New York Cannot Prohibit the Arbitration of Sexual Harassment Claims

Last year, amid the growing #MeToo movement, New York enacted a law that prohibited the mandatory arbitration of sexual harassment claims. The law declared any such contract provision entered on or after July 11, 2018, to be “null and void.” N.Y.C.P.L.R. 7515 (“7515”). Even before it was passed, legislators were concerned about the law’s ability to withstand challenge that it was preempted by the Federal Arbitration Act (FAA), which provides for the judicial enforcement of arbitration agreements and awards (the FAA applies in both state courts and federal courts). The U.S. Supreme Court strongly supports the FAA and has repeatedly ruled that its pro-arbitration mandate must be broadly interpreted. Perhaps aware of 7515’s shaky foundation in light of the FAA, the statute states that it applies “except where inconsistent with federal law.” N.Y.C.P.L.R. 7515(a)(4)(b)(i).

Well, the hammer has fallen. A recent decision by Judge Denise Cote, sitting in the Southern District of New York, has ruled that 7515’s arbitration ban is preempted by the FAA. In Latif v. Morgan Stanley & Co. LLC, et al., an employee (Latif) filed employment discrimination claims against Morgan Stanley and several individuals. Latif’s offer letter incorporated Morgan Stanley’s mandatory arbitration agreement, and per that agreement, any covered claim, including “statutory discrimination, harassment, and retaliation claims,” was to be arbitrated. Within a few months of his starting work, Latif claims he became the target of sexual advances and inappropriate comments regarding his sexual orientation, and that a female supervisor sexually assaulted him.

After reporting the incidents, Latif was fired. In response, he brought suit under Title VII, the New York State Human Rights Law, and other statutes, including New York’s Gender Motivated Violence Protection Act. Morgan Stanley then moved to compel arbitration via the FAA. Heeding the Supreme Court’s decision in Lamps Plus, Inc. v. Varela, Judge Cote granted the motion holding that because the state law prohibits “outright the arbitration of a particular type of claim,” it therefore “is preempted to the extent that it stands as an obstacle to the accomplishment and execution of the full purpose and objectives of the FAA.” Judge Cote further invalidated the law’s arbitration prohibition provision as “null and void.”

That the law may be for a laudable purpose and holistic in its efforts to deter sexual harassment did not protect it from being preempted. And while Judge Cote pointedly cited Justice Ginsburg’s dissent in Lamps Plus—in which she argued that there should not be mandatory arbitration between parties of unequal bargaining power where the issue of “consent” is murky—was a nod toward the worthy goal of 7515 and perhaps agreement with the dissent, in the end the trial court was bound by precedent and had little option but to grant Morgan Stanley’s motion to compel arbitration. Accordingly, Judge Cote handed another victory to the enforceability of employer arbitration agreements even in the face of state challenges.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance in specific situations.