On Thursday NJCJI testified before the Assembly Higher Education Committee in opposition to A-4407. The bill prohibits students at a public or independent institution of higher education or private career school from receiving any form of student assistance from the state if the institution uses arbitration, “…to resolve any matter….relating to a student’s enrollment prior to the commencement of any legal action” or “…to waive any right, forum, or procedure afforded to the student, including any right to file and pursue a civil action (or) class action…”

Sponsored by committee chair Mila Jasey (D-Essex), the bill is the latest attempt by the NJ Legislature to impede the use of arbitration.

The findings and declarations section of the bill states that litigation is needed for students to “vindicate their rights.” NJCJI testified that while arbitration does require waiving procedural rights it does not mean giving up substantive remedies.  And  arbitration is cheaper, faster, and more efficient in resolving disputes than is litigation.

Of course, choosing litigation over arbitration is a bad policy choice and legislators are free, and often do, make bad policy choices. NJCJI testified that in this instance the legislature is pre-empted by federal law from making this bad policy choice.

 The Federal Arbitration Act (FAA) and US Supreme Court precedents preempt states from interfering with “fundamental attributes of arbitration.”

The bill concedes that the legislature is on thin legal ice since it includes a provision which states that nothing in the bill shall be construed as invalidating a written arbitration agreement that is otherwise enforceable under the FAA.

Proponents of the bill testified that the bill does not prohibit arbitration. Rather it merely conditions receipt of funding by students on the fact that an arbitration provision cannot be used by the school. As Justice Kagan wrote in her majority opinion the FAA not only preempts state efforts to bar arbitration, it “also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”

A-4407 bill was released from committee by a vote of 5-0-1. All Democrats voted in favor along with Republican Gerald Scharfenberger (R-Monmouth). Republican Bob Auth (R-Bergen) abstained. The bill is now on second reading in the Assembly. The Senate counterpart S-1851, sponsored by Senator Teresa Ruiz (D-Essex) is also on second reading in the Senate.

Should you wish to discuss the legislation please contact NJCJI lobbyist Eric DeGesero edegesero@edgeconsultingnj.com.