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Employment Law Blog

Behind the Curtain: New NJ Arbitration Organization Regulation Lifts the Veil

January 30, 2020

On January 21, 2020, New Jersey Governor Phil Murphy signed into law what appears to be first of its kind state legislation regulating arbitration organizations, such as the American Arbitration Association (AAA) and JAMS. On its face, the Act (S1490) is directed at “consumer arbitration,” meaning an arbitration involving consumer disputes involving goods and services, wherein arbitration is compelled by what is essentially a contract of adhesion.  Indeed, the first three sections of the Act clearly seek to level the playing field for consumers, including a prohibition on financial conflicts of interest and fee-shifting, and fee waivers for indigent consumers.  Yet, it is Section 4 of the Act mandating publication of data that may have the most wide-ranging, long-term impact on arbitration not just in New Jersey, but across the country.

The Mandate of Section 4

Section 4 of the Act requires that an arbitration organization that administers fifty or more consumer arbitrations each year publish quarterly and make publicly available certain information “regarding each consumer arbitration within the preceding five years.”  That information required to be publicly available includes, but is not limited to:

  • The name of the business that is a party to the arbitration;
  • The type of dispute including, but not limited to “goods, banking, insurance, health care, or employment,” and “in the case of an arbitration involving employment,” the range of the employee’s annual wages (below $100,000, between $100,000 and $250,000, and more than $250,000);
  • Whether the consumer was the prevailing party;
  • The type of disposition of the dispute, if known; and
  • The amount of the claim, award, and any other relief granted.

Section 4 further requires publication of data showing whether the consumer had legal counsel, the name of the arbitrator and fee collected in the arbitration, and how many times the business was previously a party to arbitration or mediation administered by the arbitration organizations.  This Section is also notable for what it does not require: publication of the consumer’s identity.

The Implications of Section 4

Section 4 has several implications and, at the same time, gives rise to several questions. 

Organizations like AAA and JAMS now must publish the above information for “each consumer arbitration.” Based on the Act’s definitions, a “consumer arbitration” encompasses disputes between a business and consumer who signed a standard contract written solely by the business to obtain “any goods and services primarily for personal, family, or household purposes,” including financial and healthcare services and real property.  That definition is expansive, but is largely in line with the definition of consumer arbitration in AAA Consumer Arbitration Rule 1. 

Notably, the Act would seem to require publication of the listed information not solely for consumer arbitrations that occurred in New Jersey or involved New Jersey-based parties.  Instead, the Act appears to force arbitration organizations operating in New Jersey to publish the information for each “consumer arbitration” no matter where the arbitration was conducted or who was involved.  Thus, the Act appears to have the effect of requiring arbitration organizations to collect and publish the required information for consumer arbitrations across the country, potentially numbering in the thousands.  It is not hard to imagine a future challenge to the facial scope of the Act.

Perhaps most conspicuous is the Act’s de facto prohibition on confidentiality concerning the disposition of consumer arbitrations.  The public will now be entitled to see several material aspects of each and every arbitration, most notably the name of the business, and nature and amount of the award or relief granted.  While each consumer’s name will not be published, the Act clearly lifts the veil of confidentiality often associated with private arbitration.  In fact, JAMS Rule 26 requires JAMS and the arbitrator to “maintain the confidential nature of the Arbitration proceeding and the Award,” except as “otherwise required by law.”  Certainly, the Act now requires non-confidentiality of the award (at least the amount and relief).  While AAA Consumer Arbitration Rule 43(c) does allow AAA to publish awards, it requires redaction of the parties’ names absent party consent.  Under the Act, of course, the name of the business party will be known.

In this same vein, Section 4’s publication requirements would seem to nullify any attempt by the parties to agree to the confidentiality of, for example, the arbitration award.  Suffice it to say, the Act largely wipes away confidentiality associated with consumer arbitration dispositions—at least as far as businesses are concerned.

Last, but certainly not least, despite purporting only to target defined “consumer arbitration,” Section 4 contains curious language invoking employment disputes.  Subsection 2 requires publication of the type of dispute involved, including “employment.”  Indeed, it goes on to specify that in an “arbitration involving employment,” the published data must specify employees’ annual wage range.  It is difficult, if not impossible, to envision a scenario in which a “consumer arbitration” as defined is simultaneously an employment dispute.  This begs the question of whether—wittingly or unwittingly—Subsection 2 roped employment arbitration into the publication requirement, thereby similarly eliminating certain confidentiality.  However, given the structure of Section 4, wherein qualification as a “consumer arbitration” is a condition precedent to requiring publication of information, arbitration organizations likely will confine publication of information strictly to consumer arbitrations.

Going Forward

            The Act takes effect May 1, 2020, and applies only to consumer arbitrations commenced thereafter.  Therefore, we likely will not see the full implications of the Act, including Section 4, until much farther into the future.  Nonetheless, qualifying businesses that utilize arbitration or are contemplating utilizing arbitration in their form contracts with consumers should now begin considering the impact of, among other things, the publication of arbitration results mandated by Section 4.  Relatedly, it remains to be seen which option for dissemination each arbitration organization selects: a searchable online database or hard copy.  Based on arbitration organization’s larger business interests, it seems likely that non-electronic publications will be preferred. 

One final, but no less important consideration for businesses is the elimination of fee-shifting by Section 3(a) of the Act.  That section prohibits a consumer from being saddled with attorneys’ fees and costs incurred if the business prevails.  No such prohibition would be encountered in court, where a contractual fee-shifting provision would most likely be enforced.

Attorney: Brian Block
Related Practice: Labor and Employment