New York State Ban on Arbitration of Sexual Harassment Claims Preempted, Court RulesNew York Federal Court Holds That New York State’s Recently Adopted Ban on Pre-Dispute Agreements To Arbitrate Claims of Sexual Harassment Is Unenforceable as to Those Agreements Covered by the Federal Arbitration Act. July 1, 2019
On June 5, 2017, Mahmoud Latif signed an offer letter of employment with Morgan Stanley & Co., which included an agreement that “covered claims . . . will be resolved by final and binding arbitration.” “Covered claims” was defined to include “statutory discrimination, harassment and retaliation claims.” Latif alleges that in the fall of 2017, he became the target of inappropriate comments regarding his sexual orientation, inappropriate touching, sexual advances, and offensive comments about his religion. He also claims that a female supervisor sexually assaulted him around February 2018. Latif alleges that he reported the incidents to Morgan Stanley’s human resources department, and that after numerous e-mails and meetings with the human resources department, his employment was terminated around August 1, 2018.
On December 10, 2018, Latif filed a complaint in federal court against Morgan Stanley alleging discrimination, hostile work environment, and retaliation in violation of Title VII of the Civil Rights Act of 1964, the New York State Human Rights Law, and the New York City Human Rights Law, as well as additional claims under New York State law. Morgan Stanley moved to compel arbitration based on the arbitration agreement in Latif’s offer letter. Latif conceded that he was bound to arbitrate all of his claims except for his claims of sexual harassment, but argued that Section 7515 prevented the court from compelling arbitration of those claims.
The court explained that the FAA “recognizes only defenses that apply to ‘any’ contract . . . establishing a sort of ‘equal treatment’ rule for arbitration contracts,” whereby arbitration agreements may be “invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability,” and that the FAA “does not save defenses that target arbitration either by name or by more subtle methods.” Critically, “[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.”
Against this backdrop, and after analyzing the purposes of Section 7515 to “deal with the scourge of sexual harassment” and to “handle all different kinds of sexual harassment situations,” the court had no trouble finding that because Section 7515 reflected a “state law prohibit[ing] outright the arbitration of a particular type of claim”—sexual harassment claims—it was preempted by the FAA. The court rejected Latif’s arguments that because Section 7515 was enacted as just one of a bundle of provisions “reflect[ing] a general intent to protect victims of sexual harassment and not a specific intent to single out arbitration clauses for singular treatment,” it did not “run afoul of the FAA’s prohibition on arbitration-specific defenses,” and that Section 7515 “does not disfavor all arbitration, but only arbitration of sexual harassment claims.” The court found that “nothing in the bill suggests that the New York legislature intended to create a generally applicable contract defense.”
The court further rejected Latif’s argument that because requiring arbitration of sexual harassment claims “interfere[s] with New York’s substantial state interest in transparently addressing workplace sexual harassment,” Section 7515 “is a ground ‘in equity for the revocation of a contract,’” finding that “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.” Accordingly, the court granted Morgan Stanley’s motion to compel arbitration, including of Latif’s sexual harassment claims.
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