New Jersey businesses may face increased litigation if proposed legislation to bar mandatory arbitration clauses in consumer contracts is made law. The proposed bill – recommended for passage by the Assembly Consumer Affairs Committee on February 5 – stems from the increasing frequency with which contracts contain provisions that make it difficult or impossible for consumers to pursue remedies for various claims such as misrepresentations, deception, fraud, negligence or breach of contract. This legislation would change the current law in New Jersey – the Truth in Consumer Contract, Warranty and Notice Act – to prohibit companies and businesses from requiring consumers to sign these “take it or leave it contracts” which waive or limit their rights to seek assistance of the courts, and instead require claims arising from these contracts to be resolved through arbitration.

If passed, consumers would be entitled to pursue their claims under the Consumer Fraud Act, the Lemon Law or any other federal or state consumer protection law in court, as well as have the right to bring a complaint within the six-year statute of limitations. In a further effort to protect consumers’ rights, an individual agreeing to waive of any of these rights would only be permitted to do so upon the advice of counsel. In addition, any contract containing a provision requiring a consumer to waive any legal rights – in violation of the new law – could be declared null and void, and entitle consumers to a $100 fee, plus damages and counsel fees.

A number of business groups, including the New Jersey Chamber of Commerce and the New Jersey Business and Industry Association, are opposing the bill, claiming that it runs afoul of the Federal Arbitration Act which encourages arbitration as a valuable litigation tool. However, supporters of the proposed legislation believe the “troubling trend” of companies’ required arbitration clauses in their standard contracts only serves to support companies at the cost of consumers. The proposed bill will make its way to the New Jersey Assembly next for approval and if received, will go before the Senate. Until then, businesses dealing with the public can rest assured that the preferred method of arbitration remains king. However, if the bill becomes law, companies will have to analyze any arbitration language in their consumer contracts.