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Tuesday, December 12, 2017

NJ Supreme Voids Agreements Not To Sue Third-Parties

In a landmark decision, the NJ Supreme Court has ruled that agreements between employers and employees not to file a lawsuit against an employer's customers are unenforceable. The Court held that such disclaimers are against public policy.

Patterson, J., writing for the Court.
In this appeal, the Court considers whether an employee’s agreement at the inception of his employment to prospectively waive third-party claims against his employer’s customers, in the event that he were to sustain injuries in a workplace accident at a customer’s facility, contravenes public policy and is therefore unenforceable.

Plaintiff Philip Vitale was hired by Allied Barton Security Services (Allied Barton) as a security guard. When it hired Vitale, Allied Barton required him to execute an agreement entitled “Worker’s Comp Disclaimer” (Disclaimer) as a condition of his employment. In the Disclaimer, Vitale agreed to “waive and forever release any and all rights” that he may have had to assert a claim “against any customer . . . of Allied Security to which [Vitale] may be assigned, arising from or related to injuries which are covered under the Workers’ Compensation statutes.”

Allied Barton assigned Vitale to provide security services at a facility operated by its customer, defendant Schering-Plough Corporation (Schering-Plough). One of Vitale’s responsibilities was to ensure that the security officers under his supervision had appropriate uniforms. The uniforms were stored in the basement of the main guardhouse of Schering-Plough’s facility. On ten to fifteen occasions, Vitale descended the stairs to retrieve uniforms for the officers. While on duty on August 31, 2009, Vitale fell down the stairs that led to the guardhouse basement. Another security officer turned on the light in the stairwell and saw Vitale “laid out at the bottom of the stairs.” Vitale sustained injuries to his head, neck, shoulder, and lower back as a result of the accident.

Vitale filed a claim pursuant to the Workers’ Compensation Act, N.J.S.A. 34:15-1 to -146, which he and Allied Barton resolved. Vitale then filed this action, asserting that Schering-Plough owed him a duty of care as a business invitee working on its premises, that he was injured because Schering-Plough had negligently maintained its facility and failed to warn him of a dangerous condition, and that he was entitled to compensatory damages.

Schering-Plough moved for summary judgment, arguing that Vitale’s claims were barred by the Disclaimer. The court denied the motion, reasoning that a ruling barring Vitale’s claims would contravene public policy. The case was tried before a jury. The court did not permit the jury to consider whether Vitale was negligent in descending the stairs without turning on the stairwell light, or to allocate fault to him. The jury determined that Schering-Plough was negligent and that its negligence was a proximate cause of Vitale’s injuries and awarded $900,000 in compensatory damages. The trial court denied Schering-Plough’s motion for a new trial.

Schering-Plough appealed. The panel affirmed the denial of Schering-Plough’s motion for summary judgment. 447 N.J. Super. 98, 107 (App. Div. 2016). The panel considered the Disclaimer to be a contract of adhesion that was substantively unconscionable because it was contrary to public policy. Id. at 109-15. It also invalidated the Disclaimer on the ground that it was an exculpatory contract that violated public policy. Id. at 110- 14. The panel, however, held that the trial court should have instructed the jury to consider whether Vitale’s negligence was a proximate cause of his accident and to decide whether a percentage of fault should be allocated to him. Id. at 118-22. It therefore reversed in part and remanded for a new trial on the question of liability. Id. at 121.

The Court granted Schering-Plough’s petition for certification, in which Schering-Plough raised only the question of whether it was entitled to summary judgment by virtue of the Disclaimer. 228 N.J. 421 (2016). The Court denied Vitale’s cross-petition, which challenged the grant of a new trial as to liability. 228 N.J. 430 (2016).

