Court Rules on New York State Law Banning Mandatory Arbitration of Sexual Harassment Claims

Mandatory arbitration clauses have become a common feature in many employment contracts, requiring employees to submit their claims to alternative dispute resolution (ADR) instead of going to court. As New York City sexual harassment attorneys, we have found that arbitration often tends to favor defendants in employment disputes. It also deprives aggrieved employees of their “day in court,” since ADR proceedings are usually subject to non-disclosure rules. The state of New York enacted a law invalidating mandatory arbitration clauses in sexual harassment cases. This was meant to ensure that individuals alleging sexual harassment could have their day in court. Earlier this summer, however, a Manhattan federal court ruled that the Federal Arbitration Act (FAA) preempts the New York law.

Employment statutes at multiple levels in New York City prohibit discrimination on the basis of sex and other factors. Under all of these laws, sexual harassment is considered to be sex discrimination. Each statute defines procedures that claimants must follow in order to assert their rights. Federal law, for example, requires a claimant to file an administrative charge with a federal agency before they may file suit in a court of law. Mandatory arbitration clauses prevent claimants from initiating both administrative and judicial proceedings.

Arbitration resembles a courtroom trial in some ways. Both sides present evidence and arguments to a neutral third-party arbitrator, and the arbitrator makes a decision. If the contract calls for binding arbitration, the similarities to an official lawsuit mostly end. Under the FAA, courts of law may not vacate a binding arbitration award unless there is evidence of “corruption, fraud, or undue means,” or other “misconduct.” 9 U.S.C. § 10(a). A court may not modify a binding arbitration award without evidence of a “material miscalculation” or other error. Id. at § 11.

The Supremacy Clause states that federal law is “the supreme Law of the Land.” U.S. Const. Art. VI, cl. 2. The U.S. Supreme Court has ruled that federal law preempts state and local laws that “stand[] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Hines v. Davidowitz, 312 US 52, 67-68 (1941). This includes state arbitration laws that conflict with the FAA. See, e.g. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011); Lamps Plus, Inc. v. Varela, 587 U.S. ___ (2019).

In 2018, the New York Legislature passed a bill that bars enforcement of contractual provisions requiring arbitration “to resolve any allegation or claim of an unlawful discriminatory practice of sexual harassment.” N.Y. C.P.L.R. § 7515(a)(2). The law renders such provisions “null and void,” “except where inconsistent with federal law.” Id. at § 7515(b)(iii).

In December 2018, a former employee of a financial services firm filed a federal lawsuit alleging sexual harassment and other claims against his former employer and multiple former coworkers. The defendants moved to compel arbitration, citing a clause in the plaintiff’s employment contract. The plaintiff cited New York state law.

The court ruled in the defendant’s favor in June 2019. It noted that Justice Ginsburg cited § 7515 in her dissenting opinion in Lamps Plus. Ultimately, however, it found the “except where inconsistent with federal law” language of § 7515 to be the controlling factor.

The knowledgeable and experienced New York City sexual harassment attorneys at Phillips & Associates help workers assert their rights in claims under local, state, and federal law. Please contact us online or at (212) 248-7431 today to schedule a free and confidential consultation to discuss your case.

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