New Jersey Supreme Court Confirms Enforceability of Arbitration Agreements Concerning Transportation Workers Under the NJAA

In Colon v. Strategic Delivery Solutions, LLC and Arafa v. Health Express. Corp., plaintiffs contracted with corporate defendants to provide transportation and delivery services as independent contractors and signed arbitration agreements governing the terms and conditions under which they were to provide services. The agreements at issue explicitly referenced the Federal Arbitration Act (“FAA”), but neither referenced the New Jersey Arbitration Act (“NJAA”). In both cases, plaintiffs brought claims in New Jersey Superior Court asserting they were misclassified as independent contractors and alleging violations of wage payment and wage hour laws, and in both cases, defendants sought to compel arbitration and dismiss the lawsuits. Both trial courts granted the respective employers’ motions to dismiss the claims and compel arbitration, and plaintiffs appealed these decision to the Appellate Division of the New Jersey Superior Court.

As detailed in a prior blog post, in June 2019, different panels of the Appellate Division issued divergent holdings concerning the appeals.

The Colon panel observed that both the FAA and NJAA “favor arbitration” as a way to resolve disputes, and that the NJAA “governs all agreements to arbitrate” entered into on or after January 1, 2003 (with limited exceptions that did not apply). It further found that the FAA “does not occupy the entire field of arbitration” and, therefore, the NJAA may apply to an agreement which is exempt from FAA coverage. As to the exemption, the Colon panel noted that: (a) Section 1 of the FAA exempts from coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. §1; and (b) the United States Supreme Court, in Circuit City Stores v. Adams, 532 U.S. 105 (2001), has construed “other classes of workers” to apply only to contracts of “transportation workers,” and, more recently the Supreme Court held in New Prime Inc. v. Oliveria, 139 S. Ct. 532 (2019), that the exemption extends to independent contractors (and was not limited to employees). Accordingly, if plaintiffs were not transportation workers engaged in “interstate commerce” and thus not exempt from FAA coverage, they would be required to arbitrate their claims under the FAA. If, on the other hand, plaintiffs were exempt from FAA coverage, then the arbitration agreement would be enforceable under the NJAA. The Colon panel found that a key issue to be resolved – which had not been determined by the trial court – was whether plaintiffs, whose job descriptions including truck driving and delivery functions for customers throughout the state and surrounding areas, were providing “transportation services on an interstate basis.”

In Arafa, decided only one day after Colon, a different appellate panel reversed the trial court’s decision mandating arbitration, finding that plaintiff, a driver who delivered medicines and pharmaceutical products to customers in New Jersey and surrounding areas, was exempt from FAA coverage under Section 1 of the FAA. Unlike the Colon panel, the Arafa panel further found that the inapplicability of the FAA undermined the “entire premise of the parties’ contract,” and thus was unenforceable due to a lack of mutual assent.

The New Jersey Supreme Court granted certification to resolve the question of whether the disputed arbitration agreements in Colon and Arafa would be enforceable under the NJAA – even if they were exempt from FAA coverage. More than a year after granting certification, the Supreme Court issued its decision, and, in doing so once again, affirmed New Jersey’s strong public policy in favor of arbitration. The Supreme Court held that the NJAA may apply to arbitration agreements, even where exempt from FAA coverage under Section 1 of the FAA. Thus, the Court found that the parties in Colon and Arafa are not exempt from arbitration and their agreements are enforceable under the NJAA. In Arafa, the agreements are enforceable under the NJAA. In Colon, the agreements are enforceable under either the FAA or NJAA which will be determined by the trial court on remand, when it resolves the FAA preemption issue.

In reaching its decision, the Supreme Court, recognizing the FAA’s liberal policy of favoring arbitration, found that the FAA preempts state law against arbitration but contains no provision stating an intent to “occupy the entire field of arbitration.” The Court also rejected any argument that the NJAA did not apply because it was not specifically referenced in the Arafa and Colon arbitration agreements. Similar to the Colon panel, the New Jersey Supreme Court recognized that since its enactment in January 1, 2003, the NJAA has applied as a matter of law to all non-exempt arbitration agreements (governed by New Jersey law) entered into on or after January 1, 2003 (and discussing the NJAA’s effect on arbitration agreements entered into prior to January 1, 2003). The Court also found that NJAA may apply even if not specifically invoked in an agreement.

Finally, the Court held that despite plaintiffs’ challenges to the enforceability of their respective agreements, in both cases, plaintiffs “knowingly and voluntarily” waived their rights to proceed in court and agreed to resolve any disputes through arbitration.

Accordingly, the Supreme Court found that the parties in Colon and Arafa were not exempt from arbitration, and their agreements were enforceable.

Moving forward, the Supreme Court’s decision in this matter is a win for companies who use arbitration agreements as a means of managing contractual relationships, particularly in the transportation industry. More broadly, this decision reflects that the New Jersey Supreme Court continues to endorse arbitration as a way to resolve disputes.