February 15, 2022, the New Jersey Appellate Division addressed the issue head-on in a case of first impression.

In Antonucci v. Curvature Newco, Inc., No. A-1983-20 (App. Div. Feb. 15, 2022), the Appellate Division held that the LAD's prohibition on the arbitration of claims of discrimination, retaliation or harassment did not apply and was preempted by the FAA. The plaintiff, Antonucci, electronically acknowledged an arbitration agreement attached to the employee handbook he received from his employer in October 2019, subsequent to the LAD amendment banning contracts that limit substantive and procedural rights under the law. Pursuant to the terms of the arbitration agreement, Antonucci waived his right to a jury trial and agreed to submit to arbitration all disputes relating to his employment, including statutory, contractual and/or common law claims of wrongful termination, discrimination, harassment and retaliation arising under federal, state or local law. The arbitration agreement specifically stated that it was "enforceable under and subject to the Federal Arbitration Act, 9 U.S.C.  Sec. 1, et seq."

Following termination of his employment in May 2020, Antonucci filed a complaint in New Jersey state court against his employer and certain company employees, alleging claims of discrimination and wrongful termination under the LAD. The employer moved to dismiss the complaint and compel arbitration. The trial court found that the arbitration agreement was valid and enforceable, thus reaffirming that employers may send, and employees may consent to, arbitration agreements electronically per the New Jersey Supreme Court's decision in Skuse v. Pfizer, Inc., 244 N.J. 30 (2020). The trial court dismissed the complaint with prejudice, without considering whether the arbitration agreement was unenforceable pursuant to the 2019 LAD amendment or whether the FAA preempted the 2019 LAD amendment.

On appeal, the Appellate Division directly addressed the preemption issue. The court began by noting that:

Here, although the LAD does not expressly use the term "arbitration," "the plain language of [the amendment] of [the] LAD prohibits all predispute agreements if those agreements prospectively waive the right to file a court action for a LAD claim." Accordingly, the court held that the LAD's procedural prohibition, which would preclude arbitration, is preempted when applied to an arbitration agreement governed by the FAA.

This means that arbitration agreements that are subject to the FAA are enforceable, irrespective of the 2019 LAD amendment. However, the court made clear that the FAA's preemption does not extend to substantive provisions of the LAD amendment, such as the provision barring nondisclosure clauses in employment contracts and settlement agreements and the provision precluding the shortening of the statute of limitations by contract. Those changes to the LAD remain unaffected by the Antonucci decision.

The court left unanswered the question of whether arbitration agreements governed solely by state law are enforceable given the 2019 LAD amendment. This remains an open issue to be decided by the court on another day. However, as noted in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the United States Supreme Court held that the FAA covers most employment agreements (except those applicable to transportation workers).

In addition to the New Jersey Appellate Division's recent pronouncement in Antonucci, employers should be aware of a pending amendment to the FAA, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (HR 4445), which adds another wrinkle to this analysis. Passed by the House on February 7, 2022, and by the Senate on February 10, 2022, this amendment to the FAA will bar the arbitration of claims of sexual assault and sexual harassment and any waivers of the right to bring such claims jointly and/or on a class basis. The bill is awaiting President Biden's signature. If enacted, sexual assault and sexual harassment claims will no longer be subject to mandatory arbitration under the FAA, and the LAD's prohibition on arbitration will be enforceable as to such claims. Because the LAD's ban on arbitration is much broader and precludes arbitration of discrimination, retaliation and harassment claims based on protected categories other than sex, employers should still be able to compel arbitration of those claims so long as the FAA, not state law, explicitly governs their arbitration agreements.

What This Means for New Jersey Employers

In light of the Antonucci case and the pending amendment to the FAA, New Jersey employers should review their arbitration agreements with counsel and evaluate their enforceability. Given the ever-changing landscape of legislative and judicial developments that impact an employer's ability to arbitrate employment-related claims, employers should update their arbitration agreements to ensure they are in compliance with recent changes to federal and state law and enforceable to the greatest extent possible.

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