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In March 2019, New Jersey Governor Phil Murphy signed into law a series of amendments to the New Jersey Law Against Discrimination (NJLAD), including N.J.S.A. 10:5-12.7, which provides, “[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.” That section further states that “[n]o right or remedy under the [NJLAD] or any other statute or case law shall be prospectively waived.” 

On March 25, 2021, United States District Judge Anne Thompson ruled that the Federal Arbitration Act preempts N.J.S.A. 10:5-12.7. (N.J. Civ. Justice Inst. v. Grewal , 2021 BL 109619, D.N.J., No. 3:19-cv-17518).

The plaintiffs in the case, the New Jersey Civil Justice Institute and the Chamber of Commerce of the United States of America, argued that Section 12.7’s proscription on waiving substantive or procedural rights – which, under the NJLAD, include the rights to file a complaint in court and to a jury trial – effectively created a “complete ban on pre-dispute employment arbitration agreements.” They also argued that this amendment to the NJLAD ran afoul of the Federal Arbitration Agreement (FAA), 9 U.S.C. §§1-4, and was thus preempted under the Supremacy Clause of the U.S. Constitution and a long line of U.S. Supreme Court caselaw interpreting the FAA. Plaintiffs sought a permanent injunction prohibiting New Jersey’s Attorney General from taking any action enforcing Section 12.7.

In her March 25 ruling, Judge Thompson held that the FAA does, in fact, preempt N.J.S.A. 10:5-12.7, because Section 12.7, even though it didn’t specifically mention arbitration agreements, had the effect of singling out arbitration agreements for disfavored treatment. 

Judge Thompson permanently enjoined the New Jersey Attorney General “from enforcing Section 12.7 with respect to arbitration agreements between employers and employees that are governed by the FAA,” noting that the Attorney General had not “argued at any point throughout the litigation that Section 12.7 survives a preemption challenge.” She further noted that Federal courts in New York and California have found state laws similar to Section 12.7, such as California’s A.B. 5, were preempted by the FAA. While the action was brought only against the New Jersey Attorney General in his role in enforcing the NJLAD, the holding is applicable to all arbitration agreements in the employment context.

This decision is an important victory, not just for employers but also for employees. As much as many employers prefer the privacy that arbitration provides, many employees benefit from the streamlined process and quicker outcomes that often result from arbitration.