HELD: The Disclaimer is void because it is contrary to the public policy expressed in sections 39 and 40 of the Workers’ Compensation Act. 2

1. Vitale contends that the Disclaimer is unenforceable on two closely-related grounds: that it is a contract of adhesion that is unconscionable because it offends public policy, and that it is an exculpatory contract that is contrary to public policy. Although a contract of adhesion is not per se unenforceable, a court may decline to enforce it if it is found to be unconscionable. Stelluti v. Casapenn Enters., LLC, 203 N.J. 286, 301 (2010). Courts consider four factors “to determine whether the contract is so oppressive, or inconsistent with the vindication of public policy, that it would be unconscionable to permit its enforcement.” Rodriguez v. Raymours Furniture Co., 225 N.J. 343, 367 (2016). Those factors are “the subject matter of the contract, the parties’ relative bargaining positions, the degree of economic compulsion motivating the ‘adhering’ party, and the public interests affected by the contract.” Rudbart v. N. Jersey Dist. Water Supply Comm’n, 127 N.J. 344, 356 (1992). Relying on the fourth factor identified in Rudbart, Vitale contends that the Disclaimer is substantively unconscionable because it is contrary to public policy. (pp. 12-14)

2. To be enforceable, an exculpatory agreement must reflect the unequivocal expression of the party giving up his or her legal rights. Courts assess whether the contractual elimination of a common-law duty through an exculpatory agreement would contravene public policy. To the extent that any contract of adhesion also would require review to determine whether its enforcement implicates a matter of public interest, that test overlaps, and is subsumed by the analysis employed when assessing whether to enforce an exculpatory agreement. In this appeal, in which a contract of adhesion that would eliminate a legal duty is challenged exclusively on public policy grounds, the standard of substantive unconscionability that governs a contract of adhesion and the test by which courts evaluate an exculpatory agreement converge; the sole question is whether the agreement at issue is contrary to public policy. (pp. 14-17)

3. In section 40 of the Workers’ Compensation Act, the Legislature addressed the employee’s right to file a tort action against potentially liable third parties: “Where a third person is liable to the employee . . . for an injury or death, the existence of a right of compensation from the employer . . . shall not operate as a bar to the action of the employee or his dependents, nor be regarded as establishing a measure of damage therein.” N.J.S.A. 34:15-40. Section 40 permits a workers’ compensation insurance carrier to seek reimbursement of benefits it pays when a third party caused the employee’s injury. The legislative scheme which emerges is a plan to permit an injured worker to collect workers’ compensation benefits and pursue his common law remedy against the third-party tortfeasor. The Legislature envisioned that if the employee recovered damages in his or her third-party action, any award to the employee in that action would ameliorate the burden imposed on the employer’s workers’ compensation carrier, thus promoting the equitable balancing of competing interests that the statutory scheme is designed to achieve. (pp. 17-20)

4. In section 39, the Legislature declared a public policy regarding certain agreements entered into in advance of a workplace accident: “No agreement, composition, or release of damages made before the happening of any accident, except the agreement defined in section 34:15-7 of this title shall be valid or shall bar a claim for damages for the injury resulting therefrom, and any such agreement is declared to be against public policy.” N.J.S.A. 34:15-39. The Legislature did not restrict section 39 to the waiver of workers’ compensation benefits through pre-accident agreements. The Court construes section 39’s broad language to encompass not only pre-accident agreements waiving the employee’s right to claim workers’ compensation benefits, but agreements waiving the employee’s right to assert a common-law action against a third party based on a workplace accident, addressed in section 40. (pp. 21-25)

5. Applying the principles set forth in Rudbart, Stelluti and Rodriguez, the Disclaimer is void because it is contrary to the public policy expressed in sections 39 and 40 of the Workers’ Compensation Act. The Disclaimer constitutes an “agreement, composition or release of damages made before the happening of any accident.” N.J.S.A. 34:15-39. It is not authorized by N.J.S.A. 34:15-7, and is therefore not within the sole exception identified in section 39. Ibid. Accordingly, the Disclaimer is in the category of employment agreements that the Legislature has declared to be “against public policy.” Ibid. Moreover, were the Disclaimer to be enforced, it would undermine the Legislature’s purpose when it enacted section 40 of the Workers’ Compensation Act. It would not only deprive Vitale of the opportunity to pursue an action against a potentially culpable third party, but would eliminate Allied Barton’s workers’ compensation carrier’s lien on any damages awarded to Vitale in his third-party action. (pp. 25-27)

The judgment of the Appellate Division is AFFIRMED AS MODIFIED, and the matter is REMANDED for a new trial on the issue of liability.


Philip Vitale v. Schering-Plough Corporation (A-20-16) (078294) 2017WL6398725
Argued September 26, 2017 -- Decided December 11, 2017
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