The Southern District of New York Holds That New York’s Prohibition of Pre-Dispute Mandatory Arbitration of Sexual Harassment Claims Is Preempted by the FAA

In April 2018, as part of a major reform to combat sexual harassment in the workplace, New York enacted a law rendering pre-dispute agreements to arbitrate sexual harassment claims null and void “[e]xcept where inconsistent with federal law.” CPLR 7515(b)(iii). We previously noted that there were serious questions as to whether the purported prohibition had any practical application, given the strong preference for arbitration demonstrated in the Federal Arbitration Act (FAA) and consistently restated in numerous decisions of the United States Supreme Court and lower courts. On June 26, 2019, Southern District of New York Judge Denise Cote enforced a pre-dispute arbitration agreement to require arbitration of a hostile work environment cause of action, holding that CPLR 7515 does not displace the FAA’s strong presumption that arbitration agreements are enforceable.

Judge Cote’s decision, Latif v. Morgan Stanley & Co. LLC, et al., No. 18-CV-11528, is the first judicial opinion to address the validity of CPLR 7515’s pre-dispute arbitration ban. In Latif, the plaintiff alleged, among other things, a hostile work environment claim based on sexual harassment. The defendants filed a motion to compel the claims to arbitration based on an arbitration agreement the plaintiff agreed to at the commencement of his employment. The only issue in dispute was whether plaintiff’s claims of sexual harassment were subject to arbitration in light of CPLR 7515.

Judge Cote held that the plaintiff’s sexual harassment claims were subject to mandatory arbitration because application of CPLR 7515 to invalidate the parties’ agreement to arbitrate such claims would be inconsistent with the FAA. In support, she cited the “liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract” and the Supreme Court’s pronouncement that a “state law prohibit[ing] outright the arbitration of a particular type of claim . . . is displaced by the FAA.”

Significantly, in a footnote, Judge Cote addressed a bill, A8421/S6577, passed by the New York legislature on June 19, 2019, which would (among other things) expand the prohibition of pre-dispute arbitration agreements in CPLR 7515 to encompass all claims of discrimination. Judge Cote held that the amendment would not provide a defense to the enforcement of the parties’ arbitration agreement.

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Judge Cote’s decision helps clarify the uncertainty engendered by CPLR 7515. We will continue to monitor case law interpreting CPLR 7515. For questions or concerns regarding this Alert, please contact a member of Kramer Levin’s Employment Law Department.