See 1.3 "Gig" Economy and Other Technological Advances, 1.4 Decline in Union Membership?, 2.1 Defining and Understanding the Relationship, 2.2 Immigration and Related Foreign Workers, 3.1 Legal and Practical Constraints, 4.4 Workplace Safety, 4.5 Compensation and Benefits, and 5.1 Addressing Issues of Possible Termination of the Relationship.
In 2017 the "Me Too" movement, spawned by allegations of systemic sexual harassment, prompted state legislative initiatives banning confidentiality, non-disparagement and arbitration provisions in employment agreements that shield wrongdoers from exposure. Federal legislation was enacted barring employers from taking tax deductions for settlement costs associated with sexual harassment claims when the agreement contains a confidentiality clause.
In 2018 and again in 2019 New Jersey amended the New Jersey Law Against Discrimination (NJLAD) to prohibit agreements shortening the limitations period for filing discrimination claims, waiving the right to jury trials and attorney fees, mandating arbitration and imposing restrictions on the inclusion of non-disclosure provisions (see 5.1 Addressing Issues of Possible Termination of the Relationship).
New Jersey may experience similar responses to the “Black Lives Matter” movement. Corporations failing to support the movement risk being viewed as complicit in racial injustice and public “shaming” on social media. Increased corporate consciousness may prompt comments from employees who object to the movement’s tactics, creating antagonism in the workplace. Employers must create avenues for constructive discussions about racial inequality, fostering environments that support Black workers.
Racial tensions are expected to cause a rise in race discrimination claims. In the current climate employers can expect juries, judges and the general public to be more sensitive to claims of racial bias, increasing the costs of settling claims to forgo the uncertainty of jury trials.
Technological advances enable employers and workers to connect in alternative arrangements outside the employment model; see also 2.1 Defining and Understanding the Relationship. Prior to COVID-19 it was estimated that "gig" workers would soon exceed half the workforce. That estimate is expected to increase as employers subject to shutdowns realize they can operate as efficiently without furloughed workers. These displaced workers will swell the ranks of freelancers entering the gig economy seeking income opportunities.
The gig economy raises concerns about worker exploitation by corporations seeking to suppress wages and benefits from gig workers that cannot form unions. Many gig workers are displaced employees who secure assignments while seeking full-time opportunities that never materialize, creating a ghost economy of underemployed workers.
These concerns have spawned lawsuits claiming gig workers are misclassified as independent contractors and denied the benefits of the employer-employee relationship. There is increasing legislative pressure to redefine these working relationships to ensure vulnerable workers are protected.
2019 saw a decline in private sector unionization to 6.2% of the workforce. Labor was dealt a major blow in Janus v AFSCME, Council 31 (2018), where the US Supreme Court struck down mandatory "agency" fees in the public sector as violations of nonmembers’ First Amendment rights. In addition, the "right to work" movement resulted in 27 states enacting legislation prohibiting agency fees in the private sector. The drastically reduced funding stream available to unions to support labor-friendly legislation and candidates will negatively impact the growth of the labor movement.
COVID-19 may reverse this trend as employees become more receptive to unionization to combat employer responses to the crisis, such as reductions in hours and pay, layoffs and insufficient safety measures to protect employees from exposure to the virus. With increased remote working, feelings of alienation from management are on the rise. Unions are expected to seize upon this unique opportunity to organize employees suffering COVID-related workplace developments.
See 1.5 National Labor Relations Board.
Under President Trump the National Labor Relations Board (NLRB) has returned to its traditional role of neutral arbiter between management and labor. Below are some NLRB actions that reversed Obama-era policies favoring employee over management rights.
In unionized workplaces employers must be cognizant of the duty to bargain before imposing pay reductions, layoffs or other actions in response to the COVID-19 shutdown. The NLRB issued guidance addressing application of the “economic exigencies” exception to the duty to bargain during the crisis.
Employers must also be mindful that the NLRB enforces Section 7 rights in non-union workplaces. For example, employees refusing to work with an individual with COVID-19 symptoms for fear of personal safety are engaged in protected National Labor Relations Act (NLRA) activity and cannot be subject to retaliation for expressing concerns.
Employee versus Independent Contractor
Employers increasingly use independent contractors to perform non-essential services to reduce labor costs. Downsizing brought on by COVID-19 is expected to increase this trend.
Classification of a worker as an "employee" as opposed to "independent contractor" has significant legal implications. In the employer-employee relationship the employer bears responsibility for payroll taxes and withholdings. Employees are generally eligible for:
Employment status also implicates collective bargaining rights under the NLRA. Furthermore, an employer-employee relationship exposes employers to liability for the tortious acts of employees under the doctrine of respondeat superior.
