On June 26, 2019, United States District Court Judge Denise Cote, Southern District of New York, held in Latif v. Morgan Stanley & Co., LLC, et al., No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019), that New York’s ban on mandatory arbitration agreements of employment-related sexual harassment claims is preempted by the Federal Arbitration Act (“FAA”)
As previously reported in our blog in the wake of the #MeToo movement, New York enacted “sweeping legislation” to “deal with the scourge of sexual harassment”, including C.P.L.R. §7515, titled “Mandatory arbitration clauses; prohibited,” effective July 11, 2018.
As of July 11, 2018, the new law (1) prohibited contracts that require arbitration of sexual harassment claims and (2) rendered such clauses in then-existing contracts “null and void” except, in both instances, “where inconsistent with federal law.” The “exception” for “federal law” was a reference to the FAA, which the United States Supreme Court has routinely held, pre-empts State laws that limit arbitration.
In Latif, the arbitration agreement provided for final and binding arbitration” of any “statutory discrimination, harassment and retaliation claims.” Plaintiff Mahmoud Latif signed the agreement, alleged he was subjected to sexual harassment and ultimately terminated in retaliation for complaining about it. Latif filed suit and relied on CPLR § 7515 in opposition to Morgan Stanley’s motion to compel arbitration.
Judge Cote relied on AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), in which the United State Supreme Court held that “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” As such, Judge Cote held, C.P.L.R. § 7515 is “inconsistent with the FAA” because it specifically prohibited arbitration of sexual harassment claims.”
In a footnote Judge Cote noted that the New York’s June 19, 2019 Bill, amendment of Section 7515, “to encompass mandatory arbitration of claims of discrimination generally, rather than specifically of sexual harassment,” ban would be preempted for similar reasons.
It is highly unlikely that Latif will be appealed, and even if it were, even less likely it will be reversed. As such, FAA-covered employers may rely on mandatory arbitration provisions to resolve sexual harassment claims.