New Jersey Arbitration Act Applies Automatically to Contracts Exempt From Federal Arbitration Act

Arafa v. Health Express Corp., 243 N.J. 147 (2020). Justice Fernandez-Vina’s opinion today actually involved two consolidated cases, both of which were putative class actions. The issue was whether a contract that the Federal Arbitration Act, 9 U.S.C. 1 et seq. (“FAA”), exempts from its own coverage, can or must be covered by the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 et seq. (“NJAA”). As discussed here, two different Appellate Division panels reached opposing results. Today, the Supreme Court held that the NJAA applies in the circumstances of these cases.

In general, the FAA applies broadly. But section 1 of that statute itself exempts certain agreements from its coverage: “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The Supreme Court of the United States has held that the “any other class of workers …” language “exempts from the FAA only contracts of employment of transportation workers” so engaged, as Justice Fernandez-Vina noted. In Arafa, there was no dispute that this section 1 exemption applied. Whether that was so in the companion case, Colon v. Strategic Delivery Solutions, LLC, remained to be determined.

Justice Fernandez-Vina noted that the FAA “preempts any state rule discriminating on its face against arbitration,” but does not “reflect a congressional intent to occupy the entire field of arbitration.” Thus, state laws not inconsistent with the FAA are permitted.

The employees in both cases asserted that because the applicable contracts did not expressly make the NJAA applicable, that statute could not govern. Justice Fernandez-Vina held that the NJAA’s language, N.J.S.A. 2A:23B-3, precluded the employees’ argument.

From January 1, 2003 through January 1, 2005, the NJAA “govern[ed] an agreement to arbitrate made before January 1, 2003 if all the parties to the agreement or to the arbitration proceeding so agree[d] in a record.” But at all other times, “the NJAA has applied automatically as a matter of law to all non-exempted arbitration agreements” (the NJAA exempts only “an arbitration between an employer and a duly elected representative of employees under a collective bargaining agreement or collectively negotiated agreement”).

“Within N.J.S.A. 2A:23B-3 itself, therefore, the Legislature marked the difference between optional and mandatory application of the NJAA,” Justice Fernandez-Vina said. Since the arbitration agreements in these two cases were both made “well beyond the date upon which application of the NJAA became mandatory for all non-exempt arbitration agreements,” the NJAA applied even though not specifically mentioned in those agreements.

Plaintiffs also contended that the FAA’s exemption expressed an intent that state laws not containing that same exemption cannot apply. Justice Fernandez-Vina found that Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), had rejected that argument.

The Court then turned to whether the arbitration agreements were enforceable, an issue that invoked de novo review. After recapping New Jersey cases that require mutual assent and “a clear and unambiguous waiver of statutory claims,” Justice Fernandez-Vina found those requirements satisfied here. Accordingly, the Court, with Justice Albin concurring in part and dissenting in part, reversed in Arafa and affirmed in Colon, requiring arbitration in both cases.