U.S. District Court Holds New York Law Prohibiting Mandatory Arbitration of Sexual Harassment Claims Is Invalid

In April, 2018, Governor Cuomo signed the New York State Budget bill that included legislation focused on combating sexual harassment in the workplace. Among the provisions in the law, was a statewide prohibition against employment agreements that require the mandatory arbitration of sexual harassment claims. On June 26, 2019, the U.S. District Court for the Southern District of New York held, in Latif v. Morgan Stanley & Co. LLC, that this New York law prohibiting mandatory arbitration of sexual harassment claims is inconsistent with the Federal Arbitration Act (“FAA”) and is therefore invalid.

In Latif, the plaintiff was hired by Morgan Stanley and signed a written offer letter that included an agreement that all claims against Morgan Stanley (including claims involving sexual harassment) were subject to mandatory arbitration.  After commencing employment, plaintiff alleged that he became the target of inappropriate comments regarding his sexual orientation, inappropriate touching and sexual advances. He also claimed that his female supervisor sexually assaulted him. Six months after reporting the allegations to the human resources department, the plaintiff was terminated.

The plaintiff filed a lawsuit in the U.S. District Court for the Southern District of New York, and instead of answering the complaint, Morgan Stanley moved to compel arbitration of the plaintiff’s claims.  The Court granted Morgan Stanley’s motion to compel arbitration, holding that the FAA requires the enforcement of written arbitration agreements to resolve controversies except in very limited circumstances.  Relying on a number of U.S. Supreme Court decisions, the court noted that the FAA requires arbitration agreements to be treated in the same manner as any other contract and that a state could not subject an arbitration agreement to more scrutiny than other contracts. Because the new law prohibits the mandatory arbitration of sexual harassment claims, it treats an arbitration agreement less favorably than other contracts, which violates the plain language of the FAA. Thus, the New York law prohibiting mandatory arbitration of sexual harassment claims was held to be preempted by the FAA and is therefore unenforceable.

The Court also noted in a footnote that the New York law prohibiting mandatory arbitration of sexual harassment claims was expanded on June 19, 2019, to include all discrimination claims under the New York Human Rights Law.  The Court held that the amended law also “would not provide a defense to the enforcement of the Arbitration Agreement.”