On Could 21, 2018, in Epic Programs Company v. Lewis, the Supreme Court docket of the USA upheld class motion waivers in arbitration agreements, ruling that the Federal Arbitration Act (FAA) instructs “federal courts to implement arbitration agreements in keeping with their phrases—together with phrases offering for individualized proceedings.” On July 14, 2020, the Supreme Court docket of New Jersey handed down a landmark determination of its personal upholding the enforceability of employment arbitration agreements with class motion waivers below the New Jersey Arbitration Act (NJAA), even when the agreements are exempted from the protection of the FAA, by advantage of the FAA’s Part 1 “transportation employee exemption.” The choice will not be solely a watershed victory for companies that make use of or have interaction transportation employees who fall inside the Part 1 exemption, however all companies that make use of or have interaction employees in New Jersey. The choice highlights the large worth of an efficient arbitration program and illustrates why companies that don’t have already got arbitration agreements with their employees might need to fastidiously think about acquiring them.
In Arafa v. Well being Categorical Corp. (A-6-19), the Supreme Court docket of New Jersey thought-about two associated circumstances: Colon v. Strategic Supply Options, LLC (A-7-19) and Arafa v. Well being Categorical Corp. (A-6-19). In each circumstances, truck drivers introduced go well with in opposition to their putative employers in New Jersey state courtroom asserting claims below the New Jersey Wage and Hour Regulation and the New Jersey Wage Fee Regulation. In each circumstances, the putative employers sought to dismiss the claims and compel particular person arbitrations based mostly on their arbitration agreements with the plaintiffs.
The query posed in each circumstances was whether or not the events’ arbitration agreements could possibly be enforced below the NJAA, if exempt from FAA protection. Part 1 of the FAA gives in related half: that “[the FAA shall not] apply to contracts of employment of seamen, railroad staff, or some other class of employees engaged in international or interstate commerce.” In Circuit Metropolis Shops, Inc. v. Adams, the Supreme Court docket of the USA narrowly interpreted this provision—ceaselessly known as the “FAA Part 1 exemption” or “transportation employee exemption”—to apply solely to contracts of employment of transportation employees, to not contracts of employment on the whole. Subsequently, for the Part 1 exemption to use, it must be decided that plaintiffs are transportation employees engaged in interstate commerce.
In Colon, the trial courtroom dismissed the criticism and compelled the named plaintiffs to particular person arbitrations below the NJAA. The plaintiffs appealed, arguing that they’re transportation employees exempt from the FAA’s protection. Whereas the Appellate Division remanded for additional proceedings the query of whether or not the plaintiffs have been, the truth is, transportation employees, such that the FAA shouldn’t apply, the courtroom discovered the decision of that query immaterial to the outcome. No matter whether or not the FAA utilized, the courtroom dominated, the category motion waiver provision contained within the events’ arbitration agreements have to be enforced below New Jersey regulation and the plaintiffs have to be ordered to pursue their claims in particular person arbitrations, pursuant to the NJAA, which applies to all arbitration agreements made since 2003, besides these contained in collective bargaining agreements.
In Arafa, the trial courtroom additionally granted the putative employer’s movement to dismiss and ordered the plaintiffs to arbitrate their claims on a person foundation. Nonetheless, the Appellate Division reversed, holding that the plaintiff was exempt from the FAA as a transportation employee. As a result of the settlement solely referenced the FAA (and never the NJAA), the courtroom additional discovered that the inapplicability of the FAA undermined the whole premise of the events’ contract. That’s, the courtroom concluded the arbitration settlement was “unenforceable for lack of mutual assent” and acknowledged that “all different arbitration points [were] moot.”
On attraction to the Supreme Court docket, the Colon and Arafa plaintiffs asserted that they’re transportation employees falling inside the FAA’s Part 1 exemption, and due to this fact their arbitration agreements couldn’t be enforced pursuant to the FAA. As a result of the arbitration agreements designated the FAA because the ‘“sole and unique governing regulation,’ plaintiffs argue[d] there was no ‘assembly of the minds,” relating to arbitration. The plaintiffs additional argued that “absent categorical intent to use the NJAA, the state regulation can’t be utilized within the FAA’s place.”
In response, the defendants argued that: (1) “the FAA selection of regulation provision shouldn’t be interpreted as in battle with the aim of the arbitration settlement”; and (2) “the FAA’s inapplicability to the events didn’t destroy the intent to arbitrate on the whole.”
Supreme Court docket of New Jersey’s Choice
Confronted with the events’ competing positions, the Supreme Court docket of New Jersey present in favor of the defendants, holding that the NJAA might apply to the arbitration agreements even when they’re exempt below Part 1 of the FAA. In doing so, the Supreme Court docket noticed (as did the Appellate Division in Colon) that the NJAA governs ‘“all agreements to arbitrate made on or after January 1, 2003,’ and exempts from its provisions solely ‘an arbitration settlement between an employer and a duly elected consultant of staff below a collective bargaining settlement or collectively negotiated settlement.’ N.J.S.A. 2A:23B-3(a).” Accordingly, the Supreme Court docket discovered that “since 2003, there was no want to precise an intent that the NJAA would apply as a result of its utility has been computerized, absent preemption.” Subsequently, the Supreme Court docket rejected the plaintiffs’ argument that the NJAA have to be particularly invoked to use.
