NY law restricting arbitration of sex harassment claims is ‘inconsistent with’ FAA; arbitration compelled

By Nicole D. Prysby, J.D. — The arbitration agreement was not unenforceable despite a 2018 New York law restricting mandatory arbitration of sexual harassment claims; invalidating the parties’ agreement to arbitrate would be inconsistent with the FAA.

A New York law rendering mandatory agreements to arbitrate sexual harassment claims null and void did not overcome the FAA’s strong presumption that arbitration agreements are enforceable, a federal district court in New York, compelling arbitration of an employee’s claims. The 2018 New York law renders agreements to arbitrate sexual harassment claims null and void—except where inconsistent with federal law; applying state law to invalidate the parties’ agreement to arbitrate would be inconsistent with the FAA. Nor did the FAA’s saving clause make the arbitration agreement unenforceable, because the New York law applies only to contract provisions that require mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment.

The state law presents no generally applicable contract defense so it is not a ground as exists at law or in equity for the revocation of any contract (as required to fall within the saving clause) but rather a state law prohibiting outright the arbitration of a particular type of claim (Latif v. Morgan Stanley & Co. LLC, June 26, 2019, Cote, D.).

Background. Upon hire, the Morgan Stanley employee signed an arbitration agreement. Covered claims were defined to include common law claims and statutory discrimination, harassment, and retaliation claims. The agreement also stated that it was governed by the FAA. After having complained internally of inappropriate comments regarding his sexual orientation, inappropriate touching, sexual advances, and offensive comments about his religion, he was fired. He brought multiple employment discrimination claims against his employer and seven individual employees under federal and New York law.

Claims must be arbitrated. Stipulating that all his claims were subject to arbitration with the exception of his sexual harassment claims, the parties disputed whether the employee’s sexual harassment claims were subject to the arbitration agreement in light of a recently enacted New York Law, N.Y. C.P.L.R. Section 7515. In the context of sweeping sexual harassment legislation, Section 7515 states that mandatory arbitration clauses are null and void, except where inconsistent with federal law.

Construing this provision, the court held that the employee’s sexual harassment claims were subject to mandatory arbitration. Section 7515 renders agreements to arbitrate sexual harassment claims null and void “[e]xcept where inconsistent with federal law,” and application of Section 7515 to invalidate the parties’ agreement to arbitrate would be inconsistent with the FAA, reasoned the court. The FAA sets forth a strong presumption that arbitration agreements are enforceable, and this presumption is not displaced by Section 7515.

No savings clause defense. The FAA’s saving clause also did not make the parties’ agreement unenforceable. Section 7515(b) applies only to contract provisions that require mandatory arbitration to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment. This provision is not “a ground as exists at law or in equity for the revocation of any contract” (which would be required to fall within the FAA’s saving clause), but instead a state law prohibiting outright the arbitration of a particular type of claim.

The court rejected the employee’s argument that Section 7515 reflects a general intent to protect victims of sexual harassment and not a specific intent to single out arbitration clauses for singular treatment. The employee asserted that the statute affects a number of different types of contracts and contract provisions, and, as a result did not run afoul of the FAA’s prohibition on arbitration-specific defenses. He also argued that because Section 7515 does not disfavor all arbitration, but only arbitration of sexual harassment claims, it was not inconsistent with the FAA. But the fact that Section 7515 was enacted concurrently with other laws that address sexual harassment does not alter the plain language of the law, reasoned the court.

Equity. The employee also asserted that because agreements mandating arbitration of sexual harassment claims interfere with New York’s substantial state interest in transparently addressing workplace sexual harassment, Section 7515 is a ground “in equity for the revocation of any contract” and not displaced by the FAA. This argument again ignored the plain language of the FAA’s saving clause and the many decisions construing it, which require any ground providing an exception to arbitration, whether in law or equity, to be generally applicable, stressed the court. Section 7515 presents no generally applicable contract defense, whether grounded in equity or otherwise, and as such cannot overcome the FAA’s command that the parties’ arbitration agreement be enforced.

Source: http://www.employmentlawdaily.com/index.php/news/ny-law-restricting-arbitration-of-sex-harassment-claims-is-inconsistent-with-faa-arbitration-compelled/