Employment Law Blog

Categories: Employment Litigation

Groundbreaking Employment Legislation in New Jersey Precludes Arbitration and Confidentiality

March 26, 2019

On March 18, 2019 groundbreaking employment legislation was enacted in New Jersey. While it is only a few paragraphs long, it makes three significant changes to the employment law landscape in the Garden State.

First, Senate Bill No. 121 bars provisions in an employment agreement that waive any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment (although it does not apply to union employees covered by a collective bargaining agreement (“CBA”)).

Second, the law bars any prospective waiver of rights or remedies under the New Jersey Law Against Discrimination, N.J.S.A. 10-5-1 et seq. (the “NJLAD”) or any other statute or case law.

Third, the law precludes confidentiality of any settlement involving a claim of discrimination, retaliation or harassment.

What does this mean for New Jersey employers? Most importantly, this law appears to run head-on into employers’ efforts over the past ten years and even longer to force these types of claims into arbitration. Since 1990 the NJLAD has provided for a trial by jury, NJLAD 10:5-13. Therefore, requiring employees to sign arbitration agreements for future claims would violate this new legislation because it would cause an employee to waive a substantive right or remedy under the NJLAD. Although it is too early to tell, the Federal Arbitration Act (“FAA”), however, may override this portion of the legislation.

Other provisions in an employment agreement that limit or waive substantive or procedural rights or remedies also are barred. For example, an agreement cannot forbid employees from filing charges of discrimination or retaliation with an administrative agency, such as the New Jersey Division on Civil Rights (“NJDCR”) or the U.S. Equal Employment Opportunity Commission (“EEOC”) and can’t require an employee to waive the right to punitive damages or legal fees if successful.

There also may be a bigger issue lurking here. Section 1b. of the law provides that no right or remedy under any employment statute or case law can be prospectively waived. Does this suggest that section 1a. -- which provides that an “employment contract” cannot waive any rights or remedies relating to a claim of discrimination, retaliation or harassment -- bars releases of previously asserted employment claims? This may require the DCR to approve proposed settlement agreements before such claims can be waived. The term “employment contract” is not defined in the law. However, section 2a. refers to both “employment contracts” and “settlement agreements” and, therefore, the likely interpretation of 1a. is that employees or former employees can release NJLAD and other employment claims in settlement agreements without DCR or EEOC approval.

As a result of the “Metoo Movement”, the legislation forbids confidentiality. The driving force behind this provision is to protect employees from harassment, retaliation and discrimination caused by someone who acted similarly in the past that they otherwise would not have known about due to confidentiality clauses. How will this impact litigation? Many employers only settle in order to avoid bad publicity. Will this legislation force more cases to trial? The legislation tries to protect employers to a limited extent. It provides that should an employee reveal sufficient details of the claim so that the employer is reasonably identifiable, the employer will not be bound to any non-disclosure provision. Does that go far enough? Why should an employer be put on the defensive and have to explain why it settled if a plaintiff’s claims were frivolous and settled by the employer solely to avoid the time and money defending such specious claims?

Finally, the law takes effect immediately and applies to all contracts and agreements entered into, renewed, modified or amended on or after the effective date. We, therefore, suggest that all employers have their employee manuals and employment agreements reviewed prior to any amendments or renewals of those agreements.

Attorney: Steven Adler
Related Practice: Labor and Employment
Category: Employment Litigation, Discrimination, Harassment

Employment Law Intersects with Commercial Litigation

November 27, 2018

The Labor and Employment Law Group at Mandelbaum Salsburg, P.C. prides itself on being able to handle difficult employment litigation cases that also involve commercial disputes. These days, more and more cases straddle employment and other areas of the law. One such case, Metro Commercial Management Services, Inc. v. Istendal, was just decided by the New Jersey Appellate Division on November 19, 2018.

In Metro Commercial an at-will employee brought a minority shareholder oppression claim pursuant to N.J.S.A. 14A:12-7(1)(c), which provides that an action may be brought:

[where] the directors or those in control have acted fraudulently or illegally, mismanaged the corporation or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.

Oppression in the context of an oppressed minority shareholder action, however, does not require illegality or fraud by majority shareholders. Brenner v. Berkowitz, 134 N.J. 488, 506 (1993); “Oppression has been defined as frustrating a shareholder’s reasonable expectations.” Id. Often in these cases, the minority shareholder, as in Metro Commercial, is also a terminated employee and argues that the majority interfered with his reasonable expectation of continued employment by firing him, causing him lost wages and other benefits.

The Appellate Division in Metro Commercial indicated that termination of a minority shareholder’s employment may constitute oppression because a person who acquires a minority share in a closely-held corporation often does so “but for the assurance of employment in the business in a managerial position,” citing Muellenberg v. Bikon Corp., 143 N.J. 168, 181 (1996). Such a person has a reasonable expectation that they will enjoy “the security of long-term employment and the prospect of financial return in the form of salary,” and will have “a voice in the operation and management of the business and the formulation of its plans for future development.” Id. Where these expectations are frustrated by majority shareholders, a court may find that oppression occurred.

In Metro Commercial, the Appellate Division noted that there was no case law in New Jersey that addresses whether an at-will employee’s status is relevant when analyzing whether an employee has a reasonable expectation of continued employment. In Metro Commercial, the Appellate Court affirmed the trial Judge’s finding that the former employee and minority shareholder could not have a reasonable expectation of continued employment where the shareholder agreement provided that “[e]ach [s]hareholder acknowledges that []he is an ‘employee-at-will’ and this can be terminated by the corporation at any time for any reason …” The Appellate Division’s decision is not surprising. However, one wonders how the Appellate Court would have ruled had the minority shareholder been an at-will employee without any form of written agreement. It appears likely that the holding would have been different because the Appellate Division, commenting on the case law from other jurisdictions relied upon by the minority shareholder, stated that in those other matters “there were no written employment agreements …” The Metro Commercial case, thus leaves the door open for minority shareholders to bring wrongful termination claims under the Minority Oppression statute in circumstances where they are employed at-will without any form of written agreement.

The take-away from the Metro Commercial decision is that corporations awarding minority shareholder interests to employees should do so only if there is a provision in the shareholders’ agreement or separate employment agreement making it clear that the corporation may terminate the minority shareholder’s employment with or without cause. It would also be helpful to include a provision confirming that, as an at-will employee, the minority shareholder has no reasonable expectation of continued employment.

Attorney: Steven Adler
Related Practice: Labor and Employment
Category: Employment Litigation