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New Jersey court ruling victory for employers seeking to compel arbitration

The ability of employers in the transportation sector to take a dispute with an employee to arbitration received a significant win in a New Jersey court last week.

The decision, which comes as others recently favored an employee’s ability to go to court with a dispute rather than arbitration, was described by one legal analyst as “a welcome development for New Jersey employers.”

The decision “is perhaps a sign of things to come for businesses across the country,” James Sullivan, from the law firm of Fisher Phillips, said of the outcome in an online analysis.

The question of arbitration versus litigation for transportation workers is complicated. Employers would rather go to arbitration; employees who sue want to stay in the court system. 

The venue is complicated for transportation workers because of a provision in the Federal Arbitration Act (FAA) that is an exemption for transportation workers. In Section 1, the FAA specifically exempts “the contracts of employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.” 

Parallels to two recent arbitration vs. litigation cases

That exemption was the basis for the New Prime decision, allowing driver Dominick Oliviera to go to court rather than arbitration to settle a dispute with New Prime — a case that has just ended with a large settlement.

That section in the FAA also was recently interpreted to allow an Amazon Flex driver to pursue his claims in court rather than through arbitration.

But the dual set of cases in New Jersey were wins for transportation-related employers, with the state’s Supreme Court ruling that arbitration agreements signed by transportation workers were enforceable in the state despite the FAA.

The court heard two cases on the issue: Arafa v. Health Express and Colon v. Strategic Delivery Solutions (SDS). SDS is described in legal documents as a licensed freight forwarder and broker. In the Arafa case, the defendant Health Express delivered pharmaceutical products. 

The basis for the complaint paralleled those of the Amazon Flex and New Prime cases — the hours were long, the pay was low and the combination of the two resulted in compensation that was in violation of minimum wage and overtime laws. 

In both cases, the defendants successfully asked lower courts for a dismissal of the case and instead sought arbitration, which they said was part of the employment agreement signed by the employees who brought suit. 

The Supreme Court upheld the lower court dismissal of the cases. In a summary of the action — a terrific tool for those that don’t want to read the lengthy decision, though FreightWaves did that too — the court said the decision in the pair of cases means that the New Jersey Arbitration Act “may apply to arbitration agreements even if parties to the agreements are exempt under Section 1 of the FAA. Therefore, the parties in both Colon and Arafa are not exempt from arbitration and their arbitration agreements are enforceable.”

Fisher Phillips’ Sullivan, in his online analysis of the decision, noted that the New Jersey arbitration act doesn’t have a transportation carve-out. According to the court’s interpretation, that means that the FAA transportation exemption that became the deciding factor in the New Prime and Amazon Flex cases doesn’t guide the decision in New Jersey. 

Congress doesn’t want the “entire field”

That’s because, according to the New Jersey decision, the FAA was never intended to be the end-all of arbitration law. Quoting an earlier precedent, the court said the FAA does not “reflect a congressional intent to occupy the entire field of arbitration.”

“Ultimately, the [New Jersey] Supreme Court held that the arbitration agreements were enforceable under the NJAA even if those agreements are exempt under Section 1 of the FAA,” Sullivan wrote. 

Sullivan’s analysis noted that 49 states have arbitration laws — and 35 of them are guided by standards under either the Uniform Arbitration Act or the Revised Uniform Arbitration Act. Neither of those has a transportation carve-out similar to what is in the FAA.

“For transportation employers in most of these states, arbitration provisions that would otherwise not be enforceable because of the FAA exemption would be enforceable under states’ arbitration acts — if, of course, they followed the reasoning of Arafa,” he wrote.

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