On May 25, 2022, the Essex County Superior Court in Sellino v. Galiher, et al., ESX-L-8519-21 (N.J. Super. Ct. May 25, 2022) denied the defendants’ motion to compel arbitration in a sexual harassment case, determining that the Federal Arbitration Act (“FAA”) no longer preempts New Jersey state law preventing mandatory arbitration for those types of claims. As a result, this decision suggests that sexual harassment cases will no longer be bound by mandatory arbitration agreements and shall be entitled to jury trials.
Preemption occurs when a state law is invalidated because it conflicts with a federal law. Since the New Jersey Law Against Discrimination was enacted in March of 2019, a number of Courts have determined that the FAA preempts Section 12.7, which rendered employment contracts that waive certain substantive and procedural rights in a discrimination or harassment case—such as compelling arbitration—unenforceable. On March 3, 2022, however, President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act into law, which amended the FAA to prevent Courts from enforcing mandatory arbitration in those cases. These amendments signaled a new congressional intent, one that disfavored and prohibited mandatory arbitration for state law sexual harassments claims.
Plaintiff Paddy Sellino sued her former boss and employer, defendants John Galiher and Bay Grove Capital Group LLC, for continuous instances of sexual assault and harassment over a twenty-four-year period. The employer moved to compel arbitration based upon an electronic agreement Ms. Sellino had click-signed in 2019. The issue before the Court was whether the FAA continued to preempt Section 12.7’s prohibition of mandatory arbitration. The employer argued that the FAA did, in fact, preempt Section 12.7 of the NJLAD and Ms. Sellino’s claims were subject to mandatory arbitration on the grounds that the FAA amendments should only protect events and claims made after March 3, 2022 (after its enactment), and all Ms. Sellino’s claims and filings occurred prior to that date. The plaintiff argued for no preemption because the new congressional purpose against compelling arbitration that the amendments evidenced rendered Section 12.7 the controlling law, not the FAA.
The Court’s Opinion
The Court sided with the plaintiff and held that the FAA no longer preempted Section 12.7. In reaching this decision, the Court explained that the key inquiry in a preemption dispute is congressional purpose. The March 2022 amendments signaled a reversal of federal policy, and Congress’s new intent for the FAA showed a distaste for arbitration agreements in state sexual harassment cases. Therefore, the Court reasoned that enforcing Section 12.7’s prohibition on compelled arbitration would be true to this purpose rather than frustrating it, as it had been for over three years prior to the amendments. The Court determined that Section 12.7 was the controlling law in this case and denied the defendants’ motion to compel arbitration.
The Bottom Line
Federal policy regarding arbitration demonstrates a shift in the context of mandatory arbitration. This decision has paved the path for plaintiffs to bring sexual harassment claims under the NJLAD and have its prohibition of mandatory arbitration enforced. In light of these developments, employers should review their employment contracts and arbitration agreements considering whether carve-outs for sexual harassment claims are now warranted.
The authors thank Luca Provenzano, Summer Law Clerk, for his assistance and contributions to this client alert.