When employer obligations are statutory, the statute may not define "employee." In such cases, various tests are used to determine employee or independent contractor classification. The Third Circuit uses the employer-friendly "economic realities" test to determine employee status under the Fair Labor Standards Act (FLSA), which considers the following:
When determining employee status under Title VII, the Third Circuit employs a narrower 12-factor Darden test, placing emphasis on the degree of control exercised by the employer. The NLRB has returned to a more employer-friendly common law agency test. For purposes of state wage and hour laws, New Jersey adopted the ABC test, which presumes a worker is an employee unless the employer can show:
Although no single factor is decisive in any test, if the "totality of the circumstances" suggests an employer-employee relationship, the worker will be deemed an employee.
Joint Employer Status
Employers turn to "shared employee" arrangements with staffing agencies or a franchise model to avoid employer-employee relationships. Courts and administrative agencies may ignore these arrangements to find both businesses are "joint employers" with shared responsibility under employment laws. There is no uniform test to determine joint employer status. The Third Circuit uses the narrower Darden test for determining joint liability under federal anti-discrimination laws, whereas New Jersey applies the 12-factor "Pukowsky test," which also focuses on the degree of employer control over the employee’s performance.
The NLRB recently abandoned its controversial Browning-Ferris test that could trigger joint employer liability if an employer reserved potential joint control over another employer’s workers. The new rule requires proof that the employer actually exercises substantial control to confer joint employer status.
Similarly, the US Department of Labor (USDOL) adopted a narrower test for joint employer liability under the FLSA that requires proof that the employer exercised actual control.
The USDOL uses the "primary beneficiary test" to determine whether an unpaid intern is an employee entitled to wages and overtime under the FLSA. Among the test’s factors are the extent to which the internship provides training similar to that provided in an educational environment and whether the intern’s work complements rather than displaces that of paid employees. On balance, the intern must be the "primary beneficiary" of the relationship.
New Jersey’s Wage and Hour Law uses a more stringent test that requires co-ordination between the employer and the intern’s school.
The Immigration Reform and Control Act mandates employers to complete Employment Eligibility Verification Forms (I-9s) for employees within three days of hire to establish identity and authorization to work in the USA. I-9s must be maintained for all employees and there are significant civil and criminal sanctions for non-compliance.
Employers seeking the services of a foreign national on a temporary basis must file a Labor Condition Application (LCA) with the USDOL and an H-1B visa petition with the US Citizenship and Immigration Services (USCIS) demonstrating that a position for the worker exists, the worker will be temporarily entering the USA, the wages to be paid, and the location where the individual will work.
COVID-19 poses challenges for employers with H-1B workers contemplating staff reductions. Laid-off H-1B workers must leave the USA by the shorter of the end of the visa period or 60 days unless they secure a new visa status. Employers must withdraw the LCA filed with the USDOL, notify the USCIS of the layoff and pay the costs of return transportation to the employee’s home country. If H-1B workers are furloughed, employers must continue paying the wages indicated on the LCA and H-1B forms. Before undertaking any other material change in the terms of employment (eg, a reduction in pay or location of work), employers must file an amended LCA and H-1B forms for approval. However, in the case of across-the-board wage reductions during the pandemic, the USDOL has dispensed with the amended LCA and H-1B petition requirement provided the employer pays the higher of the prevailing wage or the wage reflected on the LCA.
Subject to certain exceptions, employers sponsoring an immigrant visa ("Green Card") for a foreign national must go through the Program Electronic Review Management (PERM) labour certification process to demonstrate there are no US citizens available for the position. The employer must also recruit for the job among US applicants. Those meeting the qualifications must be interviewed and the employer must demonstrate why those applicants are not suitable. If approved, the employer can file an immigrant visa petition. The process is costly and can take several years to complete.
Employers contemplating the purchase of a unionized business must consider successorship liability. The question of the successor’s duty to recognize the predecessor’s union arises whenever there is a change in the employing entity.
Generally, in the event of an arm’s-length purchase, the successor employer is not bound by the predecessor’s collective bargaining agreement. However, if the successor employer retains a majority of the predecessor’s employees and engages in the same business, it must recognize the union.
The "alter ego doctrine" was developed to prevent employers from avoiding collective bargaining obligations by altering their corporate form. The doctrine focuses on whether two enterprises have substantially identical management, business purposes, operations, equipment, customers, supervision, and ownership. If the new employer is "merely a disguised continuance of the old employer", the predecessor’s labor contract binds the new employer, regardless of whether a majority of the workforce is retained.
See also 1.4 Decline in Union Membership?
