Following Congress Passing Bipartisan Arbitration Limitation, New Jersey Appellate Division Rules that NJLAD Prohibition on Arbitration is Preempted by the FAA

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By Lindsey Andreozzi, Esq.

This month brought significant changes for employment arbitration, as both Congress and the New Jersey Appellate Division took significant actions that could disrupt the common practice of arbitration in the employment arena.

On February 10, 2022, both houses of Congress approved a bill entitled Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (H.R. 4445), which has now made its way to President Biden’s desk for signature.  We expect that President Biden will sign the bill imminently.

In relation to employment claims for sexual assault and/or sexual harassment, the proposed federal law will allow an employee to determine whether to enforce any pre-dispute arbitration agreements and pre-dispute joint-action waivers, regardless of whether such agreements were mandatory or voluntarily agreed to by that employee.  Once passed, the federal law will invalidate any pre-dispute agreements as a matter of law and at the election of employees, which will permit employees alleging sexual assault and/or sexual harassment to litigate an individual or class action, even if they previously agreed to arbitrate the claim individually.

In addition to the new proposed federal legislation, on February 15, 2022, the New Jersey Appellate Division issued a decision invalidating a recently enacted provision of the New Jersey Law Against Discrimination (“LAD”) which procedurally prohibited arbitration of LAD claims. In Antonucci v. Curvature Newco, Inc., No. A-1983-20 (App. Div. Feb. 15, 2022), the Court determined this provision of LAD was preempted by the Federal Arbitration Act (“FAA”) because the state and federal laws conflicted. 

This case, read in conjunction with the amended FAA, will actually expand the enforceability of arbitration agreements in New Jersey.  Whereas under the now-invalidated LAD provision, all arbitration agreements in discrimination claims were deemed unenforceable, the FAA bill will lead to a ban of arbitration only in cases of sexual harassment and sexual assault in the garden state.  Arbitration of other discrimination claims will now be permissible in New Jersey.

Below are some key takeaways and practical considerations for employers as they await enactment of this federal employment legislation that could disrupt the common practice of employment arbitrations.

  • H.R. 4445 requires that courts decide whether a claim constitutes sexual harassment or sexual assault, even if the arbitration agreement includes a delegation provision directing the decision to an arbitrator.

  • H.R. 4445 is also retroactive, and will apply to any preexisting arbitration agreements that would have inhibited employees from litigating sexual harassment or assault claims against their employers. (Updated)

  • H.R. 4445 does not affect arbitration of employment disputes outside of allegations of sexual harassment and/or sexual assault, which may potentially lead to bifurcation of an employee’s claims.

  • H.R. 4445 permits parties to an action to voluntarily choose to arbitrate any claims, including sexual harassment/assault claims, provided that the parties enter into that agreement to arbitrate after the dispute has arisen.

While arbitration legislation and case law are ever-evolving, we recommend that employers evaluate their current arbitration agreements, and specifically detail the carve-outs for sexual harassment and sexual assault claims under the anticipated federal law.  Employers should also continue to monitor developments at the federal and state level, as there are numerous efforts underway and/or enacted in various states across the country that already limit the use of arbitration agreements in the employment context.

Please contact an NFC team member if you have any questions or seek further assistance.


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