New Jersey Bars Mandatory Arbitration, Limits Nondisclosure Agreements
Author: David B. Weisenfeld, XpertHR Legal Editor
March 27, 2019
New Jersey Gov. Phil Murphy has signed a broad law prohibiting mandatory arbitration of all employment discrimination, harassment and retaliation claims. Effective immediately, the new law also significantly restricts employers from using nondisclosure agreements as part of a settlement.
In the aftermath of the #MeToo movement, a few states, including California, prohibited mandatory arbitration agreements relating to sexual harassment claims. But New Jersey goes further in banning any employment contract provision that waives any substantive or procedural right or remedy relating to a discrimination, retaliation or harassment claim. The law finds that such waivers - including jury trial waivers and damages caps - violate state public policy and are therefore unenforceable.
New Jersey's mandatory arbitration ban is almost certain to face a legal challenge as critics claim the Federal Arbitration Act (FAA) preempts it. The FAA puts arbitration agreements on the same footing as other types of contracts and allows parties to arbitrate their case rather than going to court. The Supreme Court has generally, though not always, affirmed the legality of employment arbitration clauses.
The New Jersey law also bans the use of nondisclosure agreements (NDAs) in many instances. For instance, any NDA provision in an employment contract or settlement agreement that would conceal details relating to discrimination, retaliation or harassment claims also is unenforceable against an employee or former employee. Retaliation against an individual who refuses to sign an NDA or mandatory arbitration agreement also is prohibited.
The law gives the employee or former employee the right to go public if he or she chooses to do so. However, if the employee publicly reveals enough details of a claim so that the employer can be reasonably identified, then the NDA also will be unenforceable against the employer.
The New Jersey law applies to all contracts and agreements entered into on or after March 18, 2019, but will not apply retroactively.