May 30, 2025|Franchise Frontlines
May 30, 2025 | Superior Court of New Jersey, Appellate Division | Unpublished Opinion
Executive Summary
In Little v. American Income Life Insurance Company, 2025 WL 1550016 (N.J. App. Div. May 30, 2025), the Appellate Division consolidated several employment discrimination cases brought by former workers of a New Jersey agency affiliated with American Income Life Insurance Company. Each plaintiff signed an arbitration provision contained within a General Agent Contract referencing the FAA and Texas law. The trial court denied motions to compel arbitration, concluding the arbitration clause did not meet New Jersey’s requirement that waivers of the judicial forum be clear and unambiguous as required by Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014). The Appellate Division affirmed, holding that New Jersey law governed contract formation despite a Texas choice-of-law clause, that Atalese was not preempted by federal law, and that the arbitration clause lacked any indication that the employees were waiving their right to a jury or civil trial. The opinion provides important guidance for national employers—particularly franchisors and multi-state operators—regarding the formation and enforceability of arbitration agreements in New Jersey.
Relevant Background
According to the allegations, the plaintiffs were former employees of a New Jersey-based regional agency affiliated with American Income Life Insurance Company (“AIL”), an Indiana corporation headquartered in Texas. The agency, Giglione-Ackerman Agency, LLC (“GAA”), acted as AIL’s exclusive broker and State General Agent in New Jersey. Plaintiffs alleged various violations of the New Jersey Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -50, arising from events that allegedly occurred during their employment in New Jersey.
Each plaintiff signed a General Agent Contract that contained an arbitration clause. The clause required the parties to negotiate disputes in good faith, and if negotiations failed, “all disputes, claims, questions and controversies of any kind or nature arising out of or relating to this Contract… including alleged violations of any state or federal statute” would be submitted to binding arbitration before the American Arbitration Association under the FAA. The agreement also included a Texas choice-of-law clause for “all issues” relating to the contract except those “relating to arbitration or the enforceability” of the arbitration provision.
After the plaintiffs filed their LAD complaints, defendants moved to compel arbitration. The trial court denied the motions, concluding that the arbitration clause failed to comply with New Jersey’s requirement that waivers of the right to judicial adjudication be expressed clearly. The court also held that Texas law could not displace that requirement. Defendants appealed.
Decision
The Appellate Division affirmed the trial court in a detailed opinion addressing choice-of-law, FAA preemption, and the Atalese standard.
The court first evaluated whether the Texas choice-of-law clause controlled the question of arbitration agreement “formation.” The arbitration clause provided that “all issues relating to arbitration or the enforceability of this agreement to arbitrate shall be governed by the [FAA],” and that “aside from issues relating to arbitration or enforceability,” Texas law would govern “all issues” relating to the contract. Little, 2025 WL 1550016, at *2. Defendants argued this division meant that Texas law—not New Jersey law—controlled contract “validity and formation.”
The court rejected that interpretation, explaining that formation and enforceability were conceptually distinct. As the Appellate Division stated, “a court may find that a valid agreement is unenforceable,” and arbitration agreements may be invalidated by generally applicable contract defenses. Id. at *3 (citing Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68 (2010)). Thus, the plain text of the arbitration clause did not establish that Texas law governed formation.
The court then conducted a full choice-of-law analysis under Restatement (Second) of Conflict of Laws § 187. It acknowledged that Texas had a “substantial relationship” to the parties because AIL is headquartered there. Little, 2025 WL 1550016, at *4 (citing N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 569 (1999)). But the court also found that applying Texas law to formation of the arbitration clause would conflict with a “fundamental policy” of New Jersey—namely, the requirement that waivers of constitutional and statutory rights be “clearly and unmistakably established.” Id. at *5 (quoting Atalese, 219 N.J. at 443–44).
The court emphasized that New Jersey’s waiver rule “has broad and general application to all contracts,” not just arbitration agreements, quoting extensively from Atalese. As the Appellate Division summarized, “any contractual ‘waiver-of-rights provision must reflect that [the party] has agreed clearly and unambiguously’ to its terms.” Id. at *8 (quoting Leodori v. CIGNA Corp., 175 N.J. 293, 302 (2003)). Because Texas law does not require an explicit waiver of the judicial forum, the court held that application of Texas law “would be contrary to a fundamental policy of New Jersey.” Id. at *5.
The court also addressed the defendants’ argument that the United States Supreme Court’s decision in Kindred Nursing Centers Limited Partnership v. Clark, 581 U.S. 246 (2017), preempted Atalese. The court disagreed. It explained that Kindred Nursing prohibits state rules that “hinge on the primary characteristic of an arbitration agreement—namely, a waiver of the right to go to court,” and that discriminate against arbitration. Little, 2025 WL 1550016, at *8 (citing Kindred Nursing, 581 U.S. at 252). But New Jersey’s waiver rule, the court noted, applies broadly to “all contracts” involving waivers of statutory or constitutional rights. Because it is not “tailor-made to arbitration agreements,” the rule “does not run afoul of the FAA.” Id.
Having established that New Jersey law governed, the court assessed whether the arbitration agreement provided the clear, unambiguous notice required by Atalese. The court compared the language here to that in Flanzman v. Jenny Craig, Inc., 244 N.J. 119 (2020). In Flanzman, the arbitration clause expressly informed the employee that arbitration was “in lieu of a jury or other civil trial.” Little, 2025 WL 1550016, at *9. That express waiver satisfied Atalese.
By contrast, the arbitration clause here did not contain any language indicating that arbitration replaced the right to sue in court. As the Appellate Division explained:
“The Agreement does not mention that arbitration was in lieu of a ‘jury or other civil trial’ or provide any other indication that the parties waived their right to litigate in a courthouse.” Id. at *10.
The court further held:
“While Atalese does not require ‘magic words,’ here the absence of any explicit indication that the parties agreed to waive their rights renders their Arbitration Agreement invalid.” Id.
Accordingly, the court affirmed the denial of the motions to compel arbitration.
Looking Forward
This opinion underscores that arbitration agreements involving New Jersey workers must contain clear, explicit language informing the individual that arbitration replaces the right to pursue claims in court. Because Atalese is treated as a general contract rule rather than an arbitration-specific doctrine, employers—including franchisors and multi-unit operators—cannot rely on FAA preemption or choice-of-law clauses to avoid New Jersey’s clear-waiver requirement.
National employers using uniform arbitration agreements may benefit from revisiting those templates to ensure they contain express references to the waiver of a judicial forum, ideally in plain language understandable to non-lawyers. The court’s choice-of-law analysis also highlights that contractual provisions selecting another state’s law will not displace New Jersey’s protective standards when statutory employment rights are at stake. For businesses operating throughout the United States, this decision demonstrates the need to tailor arbitration agreements to comply with state-specific rules on contract formation and waiver.
Finally, the court’s reaffirmation of Atalese offers a practical reminder that arbitration agreements must be drafted with precision when they purport to waive important rights. Employers with operations in New Jersey may wish to review their arbitration agreements not only for enforceability but also for clarity of explanation, ensuring that future disputes do not turn on avoidable drafting omissions.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