Legal and Practical Constraints
Federal laws and the NJLAD preclude employers from using discriminatory pre-employment inquiries or testing that tend to affect legally protected class members differently than other applicants and are not justified by business-related job necessity (see 4 Terms of the Relationship).
Disability-Related Inquiries and Medical Exams
Both the Americans With Disabilities Act (ADA) and the NJLAD prohibit disability-related inquiries and medical examinations at the pre-offer stage. After a conditional offer of employment, inquiries and examinations are permitted so long as all employees in the same job category are subject to the same requirements.
The ADA and NJLAD prohibit utilizing the results of post-offer inquiries or examinations to disqualify applicants unless the condition would prevent safe or efficient job performance, even with reasonable accommodation. At this stage, the employer must engage in the "interactive process," whereby the employer identifies the job’s essential functions, analyses the candidate’s job-related restrictions, and collaborates with the employee to identify possible accommodations. An accommodation is reasonable if it does not create undue hardship (significant difficulty or expense) for the employer. Reasonable accommodations do not require the employer to eliminate essential job functions, create new positions, or move an existing employee from a position.
Normally, temperature taking, COVID-19 testing, or medical questionnaires about COVID-19 exposures might run afoul of the ADA and NJLAD. However, the Equal Employment Opportunity Commission (EEOC) issued guidance temporarily sanctioning these screenings during the pandemic.
Pre-employment Drug and Alcohol Testing
Under the ADA, alcohol testing is a "medical examination" but testing for illegal drugs is not and is permissible. While prior addictions are recognized disabilities under the ADA and NJLAD, employers need not accommodate current illegal drug or alcohol abuse. Applicants who test positive for current use, including recreational marijuana, may be disqualified.
In 2019, New Jersey extended job protections to medical marijuana users by prohibiting employers from taking adverse employment action based solely on an employee’s/applicant’s status as a medical marijuana user. When an employee/applicant tests positive for marijuana, the individual has three working days to provide a "legitimate medical explanation” for the positive test. If a medical authorization is produced, the employer cannot take adverse action absent evidence that the employee (i) was under the influence on the job or (ii) works in a safety-sensitive position where current use cannot be tolerated.
Unlike the federal Age Discrimination in Employment Act (ADEA) that protects individuals over age 40, the NJLAD protects individuals over age 18. Thus, during the application process employers should omit any questions that elicit age information, as rejected candidates may allege age information was used in the hiring decision.
Under the federal and New Jersey Fair Credit Reporting Acts (FCRAs), employers utilizing consumer reporting agencies must secure written consent before requesting a report. If information from a report is a basis for denying employment, the applicant must be provided a notice of rights under the FCRA, including the opportunity to dispute information relied upon with the reporting agency.
New Jersey’s Opportunity to Compete Act prohibits employers of 15 or more from maintaining policies that stipulate that individuals with arrest or conviction records will not be considered. Employers cannot make any inquiries about an applicant’s criminal record during the "initial employment application process," which begins when the applicant inquires about a position and concludes when the employer has completed an initial interview. Thereafter, the employer is not prohibited from making criminal history inquiries or refusing to hire based upon an applicant’s criminal record.
Criminal inquiries may also violate Title VII and the NJLAD because the practice tends to disproportionately impact minorities with statistically higher arrest and conviction records. The EEOC's Guidance on the Consideration of Arrest and Conviction Records deems blanket prohibitions against hiring applicants with criminal records invalid unless the employer can show exclusion is "job related" and "consistent with business necessity."
Wage and salary inquiries
New Jersey prohibits employers from asking applicants to provide salary history. Employers may inquire about an applicant’s experience with incentive and commission programs, so long as they do not seek the disclosure of earnings.
When establishing employee compensation, employers must comply with the New Jersey Equal Pay Act, which makes it unlawful to pay any protected class member a rate of compensation less than the rate paid to employees outside the class for "substantially similar work."
The use of social media to research applicants is not without risk, as it can reveal the individual’s age, race, or other protected status that can become the basis for a discrimination claim if the applicant is rejected. Employers should use individuals with no role in the hiring decision to screen candidates’ social media activities. Advertising open positions through targeted social media outlets that do not have diverse participants may create the appearance of discrimination against non-targeted groups. Hiring decisions based upon an applicant’s lack of social media presence may invite age discrimination claims.
New Jersey prohibits employers from requesting applicants to provide password and username information to access social media accounts. Social media searches about applicants must be confined to publicly available information.
In New Jersey, restrictive covenants are disfavored as restraints of trade and are narrowly construed by the courts. A restrictive covenant will be enforced if reasonable provided it:
These factors are balanced on a case-by-case basis.
