Source: https://www.retaillaborandemploymentlaw.com/sexual-harassment/southern-district-of-new-york-rules-federal-law-preempts-new-york-state-law-banning-arbitration-of-sexual-harassment-claims/
Timestamp: 2019-10-18 15:52:32
Document Index: 332696115

Matched Legal Cases: ['§ 7515', '§ 2', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 7515', '§ 2', '§ 7515', '§ 7515']

Southern District of New York Rules Federal Law Preempts New York State Law Banning Arbitration of Sexual Harassment Claims | Retail Labor and Employment Law
Home > Sexual Harassment > Southern District of New York Rules Federal Law Preempts New York State Law Banning Arbitration of Sexual Harassment Claims
In June 2017, Mahmoud Latif (“Latif”) was hired by Morgan Stanley and signed an offer letter that incorporated Morgan Stanley’s CARE Arbitration Program Arbitration Agreement (“Arbitration Agreement”). Id. at *1. The Arbitration Agreement provided that any claim involving, inter alia, “statutory discrimination, harassment and retaliation” would be subject to arbitration. Id. at *1-2. The Arbitration Agreement further stated that it “shall be governed by and interpreted in accordance with the Federal Arbitration Act (“FAA”).” Id. at *2.
Latif alleges that, starting in the autumn of 2017, he was subjected to, inter alia, improper comments regarding his sexual orientation, inappropriate touching, and sexual advances. Id. He also claims that around February 2018, he was sexually assaulted by a female supervisor. Id. Latif reported these incidents to Human Resources in February 2018. Id. at *2-3. On August 1, 2018, Latif’s employment was terminated. Id. at *3.
On December 10, 2018, Latif filed a lawsuit alleging, inter alia, discrimination, a hostile work environment, and retaliation. Id. The parties disputed whether the Arbitration Agreement was enforceable as to Latif’s sexual harassment claims “in light of the recently enacted New York Law, N.Y. C.P.L.R. § 7515.” Id. at *4. Morgan Stanley and the individually named defendants moved to compel arbitration. Id.
In granting the motion to compel, the court reviewed United States Supreme Court cases interpreting the FAA and quoted Section 2 of the FAA which provides, in relevant part:
Id. at *5 (quoting 9 U.S.C. § 2). The court emphasized that the FAA’s “saving clause” only allows for “‘defenses that apply to “any” contract,’” thereby ensuring that arbitration contracts are afforded equal treatment. Id. at *5 (quoting Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1622 (2018)). Accordingly, “arbitration agreements may be ‘invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability.’” Id. at *5-6 (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). However, “‘defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue’ will not invalidate such an agreement.” Id. at *6 (quoting Concepcion, 563 U.S. at 339). Further, the saving clause does not preserve defenses that “‘target arbitration either by name or by more subtle methods.’” Id. (quoting Epic Sys., 138 S. Ct. at 1622).
The court also opined that any state law which “‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA’” is preempted. Id. at *6 (quoting Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1415 (2019)). Therefore, “‘[w]hen a state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.’” Id. (quoting Concepcion, 563 U.S. at 341).
The court next summarized the New York State law at issue, § 7515 of the CPLR, titled “Mandatory arbitration clauses; prohibited,” which restricts the arbitration of sexual harassment claims. Id. at *7-8. Section 7515(b) consists of three subparts. “Except where inconsistent with federal law,” subpart one prohibits a written contract entered into on or after the effective date from containing a “prohibited clause.” CPLR § 7515(b)(i) (emphasis added). A “prohibited clause” is defined as “any clause or provision in any contract which requires as a condition of the enforcement of the contract or obtaining remedies under the contract that the parties submit to mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment.” CPLR § 7515(a)(2).
Subpart two makes clear that § 7515 does not “impair or prohibit an employer from incorporating a non-prohibited clause or other mandatory arbitration provision” in a contract agreed upon by the parties. CPLR § 7515(b)(ii). Subpart three provides that, “[e]xcept where inconsistent with federal law,” the provisions of a “prohibited clause” as defined by the law “shall be null and void,” and the inclusion of such a clause “shall not serve to impair the enforceability of any other provision of such contract.” CPLR § 7515(b)(iii) (emphasis added).
The court concluded that Latif’s sexual harassment claims were subject to mandatory arbitration under the Arbitration Agreement. Latif, 2019 U.S. Dist. LEXIS 107020, at *8. The law did not render the agreement to arbitrate sexual harassment claims null and void because the outcome would be inconsistent with federal law, specifically, the FAA. Id. at *8-9. The court made clear that the FAA’s “strong presumption that arbitration agreements are enforceable” was “not displaced by § 7515.” Id. at *9.
In addition, the FAA’s saving clause did not allow for the application of § 7515 to invalidate the agreement, because § 7515(a)(2) singles out “contract provisions that require ‘mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment.’” Id. (quoting CPLR § 7515(a)(2)). In this way, § 7515(b) is a “‘state law prohibit[ing] outright the arbitration of a particular type of claim,’” which the Supreme Court has made clear is “‘displaced by the FAA.’” Id. (quoting Concepcion, 563 U.S. at 341).
Latif argued that § 7515 was part of a bundle of sexual harassment provisions in a single bill that reflected “a general intent to protect victims of sexual harassment,” and was not specifically intended to single out arbitration clauses for special treatment because the section “affects a number of different types of contracts and contract provisions.” Id. at *9-10. Latif also argued that because § 7515 does not apply to all arbitration, but only to sexual harassment claims, it was “not inconsistent with the FAA.” Id. at *10. The court dismissed these arguments and focused instead on the plain language of the law which is targeted specifically to sexual harassment and does not create a general contract defense. Id.
Latif further asserted that New York’s substantial interest in “transparently addressing workplace sexual harassment” was a “ground ‘in equity for the revocation of any contract’ and thus not displaced by the FAA.” Id. (quoting 9 U.S.C. § 2). The court responded that to take advantage of the saving clause the basis for providing an exception to arbitration must be generally applicable to all contracts. Id. at *10-11.
In a footnote, the court addressed the June 19, 2019 legislation passed by the New York legislature that would amend § 7515 “to encompass mandatory arbitration of claims of discrimination generally, rather than specifically of sexual harassment.” Id. at *9 n.2. The court stated, without further elaboration, that “[f]or the same reasons described above, § 7515 as so amended would not provide a defense to the enforcement of the Arbitration Agreement.” Id.
The court’s holding in Latif overturns New York State’s attempt to prohibit mandatory arbitration of sexual harassment and discrimination claims. Although the reasoning in Latif is well-grounded, the decision may still be appealed to the Second Circuit, so employers should continue to exercise caution. Employers are encouraged to review their agreements to ensure that they explicitly state that they are governed by the FAA.
The Latif decision does not apply in New Jersey; however, a similar analysis may likely lead to a similar conclusion in New Jersey. A court may find that the restrictions single out the arbitration of certain disputes for different treatment and do not create a defense applicable to all contracts.
Tags: Arbitration Agreements, CPLR, Discrimination, FAA, Federal Arbitration Act, James J. Sawczyn, Latif, MeToo, Morgan Stanley, New Jersey, New York, New York Civil Practice Law and Rules, Patrick G. Brady, Sexual Harassment