In 2011, the U.S. Supreme Court held that state laws prohibiting the use of arbitration to resolve disputes are preempted by the Federal Arbitration Act (FAA).
Since then, and especially in light of the #MeToo movement, a few state legislatures have attempted to take matters into their own hands. In 2018, New York passed a statute meant to address claims of sexual harassment in the workplace. (N.Y. C.P.L.R. § 7525.) Specifically, the statute prohibited contracts that required parties to submit to mandatory arbitration to resolve allegations or claims of unlawful sexual harassment.
In December 2018, an employee filed employment discrimination claims against his former employers, alleging that he became the target of inappropriate comments regarding his sexual orientation, inappropriate touching, sexual advances, and offensive comments about his religion. (Latif v. Morgan Stanley & Co. LLC, et al.) The employers moved to compel arbitration of the employee’s claims based on a signed offer letter, which incorporated, by reference, the employers’ arbitration agreement.
The arbitration agreement provided that any covered claim that arose between the employer and employee “will be resolved by final and binding arbitration as set forth in this Arbitration Agreement.” The agreement defined covered claims as common law claims and “statutory discrimination, harassment and retaliation claims.” The agreement further provided that it would be governed by, and interpreted in accordance with, the FAA. The parties did not dispute the enforceability of the arbitration agreement, and only contested the applicability as to the sexual harassment claims in light of the new state statute.
As the first New York court to address the obvious conflict between federal and state law, the court in Latif ruled that the New York statute prohibiting agreements to arbitrate sexual harassment claims was inconsistent with and violated the FAA. The court found that the employee’s sexual harassment claims were subject to mandatory arbitration and granted the employers’ motion to compel arbitration.
What does this mean for employers? Employers that are covered by the FAA can continue to rely on enforceable arbitration agreements to resolve disputes relating to sexual harassment.
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