Employer’s Legitimate Interests
While an employer has no legitimate interest in preventing competition, the protection of trade secrets, confidential information, and customer relationships are recognized protectable interests. Thus, employees can be restrained from using trade secrets and confidential information to the competitive disadvantage of the former employer. However, skills an employee develops during employment will not qualify for protection. As for customer relationships developed at the employer’s expense, under proper circumstances employees can be restrained from doing business with or soliciting those customers.
Undue Hardship on the Employee
Employers may not include the broadest possible restrictions to achieve the greatest protection for themselves, while imposing unreasonable restrictions on the employee’s right to use their skills to their best advantage. Three factors are generally considered when determining whether a restriction is overbroad: duration, geographic limits, and scope of activities prohibited. These factors must be narrowly tailored to ensure the covenant is not broader than necessary to protect the employer’s legitimate interests.
Covenants of two years or less are generally considered reasonable by New Jersey courts. Covenants limiting an employee’s ability to compete in the same capacity and geographic area the employee serviced for a former employer are also generally considered reasonable. Likewise, customer non-solicitation provisions limited to customers the employee had exposure to through the former employer are typically enforceable.
Injury to the Public
When assessing the interest of the public, New Jersey courts consider the effect of enforcement of the restriction on the availability of goods or services, the effect of non-enforcement on corporate investments in long-term research and development, and the effect of enforcement on individual initiative.
In New Jersey, the employer’s initial offer of employment or continued employment after hire is sufficient consideration for a restrictive covenant.
Blue Pencil Doctrine
New Jersey has adopted the "blue pencil" doctrine, permitting the court to modify overbroad restrictive covenants. However, a court may decline to employ the doctrine if it finds that the restrictions are not aimed at protecting the employer’s legitimate interests. Employers who draft overbroad restrictions with the expectation a court will blue-pencil the agreement run the risk of having the entire agreement struck down if they cannot show that the protection of legitimate interests was the motivating factor.
New Jersey employers must be mindful of the following privacy laws.
As for COVID-19-related inquires to employees, see 3.1 Legal and Practical Constraints.
Protected Classes Under Anti-discrimination Laws
In addition to protected characteristics under federal law – age, race, national origin, religion, gender, disability, pregnancy, genetic information, and veteran status – the NJLAD extends protection on the basis of atypical hereditary cellular or blood trait, marital/civil union/domestic partnership status, affectional or sexual orientation, gender identity or expression, lactating mother status, and, most recently, employees who have or are likely to have an infectious disease caused by a living organism, such as COVID-19.
Several factors explain why most discrimination claims in New Jersey are filed under the NJLAD. While federal laws have threshold employee head counts for coverage, the NJLAD applies to all employers, regardless of size. Where federal laws require employees to file a charge with the EEOC before initiating suit, NJLAD permits employees the option of filing a charge with the New Jersey Division on Civil Rights or initiating suit in the Superior Court. While federal laws differ on remedies available and may cap damages, the NJLAD provides a full panoply of remedies with no damage caps. While federal laws limit liability to the employer, the NJLAD provides for individual liability of those who "aid and abet" an employer’s discriminatory acts.
The protections of the federal ADA only extend to individuals with impairments that "substantially limit a major life activity." The NJLAD defines disability more broadly as impairments that preclude the normal exercise of any physical or mental function or that can be demonstrated medically or psychologically through accepted diagnostic techniques. Additionally, the NJLAD’s protections extend to employees who are "perceived" as disabled. The ADA’s duty to provide reasonable accommodation applies to employers with 15 or more employees, whereas NJLAD’s reasonable accommodation requirement applies to all employers.
In contrast to the federal Age Discrimination in Employment Act that protects individuals over the age of 40, the NJLAD’s age protections begin at 18. The Diane B. Allen Equal Pay Act amended the NJLAD to impose higher burdens of proof than under federal pay equity laws for employers defending wage disparity claims and increased the availability of back wages from two to six years.
The NJLAD and federal anti-discrimination laws prohibit retaliation against employees who complain of discrimination or otherwise invoke the protections of these statutes.
The New Jersey Conscientious Employee Protection Act prohibits retaliation against employees who disclose, object to, or refuse to participate in actions the employee reasonably believes are illegal or incompatible with public policy concerning health, safety, welfare or the protection of the environment. Numerous laws on the federal side (eg, the Sarbanes–Oxley and Dodd–Frank Acts) provide a wide array of protections for various whistle-blowing activities.
The New Jersey’s Workers’ Compensation Law provides a private right of action for individuals subject to retaliation for filing for benefits.
