In deciding whether a pair of disputed arbitration agreements are enforceable under the New Jersey Arbitration Act even if exempt from the nearly identical Federal Arbitration Act, the Supreme Court ruled 5-2 that they are, and thereby upheld an Appellate Division decision in one case and reversed in the other.

The court on Tuesday ruled that in both cases, the plaintiffs waived their right to a jury trial to pursue claims, and affirmed that parties to an arbitration agreement need not reach a written meeting of the minds—or mutual assent—on all governing legal principles to have a binding agreement.

"The NJAA may apply to arbitration agreements even if parties to the agreements are exempt under section 1 of the FAA," wrote Justice Faustino Fernandez-Vina in Tuesday's opinion, which decided two cases, Colon v. Strategic Delivery Solutions and Arafa v. Health Express.

Chief Justice Stuart Rabner and Justices Anne Patterson, Lee Solomon and Walter Timpone joined in the 31-page opinion.

Justice Barry Albin concurred in the judgment but delivered a separate four-page opinion partially dissenting. Justice Jaynee LaVecchia joined in the dissenting opinion.

"I concur that the NJAA either governs or may govern the applicability of the arbitration agreements in these cases," Albin said. "But I believe that the class-waiver provisions are unconscionable and unenforceable, generally for the policy reasons explained in [Muhammad v. County Bank of Rehoboth Beach, DE]. To the extent that today's opinion in any way undermines the beneficent purposes of Muhammad, I respectfully dissent."

Fernandez-Vina said the NJAA is "nearly identical to the FAA and enunciates the same policies favoring arbitration."

"Therefore, the parties in both Colon and Arafa are not exempt from arbitration and their arbitration agreements are enforceable," Fernandez-Vina said.

He wrote, "In Arafa, the arbitration agreements are enforceable under the NJAA." In Colon, the justice said the arbitration agreements "are enforceable under either the FAA or the NJAA, which will be determined by the trial court upon remand when it resolves … whether the employees were transportation workers engaged in interstate commerce."

Fernandez-Vina said while the FAA can preempt state law, it doesn't have full, all-encompassing preemptive powers.

Each case involved employment arbitration agreements that the plaintiffs argued fell within the section 1 "exemption clause" of the FAA. The exemption was spelled out by the U.S. Supreme Court in a January 2019 ruling, New Prime v. Oliveira. The court's unanimous decision said the exception to the FAA for "contracts of employment" for certain workers in interstate transportation includes workers categorized as independent contractors.

The Colon and Arafa cases previously yielded conflicting rulings. Both trial courts granted the employers' motions to dismiss and to compel arbitration, but appellate courts issued divergent rulings.

The Appellate Division, in a published ruling on June 4, 2019, remanded the Colon case for a determination on whether the plaintiffs were engaged in interstate commerce and therefore exempt from arbitration under section 1 of the FAA. The panel in Colon said that although the FAA doesn't apply, the NJAA applies and requires arbitration.

In Colon, where the plaintiffs filed a class action complaint against Strategic Delivery Solutions, a licensed freight forwarder, alleging SDS violated New Jersey laws by failing to pay overtime wages and illegally withholding money, Appellate Division Judges Richard Hoffman, Karen Suter and Lisa Firko said that if the FAA did not apply, the NJAA requires arbitration. The panel remanded, however, for a determination of whether the plaintiffs were engaged in interstate transportation because, "if plaintiffs are not engaged in interstate commerce, then the FAA's section 1 exemption would not apply (assuming they are providing transportation services), and plaintiffs would be required to arbitrate their claims under the FAA." However, if the plaintiffs "are engaged in interstate commerce and exempt under the FAA," then the court "will enforce the arbitration provision under the NJAA," the panel said.

The Colon panel also found that the plaintiffs had clearly and unambiguously waived their ability to proceed as a class on their statutory claims, distinguishing the case from the state Supreme Court's 2006 decision in Muhammad v. County Bank of Rehoboth Beach, DE, in which the court found unconscionable a class-arbitration waiver embedded in a consumer contract of adhesion.

