New Jersey law rushes in and orders arbitration where FAA fears to tread

The New Jersey Arbitration Act (NJAA) may apply to arbitration agreements even if the parties are subject to the Federal Arbitration Act (FAA) exemption for transportation workers engaged in interstate commerce, the New Jersey Supreme Court recently ruled.

Background

Section 1 of the FAA provides that the Act doesn’t “apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In the 2019 decision New Prime, Inc. v. Oliveira, the U.S. Supreme Court held the FAA Section 1 exemption applies to independent contractors as well as employees who are engaged in interstate commerce.

The recent New Jersey Supreme Court decision disposed of challenges to mandatory arbitration agreements and appeals from two Appellate Division panels. Both panels—Colon v. Strategic Delivery Solutions (SDS) (decided on June 4, 2019) and Arafa v. Health Express (decided on June 5, 2019)—applied New Prime to two different arbitration agreements, each of which referred to the FAA but reached diametrically opposite conclusions.

In Arafa, the parties agreed Mr. Arafa was engaged in interstate commerce. In Colon, a class action filed by delivery drivers based in New Jersey, the parties disputed whether the drivers engaged in interstate commerce. In each case, the drivers signed individual agreements containing a promise to arbitrate and waivers of the rights to a jury trial and to file or join a class or collective action.