Even in the absence of statutory protection, New Jersey has recognized a common law wrongful discharge action for a termination that is contrary to a clear mandate of public policy reflected in legislation, rules, regulations, judicial or administrative decisions, and, in some cases, a professional code of ethics.
The need to develop anti-harassment policies, coupled with employee training, cannot be understated. New Jersey has adopted the federal Faragher-Ellerth affirmative defense employers can invoke, in certain cases, to escape liability for hostile work environment claims under the NJLAD provided the employer exercised reasonable care to prevent and correct the harassing behavior and the employee unreasonably failed to take advantage of preventive opportunities provided by the employer. Factors considered when assessing the employer’s exercise of reasonable care include the existence of policies prohibiting harassment, complaint procedures for employees’ use, and mandatory training for supervisors that is open to all employees. In light of the "Me Too" and "Black Lives Matter" movements, training should include instruction on how to eradicate sexual harassment, racial harassment, "implicit bias" as well as bullying in the workplace, as these behaviors often lead to claims of unlawful harassment. See also 1.2 “Black Lives Matter,” “Me Too,” and Other Movements.
The federal and state Occupational Safety and Health Acts (OSHAs) require employers to provide a workplace free from recognized hazards that can cause death or bodily harm. Employers must comply with safety, training, hazard communication, and other standards issued under OSHA.
OSHA has determined that COVID-19 is a covered hazard and employers must act reasonably to prevent occupational exposures. OSHA and the US Centers for Disease Control have issued guidance for employers on disinfecting workplaces and implementing protocols designed to reduce the risk of COVID-19 exposures. Employers failing to make reasonable efforts to reduce exposures run the risk of administrative sanctions and negligence lawsuits.
The New Jersey Worker and Community Right to Know Act requires employers to ensure that containers containing hazardous substances are properly labelled.
New Jersey’s Smoke-Free Air Act prohibits smoking and the use of vapor or electronic smoking devices in the workplace. However, employers are prohibited from taking adverse action against an applicant/employee who uses tobacco unless the exclusion is reasonably related to the employment.
New Jersey’s Workers’ Compensation Law requires employers to secure workers’ compensation coverage. Failure to insure is a disorderly persons offense and, if willful, a crime of the fourth degree.
Under the FMLA, employers of 50 or more must provide qualifying employees with 12 weeks of unpaid protected leave in the event of personal or family illness. Recently, Congress passed the Families First Coronavirus Response Act to provide (i) 80 hours of paid sick leave for personal or family COVID-related absences, and (ii) ten weeks of paid family leave to care for a child due to school or daycare closures caused by the pandemic; these benefits expire at the end of 2020.
New Jersey law provides additional job protections for employees unable to work for medical or family reasons, including the following.
New Jersey also has a wide range of state-administered benefit funds available to employees during periods of unemployment. These plans are funded by employer and employee payroll taxes and include the following:
Both federal and state COBRA laws require most health plans to offer employees an option to continue coverage for a limited time period after a "qualifying event" such as termination of employment, divorce, separation, loss of dependent status, or death of a covered employee.
Termination of At-Will Employees
Although New Jersey is an "at-will" jurisdiction, employers must evaluate the reasons for discharge and the employee’s work history to minimize the risk of legal challenge. Documentation that objectively supports the business justification for termination is critical.
Termination on the basis of a status protected under the NJLAD (including individuals infected with COVID-19) or federal anti-discrimination laws may prompt a wrongful termination claim. Termination for "blowing the whistle" on illegal activity or health and safety issues in the workplace (such as concerns about workplace safety when returning to work during the COVID-19 crisis) gives rise to a claim under the New Jersey Conscientious Employee Protection Act (CEPA).
Terminated employees who exercise their right to protected family or medical leave (including COVID-related leave) may pursue retaliation claims under the FMLA or the NJFLA. Termination of an employee who cannot conform to regular work hours because of a medical condition may breach the employer’s duty to provide reasonable accommodation for a disability under the ADA and NJLAD. New Jersey has recognized a common law wrongful termination claim for terminations that are contrary to a clear mandate of state public policy, as embodied in statues, regulations, judicial decisions, or professional codes of ethics.
WARN Act Requirements
The federal Worker Adjustment and Retraining Notification Act (WARN Act) requires employers with 100 or more full-time employees to provide 60 days’ notice of a mass layoff or plant closing affecting 50 or more employees. Employers failing to comply are liable for back pay and benefits for each day of a violation. Employees are entitled to attorney fees if forced to file suit to enforce rights under the Act.
