Forbidding Companies from Using Arbitration Agreements with Employees

Governor Signs Bill That Forbids Arbitration Agreements in Employee Contracts

 – March 19, 2019
Governor Signs Bill That Forbids Arbitration Agreements in Employee Contracts

A bill that bans arbitration in all employment contracts in New Jersey was signed by Governor Murphy on March 18. The bill (S121) includes two unrelated components. The NJCPA had no concerns about the component that forbids sexual harassment settlements from being hidden from the public. However, we strongly opposed the second component that in effect bans arbitration agreements in employment contracts.

The NJCPA testified that arbitration is a faster, fairer and more efficient way for parties to resolve complex disputes. Many of our members – and many employers across New Jersey - utilize arbitration agreements in employment contracts.

Furthermore, we are confident that this will eventually be deemed unconstitutional because it violates the Federal Arbitration Act and recent U.S. Supreme Court decisions. As recently as 2017, in Kindred Nursing Centers v. Clark, Justice Elena Kagan wrote for a 7-1 Supreme Court ruling that “The FAA … preempts any state rule discriminating on its face against arbitration…” and that the Kentucky law under scrutiny “displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”

S121 states “A provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable.” This is exactly the type of provision that Justice Kagan was referring to.

The NJCPA testified that banning arbitration in employment contracts would make litigation more expensive, longer to resolve and ultimately less beneficial for employees and employers alike. It’s another anti-business measure that will add to all the other anti-business laws that are already hurting businesses in New Jersey.

The new law takes effect immediately.

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