New Jersey Appellate Division Holds that the Ending Forced Arbitration Act Does Not Bar the Arbitration of Sexual Harassment Claims Accruing Prior to its Effective Date

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By Allison J. Vogel, Esq.

The New Jersey Appellate Division recently issued an opinion confirming that the Ending Forced Arbitration Act (EFAA) does not apply retroactively to sexual harassment or assault claims that accrue prior to March 3, 2022.  The Court also confirmed that the Federal Arbitration Act (FAA) will also continue to preempt such claims under the New Jersey Law Against Discrimination (NJLAD).  Zuluaga v. Altice USA, et al., A-2265-21, 2022 WL 17256726 (App. Div. Nov. 29, 2022).

The plaintiff, Laura Zuluaga, asserted that her prior employer, Altice USA, fostered and condoned a sexually hostile work environment and constructively discharged her from her employment.  She also asserted that two of her former colleagues aided and abetted the creation of the sexually hostile work environment.

Zuluaga, a sales representative at the cable company’s call center, entered into a Mutual Arbitration Agreement in connection with her employment by Altice.  The Agreement was governed by the FAA and applied to “all disputes, claims, complaints, or controversies arising out of and/or directly or indirectly relating to the relationship between [plaintiff] and the Company.”  Zuluaga checked the signature box confirming her acknowledgment that she was “giving up the right to have any disputes that are subject to arbitration be decided by a court or jury.”

Shortly after Zuluaga began her employment, she allegedly experienced sexual harassment and suffered anxiety and panic attacks.  She reported the alleged misconduct to Human Resources, which investigated her allegations.  After the Company concluded its investigation, Zuluaga sought psychiatric treatment and did not return to work.  Several months later, Zuluaga brought suit against the Company and two of her former colleagues.

Relying upon the Agreement, Defendants moved to dismiss Zuluaga’s complaint and to compel arbitration.  The trial court granted the motion, dismissed the complaint with prejudice, and ordered the parties to arbitration.  Notably, Zuluaga neither disputed that her claims fell within the scope of the Agreement nor challenged her signature on the Agreement.  Due to the “clear and unambiguous” language in the Agreement, the judge concluded that the Agreement was enforceable as a matter of law.  Plaintiff appealed.

On appeal, the Appellate Division requested supplemental briefing on: (1) whether, in view of the enactment of the EFAA, federal preemption of Section 12.7 of the NJLAD continues to apply generally to claims that accrued prior to March 3, 2022 and (2) if so, whether the federal preemption of Section 12.7 of the NJLAD continues to apply to such claims if the arbitration had not yet commenced or taken place. 

The Appellate Division rejected Zuluaga’s argument that the EFAA, which amended the FAA, should be applied retroactively to allow her to proceed with her sexually hostile work environment and constructive discharge claims pursuant to Section 12.7 of the NJLAD.  While the EFAA was enacted to invalidate pre-dispute arbitration agreements that preclude a party from filing a lawsuit in court involving sexual assault or sexual harassment, the Court explained that the clear language of the Act reflects that it applies only to disputes or claims that arise or accrue on or after the Act’s enactment, that is, March 3, 2022. 

The Appellate Division also rejected Zuluaga’s attempt to argue that the preemption of Section 12.7 of the NJLAD should not apply to cases where the arbitration had not yet taken place.  The Court found that the legislature could have created such an exception, but chose not to do so.  As such, the Appellate Division concluded that Zuluaga was bound by the FAA’s continuing presumptive effect as to claims accruing prior to March 3, 2022. 

This decision is significant as it provides guidance on whether sexual harassment claims accruing prior to March 3, 2022 are preempted.  Earlier this year, a trial court held that the FAA did not preempt Section 12.7 of the LAD and denied the employer’s motion to compel arbitration in a sexual harassment case.  Sellino v. Galiher, ESX-L-8519-21 (May 25, 2022).  The Zuluaga decision makes clear that the FAA would not serve to bar arbitration of such claims.  The Court also made clear that a case compelled to arbitration must be stayed pending arbitration rather than dismissed with prejudice.  In view of this decision, employers should review their arbitration agreements to maximize their enforceability in court.

Please contact NFC if you have any questions regarding this decision.


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