The Supreme Court docket then turned to the query of preemption. As there isn’t any categorical preemption provision within the FAA, together with in Part 1, and the “utility of the NJAA” wouldn’t “frustrate the principal objective of the FAA by discriminating in opposition to arbitration agreements,” the Supreme Court docket held that the FAA doesn’t preempt the NJAA.
Lastly, the Supreme Court docket thought-about the enforceability of the arbitration agreements and sophistication waivers at subject below New Jersey regulation. In Colon, “plaintiffs voluntarily agree[d] to waive any proper to a trial by jury in any go well with filed hereunder,” and to “adjudicate any dispute pursuant to [the arbitration agreement].” The Colon arbitration clauses additional specified that plaintiffs agreed to arbitrate any declare “arising out of or in any means referring to the [employment] Settlement or the transportation providers offered [t]hereunder.” The Arafa arbitration clause concerned equally broad language specifying that the plaintiff agreed to resolve “all disputes” between the events by way of binding arbitration. The Supreme Court docket discovered the language of the arbitration clauses in each circumstances sufficiently broad to conclude that the plaintiffs “knowingly and voluntarily waived their rights to pursue their statutory wage claims” in a judicial discussion board. “By the identical ideas of development utilized to the jury trial waiver provision,” the Supreme Court docket discovered that “plaintiffs knowingly and voluntarily waived their potential to proceed as a category.” As such, the Supreme Court docket held the Arafa plaintiffs should pursue particular person arbitrations pursuant to the NJAA, whereas the Colon plaintiffs should pursue particular person arbitrations pursuant to “both the FAA or the NJAA, which can be decided by the trial courtroom upon remand.”
This determination gives a lot wanted reduction to New Jersey employers on the finish of a 12-month span that noticed the passage of the historic New Jersey Wage Theft Act, and numerous different legal guidelines handed in furtherance of efforts to establish and severely punish wage regulation violations, notably within the impartial contractor misclassification context.
To make sure, the choice is most important for companies that have interaction transportation employees, because it confirms their arbitration agreements with such employees could be enforced below the NJAA even when the FAA doesn’t apply. However the determination is extraordinarily vital for all companies that make use of or have interaction employees in New Jersey, insofar as the very best courtroom within the state has upheld the enforceability of employment agreements to arbitrate statutory claims on a person foundation based mostly on an easy, common sense studying of the language of the agreements. That is vital as a result of even in circumstances by which the FAA applies, state regulation contract interpretation ideas apply, and arbitration agreements could also be invalidated based mostly on generally-applicable contract defenses akin to unconscionability, fraud, and duress. The Supreme Court docket’s ruling gives clear steerage to decrease courts that no magic language is required for an enforceable settlement to arbitrate on a person foundation and serves as a reminder that the Supreme Court docket of New Jersey has lengthy articulated New Jersey’s robust public coverage in favor of arbitration. Whereas many New Jersey employers will proceed to fastidiously craft their arbitration agreements with their employees, the Arafa determination ought to present them with a larger degree of consolation that their agreements to arbitrate disputes, together with on a person foundation, can be enforced by the courts of this state in keeping with their phrases, in most situations, no matter whether or not the FAA applies.
One potential exception could possibly be agreements to arbitrate claims alleging employment discrimination, harassment, and/or retaliation. In 2019, the New Jersey state legislature amended the New Jersey Regulation Towards Discrimination to preclude enforcement of agreements to arbitrate such claims and to ban retaliation in opposition to staff for refusing to conform to arbitrate such claims. New Jersey employers might need to fastidiously think about the impression of this modification when crafting their arbitration agreements, notably the place the FAA doesn’t apply, as a result of in such circumstances, they are going to be unable to avail themselves of the argument that it must be preempted by the FAA on the grounds that it discriminates in opposition to arbitration agreements.
However, the Arafa determination illustrates simply how precious an efficient arbitration program could be, and why employers with out one might need to fastidiously think about implementing one. That mentioned, the Arafa determination is proscribed to New Jersey, and different states might produce other necessities or current different obstacles to the formation or enforcement of arbitration agreements, notably the place the FAA doesn’t apply. As such, a state-by-state evaluation of such points is required. Nonetheless, given Arafa’s clear pronouncements, in situations the place employees have an affordable connection to New Jersey, employers might need to think about drafting arbitration agreements with a view towards maximizing the probability that New Jersey regulation (together with the NJAA) will apply to disputes relating to the interpretation and enforceability of the agreements, notably in conditions the place employers are extra involved about guaranteeing the person arbitration of wage claims, versus discrimination and/or retaliation claims, the place New Jersey regulation might current an issue. Such methods might embody the insertion of a selection of regulation provision deciding on New Jersey regulation to manipulate such disputes, within the various, ought to the FAA be discovered to not apply.
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