The New Jersey Appellate Division, in a recent decision, lowered the standard for enforceability of contractual arbitration provisions in the commercial setting, continuing a trend in New Jersey law of relaxing scrutiny of such provisions in the non-consumer or employment context. In County of Passaic v. Horizon Healthcare Services, (N.J. Super. Ct. App. Div. Feb. 8, 2023), the court held that a contractual arbitration provision that does not include an express waiver of the parties’ right to seek relief in a court of law is nevertheless enforceable as between two sophisticated commercial parties of relatively equal bargaining power. This decision appears to be a departure from the contractual language that was previously deemed by the New Jersey Supreme Court necessary to enforce an arbitration provision in a commercial contract. Moreover, although prior unpublished decisions have reached similar conclusions, the County of Passaic case resulted in the first published Appellate Division decision containing a rule pronouncement regarding the enforceability of arbitration provisions in the commercial context. 

While the decision, at first glance, appears to provide a bright-line rule regarding the enforceability of arbitration provisions in business-to-business contractual settings, a closer analysis reveals important interpretive and practical questions that remain unanswered. For instance, what qualifies a business as “sophisticated” in this context, and when do commercial parties have “relatively equal bargaining power”? More practically, how will this decision altering the existing standard impact ongoing commercial litigation arising out of a contract containing an arbitration provision? Finally, what impact might this have on transactional practice? This article addresses these important questions.