NJ Court Rules Employee Arbitration Agreement Can’t Bar Punitive Damages

New Jersey Employers Cannot Use Arbitration Agreements to Bar Punitive Damages

New Jersey employers can’t use arbitration agreements to bar punitive damages, according to the Appellate Division of the New Jersey Superior Court. In Roman v. Bergen Logistics, the appeals court held that barring punitive damages claims violates the public policy of the New Jersey Law Against Discrimination (LAD).

LAD Lawsuit Alleges Sexual Harassment

Plaintiff Milagros Roman (plaintiff or Roman) filed a sexual harassment and retaliation complaint against defendants Bergen Logistics, LLC and Gregg Oliver. Oliver was Bergen Logistics’s Human Resources Director and plaintiff’s immediate supervisor. He terminated plaintiff’s employment on December 30, 2015.

In her New Jersey employment lawsuit, Roman alleged Oliver sexually harassed her and created a sexually hostile work environment during her employment. She also alleged that after she objected to his conduct and sexual advances, he retaliated against her and terminated her employment. She asserted causes of action against Bergen Logistics and Oliver under the LAD and for intentional infliction of emotional distress.

The defendants moved to dismiss the complaint, asserting plaintiff was obligated to arbitrate her claims pursuant to the arbitration agreement she signed when hired in September 2015. It contained a clause that barred plaintiffs from seeking punitive damages under the LAD.

The trial court issued a written opinion finding Roman knowingly signed the agreement, and that it contained an unambiguous waiver of claims for “punitive and exemplary damages.” The court found the plaintiff’s hiring and continued employment provided consideration for the agreement, which covered the claims asserted in the complaint, was binding and required submission of her claims to arbitration. Accordingly, the court entered an order dismissing the complaint. Roman subsequently appealed.

Appellate Division’s Decision

The Appellate Division concluded that the trial court correctly determined the complaint should be dismissed because the plaintiff agreed to arbitrate her claims. However, it modified the court’s order to permit Roman to pursue her punitive damages claims in arbitration. “We are persuaded that the arbitration agreement’s bar on punitive damages claims is unenforceable because it violates the public policy of the LAD,” the court held.

In reaching its decision, the appellate court relied heavily on Rodriguez v. Raymours Furniture Co., Inc., 225 N.J. 343 (2016), in which the Court determined an arbitration agreement provision requiring the filing of an employee’s LAD claim within six months of its accrual was unenforceable under general contract principles because it violated the public policy embodied in the LAD. In Rodriquez, the New Jersey Supreme Court held that the shortened limitation period was unenforceable because a “private agreement that frustrates the LAD’s public-purpose imperative by shortening the two-year limitations period for private LAD claims cannot be enforced.” In reaching its decision, the state’s highest court emphasized the public-interest purpose of the LAD, which “seeks unequivocally to eradicate discrimination against any of New Jersey’s inhabitants.” Accordingly, the court concluded, “The challenged provision cannot be viewed as a private contractual agreement by which private parties contract to limit private claims by shortening the generally applicable statute of limitations for such action.”

The Appellate Division applied the same standard in concluding that the punitive damages bar ran afoul of the LAD. According to the court, “Measured against the standard employed by the Court in Rodriguez, we are persuaded the arbitration agreement’s bar of punitive damages claims under the LAD is unenforceable because it violates the public policy embodied in the LAD.”

The panel emphasized that the availability of punitive damages serves the LAD’s public policy of “eradicating employment discrimination by focusing on the deterrence and punishment of particularly serious discriminatory conduct by certain employees.”  The per curium opinion further explained:

In our view, a contract provision barring an employee’s access to punitive damages under the LAD not only violates public policy by eliminating a remedy the Legislature expressly declared is available to all victims of discrimination … it also eviscerates an essential element of the LAD’s purpose—deterrence and punishment of the most egregious discriminatory conduct by employees who, by virtue of their position and responsibilities … control employer policies and actions that should prevent discriminatory conduct in the workplace… An agreement barring the recovery of punitive damages to victims of employment discrimination under the [Law Against Discrimination] allows an employer’s upper management to be willfully indifferent to the most egregious forms of discriminatory conduct without fear of punishment and without the incentive to stop or prevent the discriminatory conduct that the availability of punitive is intended to provide.

The appellate court went on to hold that the unenforceable prohibition against the recovery of punitive damages should be severed from the otherwise valid agreement to arbitrate the claims asserted in the complaint. In so ruling, the court rejected the plaintiff’s claim that severance of the unenforceable provision barring recovery of punitive damages is not appropriate because the arbitration agreement does not expressly provide for severance.

Message for New Jersey Employers

The Appellate Division’s decision holds that arbitration provisions barring punitive damages in LAD suits violate the statute and should not be enforced. The good news for employers is that the court also held that the remainder of the arbitration agreement is still valid once the punitive damages prohibition is severed. Nonetheless, if any of your employment applications, contracts, or employee policies contain such provisions, they should be reviewed immediately. 

With respect to NJLAD compliance, the decision highlights that New Jersey courts are committed to advancing the policy objectives behind the law. Therefore, New Jersey employers should put themselves in the best position to defend a suit by properly documenting performance issues, conducting regular training regarding retaliation and harassment, and thoroughly investigating and documenting any claims of discrimination.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Joel Kreizman, at 201-806-3364.