On June 4 and June 5, 2019, separate panels of the Appellate Division of the New Jersey Superior Court issued diametrically opposed decisions calling into question the enforceability of arbitration agreements involving employees and independent contractors who provide transportation services. In Colon v. Strategic Delivery Solutions, LLC and Arafa v. Health Express Corporation, two Appellate Division panels considered the same legal question: are arbitration agreements enforceable under New Jersey law where one of the signatories is exempt from arbitration under the Federal Arbitration Act (FAA)? Despite the uniformity of the issue considered, the respective holdings stand in stark contrast to one another, creating confusion as to how to interpret arbitration agreements moving forward.
Colon and Arafa involved strikingly similar facts. Both the Colon and Arafa plaintiffs contracted with the respective corporate defendants to provide transportation and delivery services on their behalf with regard to pharmaceutical products. Both defendants classified the plaintiffs as independent contractors; and both plaintiffs executed arbitration agreements governing the terms and conditions under which they were to provide transportation services. Most significantly, in both cases the arbitration agreements at issue explicitly stated that they were to be governed pursuant to the FAA (The Arafa agreement stated that it “is governed by the Federal Arbitration Act,” while the Colon agreement stated that the parties agreed “to comply and be bound by the Federal Arbitration Act.”). Neither arbitration agreement referenced the FAA’s New Jersey corollary, the New Jersey Arbitration Act (NJAA).
Surely enough, both plaintiffs eventually filed suit alleging identical causes of action, claiming that they had been misclassified as independent contractors and seeking employment benefits—on behalf of themselves and “others similarly situated”—under the New Jersey Wage Payment Law (WPL) and New Jersey Wage and Hour Law (WHL). The defendants in both matters moved to dismiss and in both cases the trial judge dismissed the respective complaints on the grounds that plaintiffs had agreed to pursue their claims via arbitration.
On appeal, both plaintiffs argued that they were under no obligation to arbitrate their claims because they qualified as exempt transportation workers under the FAA. Section 1 of the FAA provides that the statute shall not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In New Prime, Inc. v. Oliveira, the Supreme Court of the United States recently clarified that “contracts of employment” in this context include both employment and independent contractor agreements. 139 S. Ct. 532, 542-44 (2019).
Both Appellate panels agreed—though the Colon court remanded for fact-finding on this issue—that if the plaintiffs qualified as exempt transportation workers the defendants would not be able to compel arbitration under the FAA. The opinions diverge, however, as to their holdings on the effect of that exemption. In Arafa, the Appellate Division found that, in light of the plaintiff’s exempt status, there had been no meeting of the minds and therefore the defendant could not compel arbitration under any statute. Accordingly, the Court remanded to the trial judge for further proceedings. Conversely, the Colon court rejected a similar argument, holding that the FAA does not preempt the enforcement of state arbitration statutes which continue to apply where the FAA does not. Though the Colon plaintiffs may have been exempt from arbitration under the FAA, the Court determined that there was still a meeting of the minds as to their intention to arbitrate disputes and that New Jersey law would govern the agreement. Hence, the Colon Court held that the NJAA—even without being explicitly referenced in the agreement itself—applied to compel arbitration of the plaintiffs’ claims.
Moving forward, reconciling Arafa and Colon will undoubtedly cause much difficulty for employers. Critically, Colon is a published opinion and carries precedential value, whereas Arafa—an unpublished opinion—does not. Nevertheless, plaintiffs will be sure to cite Arafa in opposition to motions to compel arbitration; and commentators have already begun calling on the New Jersey Supreme Court to resolve this inconsistency. Absent a grant of certification from the Supreme Court this issue figures to remain muddled, and employers should make sure to include specific reference to the NJAA in arbitration agreements governing workers performing transportation services.
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.