Employers May Not Contractually Limit Substantive Rights and Remedies under New Jersey’s Law Against Discrimination

On August 23, 2018, New Jersey’s intermediate appellate court in Roman v. Bergen Logistics, LLC et al., ruled that employers could not contractually limit the remedies available for successful employment discrimination claims.  In that case, the plaintiff-employee and defendant-employer had signed an arbitration agreement at the time of the employee’s hiring.  The agreement provided that all employment-related claims, including statutory claims, would be resolved exclusively by final and binding arbitration.  Further, the agreement waived the plaintiff-employee’s right to collect punitive damages.

Subsequently, the plaintiff-employee sued her employer alleging claims for sexual harassment under New Jersey’s Law Against Discrimination (“LAD”).   In the trial court, the defendant-employer successfully obtained dismissal of the action based upon the arbitration agreement.  However, on appeal, the court ruled that the portion of the agreement purporting to limit the employee’s ability to recover punitive damages was unenforceable, reasoning that the availability of punitive damages served important public policy interests under the LAD: to deter misconduct and punish the wrongdoer. The appellate court therefore dismissed the action based upon the employee’s agreement to arbitrate any dispute, but invalidated the damages limitation as to the employee’s LAD-based claims so that, in any subsequent arbitration, the employee would be able to recover punitive damages.

The court’s ruling is consistent with a notable trend in New Jersey law, whereby courts uphold the parties’ freedom of contract but limit or invalidate portions of arbitration agreements on public policy grounds to the extent they impinge upon statutorily-granted rights under the LAD.  For example, in Rodriguez v. Raymours Furniture Co., 225 N.J. 343 (2006), the State’s highest court concluded that a provision in an employment application, purporting to require the employee to file any employment-based claim within six-months, was unenforceable as to the employee’s LAD-based claim.  The Court explained that, supplanting the applicable two-year statute of limitations for LAD claims with a mere six-month window effectively denied the employee important substantive rights provided by the statute.

New Jersey-based employers should review and potentially modify their current employment contracts to ensure that they are consistent with this current trend in the law.  While agreements to submit disputes to binding arbitration – including employment discrimination claims – will generally be upheld, limitations on substantive rights and remedies conferred by the LAD will likely be deemed unenforceable.