A Capehart Scatchard Blog

LAD Arbitration Limitation Struck Down By Federal Court

By on April 7, 2021 in Arbitration with 0 Comments

In 2019, when the New Jersey Law Against Discrimination (“LAD”) was amended at the height of the “Me Too” movement, one change made was adding a provision that precluded an employer from requiring an employee to waive their right under the LAD to a jury trial.  Most employment law practitioners understood that this provision was designed to prevent employers from requiring that all work-related disputes be resolved through arbitration, which is expressly allowed under federal law, specifically the Federal Arbitration Act (“FAA”). The FAA requires enforcement of all such arbitration agreements, and expressly favors the use of arbitration to resolve legal disputes. It was expected that at some point this provision of the LAD would be struck down as unenforceable because no state law can conflict with the requirements of federal law, which is supreme under our constitutional system of government. That decision finally came down from a United States District Court judge here in New Jersey last week in N.J. Civil Justice Inst. v. Grewal, No. 19-17518, 2021 U.S. Dist. LEXIS 57437 (D.N.J. Mar. 25, 2021).

The U.S. Chamber of Commerce, the New Jersey Civil Justice Institute, and members of those groups such as Comcast Corp. and PricewaterhouseCoopers LLP all sued in New Jersey Federal Court to stop enforcement of Section 12.7 of the LAD that ostensibly was intended to protect the right of employees to have LAD claims heard by a jury. Arguing that this provision was a direct assault on arbitration rights protected under the FAA, the foregoing groups sought to preclude enforcement of Section 12.7.  Noting that similar provisions have already been struck down under California and New York law for violating the FAA, and was similarly invalidated by a lower New Jersey state court, the Federal Court here likewise concluded that Section 12.7 could not be enforced to the extent that it would prevent employers from utilizing arbitration agreements to resolve workplace disputes under the LAD.  In its decision, the Court specifically rejected an argument that Section 12.7 had no bearing on arbitration rights because no mention is made of arbitration anywhere in that section.  The Court ultimately rejected this argument, because Section 12.7 prohibits the waiver of the right to a jury trial, which is the “primary characteristic” of arbitration. Thus, the lack of any mention of arbitration did not preclude the Court’s ruling that enjoins further enforcement of Section 12.7.

With more and more employers utilizing arbitration agreements, this ruling is an important decision in reaffirming the right of employers to continue to use arbitration agreements, even in light of Section 12.7.  Now, it is clear that Section 12.7 does not pose any impediment to the continuation of the use of arbitration agreements relating to employee LAD claims, and for other similar types of work-related disputes.

While this seems to temporarily resolve the issue, there is a chance that the matter will be appealed. We will keep a close eye on the progress of the case.

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Ralph R. Smith, III, Esq.

About the Author

About the Author:

Mr. Smith is Co-Chair of Capehart Scatchard's Labor & Employment Group. He practices in employment litigation and preventative employment practices, including counseling employers on the creation of employment policies, non-compete and trade secret agreements, and training employers to avoid employment-related litigation. He represents both companies and individuals in related complex commercial litigation before federal states courts and administrative agencies in labor and employment cases including race, gender, age, national origin, disability and workplace harassment and discrimination matters, wage-and-hour disputes, restrictive covenants, grievances, arbitrations, drug testing, and employment related contract issues.

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