Amendments to New Jersey’s WARN Act make it one of the most employee-friendly laws in the country. Coverage was expanded to small employers by including part-time and temporary workers when tallying the 100-employee threshold for coverage. The act is triggered by any closure or mass layoff affecting 50 or more employees located anywhere in the state, and the notice period was expanded from 60 to 90 days. The Act mandates one week of severance pay for each year of service, with an additional four weeks of severance if the employer provides less than 90 days’ notice. These amendments were to become effective July 2020, but to alleviate the consequences for employers facing layoffs caused by COVID-19, the effective date has been delayed until 90 days after the state of emergency has been lifted. In addition, the amendments clarify that the natural disaster exception to the notice requirement applies to a closure or mass layoff caused by the pandemic.
Termination Under an Employment Contract
If the employment relationship is governed by an individual employment agreement, the terms of the contract will govern whether the employment is for a definite duration or indefinite term, whether it is at-will or if "good cause" is required for termination, if severance benefits are due upon termination, and any post-employment restrictions.
Where the agreement requires "good cause" for termination, what constitutes good cause generally includes:
Employees terminated for cause are generally not entitled to any additional compensation, whereas those terminated without cause may be entitled to financial consideration and the continuation of benefits, as outlined in the contract.
Executive employment agreements frequently contain "change in control" or "golden parachute" provisions providing additional protection (eg, deferred compensation and retirement benefits) in the event of a termination resulting from a merger, acquisition or other change in company control.
If an employment agreement calls for severance or other payments upon a termination, payments may be conditioned upon the employee’s execution of waiver of all legal claims of any kind against the employer. The agreement may contain class-action waivers (recently sanctioned by the US Supreme Court) and require mandatory arbitration of claims under the agreement or the employment relationship, with a carve-out for injunctive relief for violations of post-employment restrictions. The agreement may spell out certain obligations that survive termination, including restrictive covenants, confidentiality, non-disclosure, and non-disparagement clauses.
Termination of employees covered by a collective bargaining agreement (CBA) typically requires a showing of just cause. However, the CBA will outline specific grievance procedures employees must follow to challenge a termination, generally culminating in binding arbitration if a resolution cannot be reached.
Payment upon Termination
New Jersey’s Wage Payment Law requires payment of all "wages" due by the next regular payday, which must be within ten working days of the end of the pay period. Although New Jersey does not require payment of unused paid time-off benefits, if payment is called for under the employer’s policy or contract, the payments are considered "wages" and must be paid. Employees who have met the eligibility requirements for commissions must be paid a reasonable approximation of the commissions due until the exact amount can be determined.
Severance and Releases
Employers can reduce the risk of lawsuits through the use of a severance agreement that offers severance payments and other benefits in exchange for a release of all legal claims that arose up to the date of the agreement. Special drafting considerations apply and a comprehensive list of federal, state and local employee rights laws is recommended to ensure that the courts will uphold the release as a "knowing and voluntary" release of claims.
As set forth in 1.2 “Black Lives Matter,” "Me Too," and Other Movements, the Me Too movement has prompted federal legislation impeding the ability of employers to take advantage of tax deductions for settlement of harassment claims containing a non-disclosure clause. The NJLAD to prohibits employers from including mandatory arbitration clauses and nondisclosure provisions in settlement agreements involving claims of discrimination, retaliation, or harassment, not just those concerning sexual harassment. This would include the anticipated uptick in race discrimination claims resulting from the Black Lives Matter movement. However, the amendment arguably runs afoul of the Federal Arbitration Act (FAA), which preempts state laws that prohibit the "outright arbitration of a particular type of claim."
To release age claims under federal law, the Older Workers Benefit Protection Act requires that the agreement state that the employee was given 21 days (expanded to 45 days for group terminations) to consider the agreement and consult with counsel, and was accorded seven days after signing to revoke the agreement. These requirements typically appear in all employment waivers to prevent claims that the employee’s assent was not knowing and voluntary.
When the severance agreement provides for any non-qualified deferred compensation earned in a previous year but payable in a future year, the agreement should include a statement that payments will only be made upon an event and in a manner that complies with Section 409A of the Internal Revenue Code of 1986 ("Section 409A").
When termination is contrary to the terms of an employment agreement, the employee is entitled to normal contract damages flowing from the breach, namely wages and benefits lost. Except in special circumstances, tort remedies (emotional distress and punitive damages) and attorney fees are not available. Where the contract permits termination without cause upon notice but adequate notice is not provided, damages are limited to wages and benefits for the balance of the notice period. Where the term of the contract was for a definite duration, the employer is liable for the contracted salary and benefits through the balance of the term. If the contract was for an indefinite duration, back pay, and future wages and benefits for a reasonable period may be awarded to afford the employee time to secure comparable employment. While dependent upon the circumstances, New Jersey courts typically limit the period to one or two years.
