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Arbitration Agreements Cannot Limit Punitive Damages

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Many times, when a former employee files a lawsuit against an employer, a court will uphold an arbitration agreement between them. An arbitration agreement is a contract that  employers may have their employees sign that requires that the employee agrees to forgo litigation and a jury trial to address any claims related to his employment to an arbitrator. 

This agreement, whether made part of a broader employment contract as an arbitration clause or its own freestanding contract as an arbitration agreement, is oftentimes a condition of the employment. This means that employers can require that an employee sign such an agreement before he is permitted to work.

Courts often enforce these agreements unless there is a specific reason not to, such as the agreement is somehow defective on its face. Another potential reason an arbitration agreement or clause may not be upheld concerns the message to the public the court would be sending if the agreement is upheld. This is called a decision based on “public policy” and made with a “greater public good” in mind.

A New Jersey Appellate Court recently decided that upholding a part of a certain arbitration agreement would be against public policy. Roman v. Bergen Logistics, LLC, involved an employee being terminated from her employment at Bergen Logistics, LLC after four months. The employee filed a lawsuit claiming that the employer’s director sexually harassed her and created a hostile work environment. 

The lawsuit papers stated that once the employee rejected her supervisor’s sexual advances, she was fired. The employee signed an arbitration agreement when she started working there that barred her from filing lawsuits, actions or legal proceedings “of any nature with respect to any dispute, controversy, or claim within the scope of the [Arbitration] Agreement.” The employer made an application to dismiss the case. The employee opposed the motion and said that the agreement was unenforceable because it barred her from recovering punitive damages that would be available to her under the New Jersey Law Against Discrimination (LAD).

Punitive damages are intended to punish a defendant for conduct that was especially outrageous. The thinking is that some defendants needs to be punished in addition to the damages it pays to compensate someone for a loss, like lost wages.   

The court agreed with the employee. In the past, the New Jersey courts have looked specifically at punitive damages under the LAD. The Supreme Court described the LAD as a mechanism to specifically eliminate the “cancer of discrimination,” according to Quinlan v. Curtiss-Wright Corp.  Moreover, the New Jersey Legislature amended the LAD in 1990 specifically to permit for recovery of punitive damages, specifically stating that the “Legislature intends that [punitive] damages be available to all persons protected by” the LAD. The court found that a contract that bars an employee’s ability to seek punitive damages, such as the one in Roman, would violate public policy.  

Arbitration agreements, like all contracts, should be entered into with caution. New Jersey courts have a history of upholding and enforcing them unless they are defective. But it is important to know that employers do not have an unfettered ability to restrict employee’s rights. Employees filing claims under LAD are entitled to pursue punitive damages and the New Jersey courts will uphold that right.  

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