If, like me, you’ve always wondered whether the Federal Arbitration Act (FAA) preempts a 2019 amendment to New Jersey’s Law Against Discrimination (LAD) that prohibits the waiver of procedural and substantive rights under the LAD, try to remain calm. I’m about to blow the lid off this jawn.
(The rest of you can bug out and play Wordle.)
I’m not making this up. It comes from this NJ Appellate Division decision issued yesterday.
It’s a case in which the employee-plaintiff not only claimed that the LAD amendment controls over the FAA but also that he never actually agreed to an arbitration agreement with the employer-defendant (sigh…).
(In fairness to the plaintiff, he never technically signed the arbitration agreement.)
So, to build up a little suspense, I’ll focus on the second argument first. Imagine going to court to enforce an unsigned arbitration agreement with an employee. How does that work?
Well, in this case, the defendant had a few tricks up its sleeve. First, it was able to show that the plaintiff spent 93 minutes reviewing the handbook and the arbitration agreement attached to it. Second, the employee had checked a box confirming that he had reviewed and received the policies and procedures outlined in the handbook. Third, the arbitration agreement contained language that unambiguously explained employees assent to the arbitration agreement if they remain employed for a certain period of time.
Put it all together, and you have a binding arbitration agreement.
But can an employer compel arbitration of LAD claims? According to this NJ Appellate Division decision, the answer is yes.
A state law that conflicts with the FAA or frustrates its purpose violates the Supremacy Clause of the United States Constitution. To be fair, the LAD does not explicitly forbid arbitration. Instead, it bans any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment. However, by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum. So, parties can still arbitrate claims under the FAA.
(PRO TIP: Make sure that your NJ arbitration agreements specifically state that the FAA governs the agreement and any arbitration is subject to the FAA. But don’t overstep. For example, don’t reduce the time for bringing a discrimination claim. That would violate the LAD; so would jury trial waiver without a corresponding agreement to arbitrate.)