Employees claiming wrongful termination in violation of implied contractual obligations set forth in an employee manual or policy are generally limited to contract damages only.
Although rare, emotional distress damages for breach of contract may be available where the breach was willful and wanton, and the harm to the employee was foreseeable at the time of the contract. Punitive damages are not available, even if the breach is malicious, unless there is a special relationship between the parties (eg, a fiduciary relationship) that generally is not implicated in an employer-employee relationship.
An award of lost wages will be reduced by the amount of wages the employee earned from another employer. Moreover, employees have a duty to mitigate damages by undertaking reasonable efforts to secure comparable employment, and damages will be reduced by the amount the employee could have earned upon a showing that the employee did not take reasonable efforts to secure comparable employment following the discharge, and comparable positions were available in the relevant market.
The limitations period for filing contract claims is six years.
Federal Discrimination Claims
Employees alleging discrimination in violation of Title VII, the ADEA, the ADA, the Equal Pay Act (EPA), and other federal anti-discrimination laws are required to file charges with the EEOC before initiating an action in the courts. Failure to exhaust this administrative remedy will result in a dismissal of a court action. Charges generally must be filed with the EEOC within 180 days from the date of the discriminatory act. However, if the employee alleges discrimination in violation of federal discrimination laws and the NJLAD, the filing deadline is extended to 300 days pursuant to a Worksharing Agreement between the EEOC and the New Jersey Division on Civil Rights (NJDCR).
If the EEOC determines there is reasonable cause to believe that discrimination occurred, it engages in conciliation efforts with the parties to resolve the discriminatory issues. If unsuccessful, the EEOC may elect to file suit in the federal courts on the employee’s behalf. If the EEOC issues a no reasonable cause determination, the charging party is issued a Notice of Right to Sue informing the employee that they have 90 days to initiate litigation in the courts. However, if the EEOC fails to take action on a charge for 180 days (60 days for ADA claims), the employee may request a Right to Sue letter from the EEOC. Suits initiated without the Right to Sue letter will be subject to dismissal.
Back pay, front pay, compensatory damages, punitive damages, and attorney fees are available under Title VII and the ADA, but there are caps on compensatory and punitive damages based upon the employer’s size. In ADEA cases, back pay, front pay, and attorney fees are available; compensatory and punitive damages are not available, but back pay awards are doubled as liquidated damages and there are no caps on these damages.
In EPA cases, only back pay, liquidated damages, and mandatory attorney fees are available but, again, there is no cap on damages. In addition, under the Lilly Ledbetter Act, a new violation of the EPA occurs each time the employee receives a paycheck that is affected by a discriminatory compensation decision or practice, no matter how long ago that decision was made.
Discrimination Claims under the New Jersey Law Against Discrimination
The NJLAD is a "one-stop" statute that generally provides uniform administration, rights, and remedies. The NJLAD does not have exhaustion of administrative remedies requirements, and employees can file charges with the NJDCR or directly file a complaint in the courts. NJDCR charges must be filed within 180 days of the discriminatory act, whereas the limitation period for filing litigation is two years.
In actions before the NJDCR, the agency initially attempts to mediate the claim. If unsuccessful and an investigation ensues, the NJDCR Director determines if there is probable cause to support the claim; if so, the matter proceeds to the Office of Administrative Law for hearings. After a decision is issued by the Administrative Law Judge, the NJDCR Director decides whether or not to adopt that decision and issues a final order. The only recourse after a final order is an appeal to the Appellate Division of the New Jersey Superior Court.
The NJDCR has the authority to order appropriate equitable relief (eg, reinstatement, promotion), back and front pay, compensatory damages, attorney fees, and heavy monetary penalties. Punitive damages are outside the Division’s authority. In actions initiated in the Superior Court, the complainant is likewise entitled to back pay, front pay, compensatory damages, and attorney fees, as well as punitive damages. Unlike federal actions, there are no caps on damages under the NJLAD.
Equal Pay Act Claims under the New Jersey Law Against Discrimination
The recent EPA amendments to the NJLAD provide special rules for wage disparity claims under the NJLAD. Under the Act, employers cannot reduce the pay of higher-paid employees in an effort to even out salaries and avoid a violation, but instead must raise any salaries for members of protected classes who are being paid less for substantially similar work. In addition, any comparison of wages to determine if a disparity exists must be based upon the wage rates in all the employer’s facilities.
Like the federal Lilly Ledbetter Act, the law provides that a new violation occurs each time the employee receives a paycheck affected by a discriminatory compensation decision. In addition, employees can recover back pay going back as far as six years, as opposed to two years under the federal EPA. Finally, when a violation is proved, the NJDCR or a court is required to award treble damages.
