Legal requirements for contract-based mandatory arbitration of sexual harassment claims in New Jersey

In New Jersey, mandatory arbitration clauses for sexual harassment and discrimination claims are strictly prohibited and unenforceable. Under N.J.S.A. 10:5-12.7, any employment contract provision that waives rights or remedies regarding these claims is considered against public policy and void as a matter of law.

The Legal Framework: N.J.S.A. 10:5-12.7

New Jersey has established one of the most employee-protective environments in the United States regarding workplace harassment. The Law Against Discrimination (LAD) was amended to explicitly invalidate any contract provision that forces employees to waive their right to a jury trial or pursue claims in court for sexual harassment, discrimination, or retaliation.

Key Provisions of the Statute

• Scope: Applies to all employment contracts, including those for independent contractors.
• Effective Date: Applies to all contracts entered into, renewed, modified, or amended on or after March 18, 2019.
• Non-Severability: If a contract contains an unenforceable waiver, the entire provision is void, not just the specific clause.
• Retaliation Prohibition: Employers cannot retaliate against employees for refusing to sign an agreement that includes these prohibited waivers.

Key takeaway: If your employment agreement contains a broad arbitration clause that does not explicitly carve out sexual harassment and discrimination, the entire clause may be deemed unenforceable by a New Jersey court.

Action Item: Review your current employment agreements to ensure they contain a "carve-out" provision that explicitly excludes sexual harassment and discrimination claims from mandatory arbitration.

Comparison: Federal vs. New Jersey Law

While New Jersey law is robust, it operates alongside federal legislation. The federal "Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021" (EFAA) provides a baseline, but New Jersey's LAD remains more comprehensive regarding discrimination claims.

Action Item: Do not rely solely on federal compliance. Ensure your contracts meet the stricter New Jersey standard to avoid local litigation risks.

Identifying Red Flags in Employment Contracts

When auditing contracts for compliance with New Jersey law, look for these specific indicators of non-compliance:

• Broad Language: Clauses stating "all disputes arising out of employment shall be settled by binding arbitration."
• Silence on Statutory Rights: Failure to mention the New Jersey Law Against Discrimination (LAD).
• Confidentiality Overreach: Clauses that attempt to prevent an employee from discussing the underlying facts of a harassment claim, which may violate the spirit of the LAD.
• Fee-Shifting Limitations: Provisions that force the employee to pay for arbitration costs, which is often prohibited in the context of statutory discrimination claims.

Steps to Ensure Compliance

1. Audit: Review all existing employment contracts and offer letters.
2. Drafting: Insert a clear, unambiguous "carve-out" clause for statutory claims under the NJ LAD.
3. Severability Clauses: Ensure your contract includes a robust severability clause to protect the remainder of the agreement if one part is challenged.
4. Training: Ensure HR and legal teams understand that these waivers cannot be a condition of employment.

Key takeaway: A contract that is silent on the carve-out for sexual harassment claims is a liability. Explicitly stating that the arbitration clause does not apply to LAD claims is the best defense against a motion to compel arbitration.

Action Item: If you are an employer, consult with counsel to update your standard employment agreement template to include the required carve-outs immediately.

The Role of AI in Contract Compliance

Manually reviewing hundreds of employment contracts for specific jurisdictional compliance is prone to human error. TermScore automates this process by scanning your entire contract repository to identify non-compliant arbitration clauses, missing carve-outs, and outdated language, ensuring your organization remains fully aligned with New Jersey's strict employment laws.