In Arafa, the Appellate Division held in an unpublished June 5, 2019, decision that a mandatory arbitration agreement does not apply to wage-and-hour claims by truck drivers who deliver pharmaceutical products around New Jersey—according to section 1 of the FAA. The FAA, the panel ruled, exempts certain workers from arbitration if their jobs involve foreign or interstate commerce. The named plaintiff in Arafa was classified as an independent contractor but he claimed his employer failed to pay him for all the hours he worked and withheld money from him. Since April 2016 the plaintiff had worked for Health Express to deliver medicines and pharmaceutical products from New Jersey stores to customers throughout the state and in surrounding areas, after signing both employment and arbitration agreements with the firm.

An Appellate Division panel consisting of Judges Carmen Messano, Douglas Fasciale and Lisa Rose, relying on New Prime, ruled the plaintiff's employment contract was exempt from the FAA and "all other arbitration issues are moot."

The Supreme Court granted certification petitions in both cases last year, and the case was argued on March 2, 2020.

The New Jersey Association for Justice and National Employment Lawyer Association of New Jersey appeared as amici.

Employment attorney Ravi Sattiraju of Sattiraju & Tharney in East Windsor represented the plaintiffs in both cases. During the March 2 arguments, Sattiraju claimed no arbitration could proceed since there was never a meeting of the minds or mutual assent, which the Supreme Court ultimately rejected.

"We're evaluating the ruling and determining our next steps," Sattiraju said in a phone call Tuesday. He declined to provide details on what those next steps might be for his clients.

Patrick McGovern of Genova Burns in Newark represented defendant Strategic Delivery Solutions and an individual defendant, Myriam Baretto, in the Colon case.

McGovern issued this statement via email on Tuesday: "The defendant Strategic Delivery Solutions is pleased that the Court affirmed the Appellate Division's and the trial court's decisions to enforce the arbitration agreements in this case. The Court reaffirmed basic law of contracts in determining that the parties to an arbitration agreement need not reach a written meeting of the minds on all the governing legal principles to have a binding agreement, since some legal principles apply by operation of New Jersey law.

"Happily, the Court resisted the plaintiffs' invitation to nullify knowing waivers of the right to engage in class and collective action litigation and arbitration. The Court has sent yet another strong message that New Jersey public policy favors arbitration as a dispute resolution mechanism in the employment arena," he added.

Ivan Novich of Littler Mendelson in Newark represented defendant Health Express Corp. in Arafa. Novich declined to comment on Tuesday's decision.

William Wright of the Wright Law Firm in Stafford Township represented New Jersey Association for Justice as amicus curiae in support of the plaintiffs. "While I am disappointed in the outcome, we must continue to fight against forced arbitration and the continued erosion of our citizens' constitutional right of access to the court," Wright said in an email.

Fernandez-Vina said the contracts in dispute in both cases contained clear severance clauses "indicative of the parties' intent that the agreement as a whole survives the excision of an unenforceable provision."

"We reject the proposition that the inapplicability of the FAA must vitiate the entire agreement to arbitrate," Fernandez-Vina said.

The justice added that "no express mention of the NJAA is required to establish a meeting of the minds that it will apply inasmuch as its application is automatic."

Fernandez-Vina said the court agreed with the Appellate Division that the plaintiffs' statutory wage claims are covered by their arbitration agreements.

Citing cases Garfinkel, Martindale, and Atalese, "the Appellate Division properly found plaintiffs knowingly and voluntarily waived the right to pursue their statutory wage claims in court," Fernandez-Vina said.

"Therefore, because the arbitration agreements are enforceable, we find plaintiffs' statutory wage claims fall within the scope of such agreements. We also agree with the Appellate Division that Muhammad does not apply here," said Fernandez-Vina.

"By the same principles of construction applied to the jury trial waiver provision, we find that plaintiffs knowingly and voluntarily waived their ability to proceed as a class," he wrote.

"Turning to the waiver in Arafa, the Court likewise concludes the jury trial waiver in that case was knowing and voluntary," concluded Fernandez-Vina.