New Jersey’s Commissioner of Labor enforces New Jersey’s Wage Payment Act. Employers may be subject to both fines and criminal penalties for willful violations. The courts have recognized the right of employees to pursue a private right of action for violations of the law. In 2019 New Jersey enacted its Wage Theft Law, enhancing the state’s wage and hour protections by increasing the statute of limitations for minimum wage and overtime claims from two to six years, adding liquidated damages of up to 200% of unpaid wages, increasing anti-retaliation requirements, enhancing civil and criminal penalties, individual liability for officers and upper management, and expanding joint and successor employer liability.
Violations of the minimum wage and overtime requirements of the federal FLSA and New Jersey Wage Law may be prosecuted by the respective Departments of Labor and may result in significant civil penalties and criminal prosecution for willful violations. Alternatively, employees may pursue private rights of action in the federal and state courts for back pay and attorney fees. The FLSA expressly provides for liquidated damages, unless the employer can demonstrate that its actions were taken in good faith and it had a reasonable basis for believing that it was in compliance with the FLSA. The limitations period under both laws is two years, extended to three years under the FLSA for willful violations.
Whistle-blower retaliation claims under the New Jersey Conscientious Employee Protection Act (NJCEPA) must be filed in the New Jersey Superior Court (or other court of competent jurisdiction) within one year of the retaliatory act. Remedies for violations include equitable relief, back and front pay, compensatory damages, punitive damages, and attorney fees. Significant civil fines may also be imposed for each violation of the law.
Congress has enacted at least 18 statutes that extend whistle-blower protection to employees, including the Sarbanes-Oxley Act, the FDA Food Safety Modernization Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The forum for resolution of claims and the remedies available to aggrieved employees vary under these statutes.
Despite increased legislative efforts to bar mandatory arbitration of discrimination claims, the US Supreme Court has repeatedly held that the Federal Arbitration Act (FAA) reflects the national public policy favoring the enforcement of arbitration agreements, even though the arbitral forum deprives employees of the right to jury and other protections that may be available under statutes. New Jersey courts have likewise enforced agreements to arbitrate claims under the NJLAD, CEPA and other statutory and common law claims.
However, New Jersey courts will not enforce an arbitration agreement unless it can be shown that the employee’s waiver of a judicial forum or other statutory rights was "knowing and voluntary." According to the New Jersey Supreme Court, at a minimum the agreement must clearly state that the employee agrees to arbitrate all statutory claims arising out of the employment relationship or its termination. Although not yet mandated by the courts, the inclusion of an exhaustive list of the statutory claims that are subject to arbitration will enhance the agreement’s enforceability.
Pointing to the typical imbalance of economic power between the employer and the employee, the high court has cautioned that the knowing and voluntary standard may not be met unless the agreement clearly states that:
Arbitration agreements should be a standalone document signed or electronically accepted by the employee.
In 2019, New Jersey amended the NJLAD to prohibit employers from entering into employment agreements that shorten the NJLAD’s statute of limitations; include non-disclosure provisions; waive the right to jury trial, punitive damages, attorney fees or other substantive rights under the NJLAD; or include mandatory arbitration clauses. It is unclear whether the arbitration bar of this new law will survive a challenge that it is preempted by the FAA.
Class and Collective-Action Waivers
In Lewis v Epic Systems (2018), the US Supreme Court resolved a split among the circuit courts, holding that class-action waivers in arbitration agreements must be enforced as written. Pointing once again to the public policy favoring arbitration reflected in the FAA, the court rejected the NLRB’s position that these waivers violate an employee’s right to engage in concerted activity under the NLRA. An open question remains as to whether state initiatives precluding class-action waivers of state claims are preempted by the FAA.
National Labor Relations Act Claims
The NLRA guarantees private sector employees at union and non-union workplaces the right to unionize and engage in collective bargaining or other concerted activity to improve the terms and conditions of employment. The NLRB is charged with enforcement of the NLRA, and its primary functions are:
To start a union election process, a petition must be filed with the nearest NLRB Regional Office showing interest in the union (or in decertifying the union) from at least 30% of employees. NLRB agents will investigate to ensure the NLRB has jurisdiction and there are no existing labour contracts that would bar an election. An unfair labour practice charge against the union or employer must be filed with the Regional Office within six months of the occurrence.
The NLRB has no independent power to enforce its orders but may seek enforcement through a US court of appeals.
See 6.1 Contractual Claims and 6.2 Discrimination, Harassment, and Retaliation Claims.