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Southern District of New York Sends Sexual Harassment Claim To Arbitration

A trial judge in the Southern District of New York found that a sexual harassment claim was subject to a mandatory arbitration clause, even though a New York law recently enacted in the wake of the #MeToo movement nullified agreements to arbitrate sexual harassment claims. Latif v. Morgan Stanley, et al., 18-cv-11528-DLC (S.D.N.Y. June 26, 2019).

In Latif, a male employee of Morgan Stanley alleged in his federal court complaint that he was sexually harassed, assaulted and subjected to discrimination, retaliation, and a hostile work environment.  At the start of his employment, however, Latif had signed an Arbitration Agreement that was incorporated into his offer letter.

The Arbitration Agreement explained that “covered claims,” which included “statutory discrimination, harassment and retaliation claims,”  would be “resolved by final and binding arbitration[.]”   Understandably, then, Morgan Stanley argued that the Arbitration Agreement mandated arbitration, rather than litigation, of Latif’s sexual harassment claim.  (The parties agreed that every other claim in Latif’s complaint required arbitration.)

Complicating matters, though, New York law has provided since last July that mandatory arbitration clauses concerning sexual harassment are null and void.  N.Y. C.P.L.R. § 7515.  The intent of this law is to provide victims of workplace sexual harassment with their day in court, as opposed to binding arbitration.

The catch, however, is that the New York statute will only invalidate these arbitration clauses if doing so would not be “inconsistent with federal law.”  The Federal Arbitration Act (FAA) is the preeminent federal law on arbitration and has been consistently held by the courts – including, notably, the Supreme Court’s decisions last year in Epic Systems v. Lewis and this year in Lamps Plus v. Varela  – to preempt state law.  Because the FAA presumes that arbitration clauses are generally valid, any employment agreement governed by the FAA that contains an arbitration clause of sexual harassment claims will likely still be subject to arbitration.  Given these circumstances, the Southern District of New York concluded that that state’s law “cannot overcome the FAA’s command that the parties’ Arbitration Agreement be enforced.”

Maryland recently passed a statute similar to New York’s.  The Disclosing Sexual Harassment in the Workplace Act of 2018, which took effect October 1, 2018, renders null and avoid arbitration clauses in employment agreements “except as prohibited by federal law.”  Although the enforceability of arbitration clauses pertaining to sexual harassment appears to have not yet been litigated in Maryland, this will be an interesting area of the law to watch, particularly in light of the Court’s decision in Latif.

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