Arbitration Clause’s Punitive Damages Waiver Held Unenforceable Under the LAD

In Roman v. Bergen Logistics, LLC, the Appellate Division recently held that a plaintiff was required to arbitrate her claims of sexual harassment and retaliation with her former employer. The court also held, however, that the arbitration agreement’s contractual provision that barred the employee’s access to punitive damages was unenforceable.

Background

Plaintiff Milagros Roman was hired by the defendant, Bergen Logistics, as a human resources generalist. She signed an arbitration agreement at the outset of her employment. In addition to requiring Roman to arbitrate any and all claims related to her employment, the arbitration agreement compelled her to waive any claim for punitive damages. After her termination, Roman filed a complaint in New Jersey Superior Court alleging that her former supervisor sexually harassed her, created a hostile work environment, and retaliated against her in violation of the New Jersey Law Against Discrimination (LAD). The defendants moved to dismiss Roman’s complaint and compel her to arbitrate her claims. The Law Division found that Roman knowingly signed the arbitration agreement and that the agreement contained an unambiguous waiver of claims for punitive damages. Accordingly, that court held that Roman was required to submit her claims to arbitration and could not seek punitive damages. Roman timely appealed.

The Appellate Division’s Decision

The Appellate Division held that the arbitration agreement’s bar of punitive damages claims under the LAD was unenforceable, as it violated the public policy. The court noted that the New Jersey Supreme Court continues to be vigilant in interpreting the LAD in accordance with its overarching purpose of the “eradication of the cancer of discrimination” and scrupulous in its insistence that the LAD be applied “to the full extent of its facial coverage.” The court reasoned that punitive damages awards under the LAD should serve the particular purposes of deterring misconduct and punishing the offender. The court concluded that, because a contractual provision that waives punitive damages “eviscerates an essential element of the LAD’s purpose” – deterrence and punishment of the most egregious discriminatory conduct by employers – it should not be enforced.

Nevertheless, the Appellate Division held that the arbitration agreement was otherwise enforceable and that the Law Division correctly dismissed Roman’s claims in favor of arbitration. Therefore, the court directed that the prohibition against Roman’s recovery of punitive damages be severed from the otherwise valid arbitration agreement and that Roman should be compelled to arbitrate her LAD claims without any limitation on her right to recover punitive damages.

Conclusion

Arbitration agreements between employers and employees continue to be upheld by New Jersey courts. Nevertheless, to avoid potential challenges to their arbitration agreements, employers should carefully review their agreements to ensure they comply with current New Jersey case law.

For answers to any questions regarding this blog or with regard to arbitration agreements generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.

Suzanne Herrmann Brock is Counsel in the Gibbons Employment & Labor Law Department. Stephen R. Donat, a Gibbons paralegal, contributed to this blog post.
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