Timing is Everything: NJ Appellate Division Compels Arbitration of Employee’s Sex Harassment Claims

On October 26, 2022, the New Jersey Appellate Division in Rourke v. Herr Foods, Inc. once again confirmed that the Federal Arbitration Act (FAA) preempts the 2019 amendment to the New Jersey Law Against Discrimination (NJLAD) invalidating employment agreements that require employees to waive rights pertaining to claims of harassment, discrimination and/or retaliation. Thus, the employee was required to proceed to arbitration on his sexual harassment, sexual assault and retaliation claims.

Facts

In January 2020, Patrick Rourke entered into an employment agreement with Herr Foods. Rourke’s employment agreement contained a Mutual Arbitration Agreement (Arbitration Agreement). Specifically, the parties agreed that all disputes related to Rourke’s employment are subject to arbitration and not by a court or jury. The Arbitration Agreement unequivocally stated that “[t]he parties hereby forever waive and give up the right to have a judge or a jury decide the Covered Claims” and that the agreement was “governed by the Federal Arbitration Act (FAA) and, to the extent not inconsistent with or preempted by the FAA.” In January 2021, Rourke and Herr Foods signed a new employment agreement which contained the same provision governing the arbitration of claims. Five months later, Herr Foods terminated Rourke’s employment. Rourke thereafter filed suit alleging sexual harassment, sexual assault and retaliation in violation of the NJLAD. Herr Foods filed a motion to dismiss arguing that the FAA preempted Rourke’s NJLAD claims thus requiring him to arbitrate his claims.

Trial Court Decision

The trial court found that the FAA preempted Section 12.7 of the NJLAD, which dictates that an employment agreement’s waiver of procedural rights or remedies for claims of harassment, discrimination or retaliation are against public policy and are thus unenforceable. The trial court also rejected Rourke’s argument that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, signed into law March 2022 by President Biden, amending the FAA, should be applied retroactively to his suit to prevent arbitration of his claims. The amendment to the FAA gives individuals asserting sexual assault or sexual harassment claims under federal or state law the option to bring those claims in court even if they had agreed to arbitrate such disputes before the claims arose. The amendment also specifically states that it can only apply to claims prospectively and not retroactively. Given that Rourke filed his suit against Herr Foods in December of 2021, the trial court concluded the Arbitration Agreement was valid and enforceable. The trial court also found that there was sufficient consideration in the form of continued employment to enforce arbitration.

Appellate Division’s Decision

On appeal, the Appellate Division affirmed the decision of the trial court and its prior decision in Antonucci v. Curvature Newco, Inc., and held that because Rourke and Herr Foods agreed that the FAA governed claims under the arbitration agreement, it preempted the NJLAD’s procedural prohibition against arbitrating claims of harassment, discrimination and retaliation. While the claim asserted in Antonucci was wrongful termination, the Appellate Division held that the nature of the employee’s claim does not alter the analysis as the NJLAD does not afford enhanced protection to specific forms of discrimination. The Court also rejected Rourke’s argument that the recent amendment to the FAA should be applied retroactively. The Appellate Division also noted that the notes accompanying the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act clearly state the provisions shall not apply retroactively.

Bottom Line

Employers must be abundantly clear and intentional about the language used in their arbitration agreements and ensure they are governed by the FAA. Among other things, arbitration agreements must clearly convey the rights employees are waiving, which claims are covered under the agreement, whether employees are intended to be bound by the agreement by continued employment, even in absence of a signature, and which laws govern enforceability. Additionally, in light of public policy and the 2019 amendment to the NJLAD, employers must still ensure compliance of all arbitration agreement provisions taking effect after the effective date of the amendment, and not otherwise preempted by the FAA.

Should you have any questions regarding this decision and the enforceability of your company’s Arbitration Agreements, please contact John C. Petrella, Esq., Chair of the firm’s Employment Law & Litigation Practice via email here or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Counseling & Compliance Practice via email here or call 9743.533.0777.