December 12, 2017

NJ Supreme Court Limits Employment Waivers

In a case with significant consequences for employers, the NJ Supreme Court issued a decision today in Vitale v. Schering Plough Corporation, that prohibits employers from requiring as a condition of employment that employees waive third-party claims against the employer’s customers for injuries sustained on the job.  Under New Jersey’s Workers’ Compensation Act (“Act”), employees who sustain an on-the-job injury are prohibited from suing their employer for damages resulting from the injury.  Injured employees, however, can sue any third party whose negligence contributed to the injury.  To protect customers against such suits, many employers have required employees to sign a waiver at the commencement of employment, whereby the employee agrees not to assert any such claims against the employer’s customers.

The Plaintiff in this case was employed by Allied Barton Security Services as a security guard.  At the time that he was hired, the Plaintiff signed an agreement entitled “Worker’s Comp Disclaimer,” in which he agreed to waive any claims that he may have in the future against any customer of Allied Security arising from or related to injuries that are covered under the Act.  Plaintiff was assigned to work at a facility operated by Schering-Plough Corporation, where he suffered injuries after falling down a set of stairs.  The Plaintiff sought to hold Schering-Plough liable for his injuries, while Schering-Plough sought to insulate itself from any such liability for the injuries based upon the waiver.

The NJ Supreme Court found the waiver void on public policy grounds because it violates Sections 39 and 40 of the Act, which provide an injured employee with the right to seek recourse against liable third parties, and which also expressly declares as void any agreement that limits or bars such claims.  The Court also found the waiver to be an unconscionable contract of adhesion, which is also unenforceable as a matter of public policy.  In rejecting the waiver, the Supreme Court relied upon the same contract and public policy considerations that are often relied upon by the courts to invalidate mandatory arbitration agreements, which contain similar exculpatory provisions.  Thus, employers must be circumspect in drafting exculpatory provisions for use in employment and mandatory arbitration agreements so as to avoid violating public policy.

If you are concerned that your company’s employment or mandatory arbitration agreements may be challenged in court, we can ease your mind with a thorough analysis and assessment of your agreements.