Richard Scharlat obtained a significant appellate win for Cedar Grove Respiratory and Nursing Center (“Cedar Grove”) and Atlas Healthcare (“Atlas”) regarding the Ending Forced Arbitration Act (“EFAA”) and the enforceability of employee arbitration agreements as to non-signatories. On Dec. 6, the New Jersey Superior Court, Appellate Division, in an unpublished decision, affirmed a trial court decision granting defendants’ motion to compel arbitration of claims filed by four former employees of Cedar Grove against Cedar Grove, Atlas, and two current Cedar Grove employees.
“Employers need to be sensitive to the constraints that the EFAA imposes on the enforceability of arbitration agreements going forward,” Scharlat said in response to the decision. “As to enforcement of arbitration agreements against non-signatories, the Appellate Division’s decision is a boost to employees who are roped into lawsuits against their current employers.”
Plaintiffs worked for Cedar Grove between August 2021 and January 2022 in various nursing capacities. In their multi-plaintiff complaint, plaintiffs alleged several causes of claims under New Jersey’s Law Against Discrimination (NJLAD) and the Conscientious Employee Protection Act (CEPA), New Jersey’s whistleblower statute. They claimed that they were all terminated, and retaliated against, for complaining about the conduct of an allegedly abusive temporary nurse’s aide who was also terminated.
Upon receipt of service of the complaint, defendants moved to compel four individual arbitrations, one for each plaintiff, according to the terms of the parties’ arbitration agreements. After the trial court granted defendants’ motion to compel arbitration and stayed the proceedings in November 2023, plaintiffs appealed.
Affirming the trial court’s decision, the Appellate Division addressed, and ultimately rejected, two separate arguments from plaintiffs and the National Employment Lawyers Association-New Jersey (NELA), a workers’ rights association that filed an amicus brief.
First, plaintiffs argued that the arbitration agreements were unenforceable and preempted by the EFAA. The EFAA amended the Federal Arbitration Act in March 2022 to allow plaintiffs who allege claims of sexual abuse or harassment under federal or state law to elect out of any arbitration agreement. As a threshold matter, the Appellate Court dismissed plaintiff’s argument as to the EFAA because plaintiffs had failed to raise the issue at the trial court level. The Court agreed with defendant’s argument that “because plaintiffs ‘chose not to’ raise the EFAA issue to the trial court” the Appellate Division could not perform its “core function of determining whether … the trial court made an error below.” Most notably, the Appellate Division also ruled that the EFAA “does not automatically invalidate all predispute arbitration agreements.” Leaving the burden on plaintiffs to opt out of their arbitration agreements, the Appellate Division held that “[t]he EFAA does not categorically require the enforcement of its provisions when a plaintiff does not invoke their right to ‘elect[]’ to void the agreement.”
Second, plaintiffs contended that the arbitration agreements should not have been enforced because the two current employee defendants were not signatories to the arbitration agreements and that the trial court had improperly applied agency law in doing so. In rejecting this argument, the Appellate Division ruled that:
The trial court properly afforded the agents the benefits of the arbitration agreement given their agency status, particularly in view of the broad language of the agreement compelling arbitration of ‘any and all disputes arising out of, or relating to’ plaintiffs’ employment. Because Cedar Grove is bound by the arbitration agreement, its agents are also covered under the agreement.
The Appellate Division determined that the lower court was particularly correct because “[]he allegations in plaintiffs’ complaint unquestionably arise from their employment and termination from Cedar Grove and implicates the conduct of Cedar Grove’s agents …. Cedar Grove, as an entity, can only act through its agents.”
Finally, the Appellate Division further supported its conclusion by cautioning that, were it to find otherwise, it would open the door for future plaintiffs to circumvent arbitration agreements with their employers by adding individual employees who are the employer’s agents—but have not signed the arbitration agreements—as defendants to any lawsuit.
Scharlat was a partner at a different law firm when the appeal was briefed. He was assisted by associate Kelly A. Quinn, Esq. at that firm.