Seyfarth Synopsis: In a recent decision, the New Jersey Appellate Division decided that the LAD ban on mandatory pre-dispute arbitration clauses does not have a retroactive effect, and any arbitration agreements signed prior to the law’s enactment are not rendered void because of the statute.

In March 2019, Governor Murphy signed an amendment to the LAD which, among other things, prohibits mandatory pre-dispute arbitration agreements. Although this law may be preempted by the Federal Arbitration Act (FAA), New Jersey is attempting to stamp out any prospective waivers of procedural or substantive rights (including jury trial and class action waivers) arising out of employment claims. See our prior Alert for a thorough analysis of the law.

In Guirguess v. Public Service Electric and Gas Company, et al., at the beginning of his employment with the utility company PSE&G, the plaintiff signed a mandatory arbitration agreement, agreeing to arbitrate disputes arising out of his employment. Several years later, the plaintiff moved to a position within a subsidiary of PSE&G and received a new offer letter which did not mention arbitration. The plaintiff was terminated for allegedly submitting inaccurate time records, stealing time from the company, and falsifying expense reports, among other violations. The plaintiff sued PSE&G for wrongful termination in violation of the Conscientious Employee Protection Act (CEPA), the New Jersey Law Against Discrimination (LAD) and common law. Defendants filed a motion to compel arbitration, which the lower court granted. Plaintiff appealed and the order was vacated because the trial court failed to provide the reasoning for its decision, and it was remanded for further proceedings. The lower court once again granted the motion, now putting its reasoning on the record. Plaintiff’s argument that the arbitration agreement did not apply to PSE&G subsidiaries failed, and the court found the agreement remained in effect after his position changed. Plaintiff appealed for a second time, arguing that the agreement was not enforceable because it contravenes the newly enacted provisions of the LAD, among other reasons.

Despite the LAD’s prohibition on pre-dispute arbitration agreements, the court found the law to apply only prospectively. The court also rejected the argument that the “time of decision rule” should apply because the amendment was effective prior to the court’s decision. The court relied on the plain language of the law, which states the law “shall apply to all contracts and agreements entered into, renewed, modified, or amended on or after the effective date,” and found the arbitration agreement to be valid and enforceable.

Employers can rest assured this holiday season that arbitration agreements signed prior to the enactment of the law on March 18, 2019 remain effective. We will continue to watch this area of the law closely, including any future preemption challenges.