In March 2019, the New Jersey legislature again exposed its wokeness by amending the New Jersey Law Against Discrimination (NJLAD) to, in effect, remove from arbitration any employee claim relating to discrimination, retaliation, or harassment. Accordingly, any freely negotiated arbitration arrangement governing these claims was null and void per the NJLAD – these claims had to be determined by a court.

Recognizing the overreach by NJ, in August 2019 the Chamber of Commerce of the United States of America and the New Jersey Civil Justice Institute filed suit in federal district court seeking a declaration that the Federal Arbitration Act (FAA) preempts the NJLAD’s arbitration ban. In March 2021, the federal court ruled just that – arbitration agreements governed by the FAA preempt state law, including the NJLAD’s arbitration ban. New Jersey Civil Justice Institute, et al. v. Grewal, No. 19-17518 (D.N.J. Mar. 25, 2021).

The reasoning of the court was that the FAA reflects a federal policy in favor of arbitration and since the FAA was a federal statue, any state law that conflicts with it or frustrates its purpose violates the Supremacy Clause of the U.S. Constitution. In granting the injunctive relief, the court noted that the NJLAD amendment reflected an “uncommon barrier” to arbitration and its enforcement would deprive parties of its cost benefits.

The federal district court’s decision striking down the NJLAD’s arbitration ban is not a shock, as it is consistent with other court decisions finding FAA preeminence. If the NJ Attorney General decides to challenge the district court’s decision the matter will be decided by the Third Circuit Court of Appeals. Hopefully, NJ won’t waste its taxpayers’ money in such pursuit and let contracting parties agree to a dispute resolution mechanism of their choosing.

Court challenges like this emphasize the importance of drafting clear, mutually acceptable, arbitration provisions in employment agreements when arbitration is the preferred means of dispute resolution.