Mandatory arbitration provisions are an increasingly common feature in many kinds of contracts, including employment contracts. Arbitration is a form of alternative dispute resolution that resembles a trial in many ways. It offers certain advantages over litigation, but it is often disadvantageous for employees. New York State law does not allow employers to enforce mandatory arbitration clauses in discrimination claims, including sexual harassment. A New York City court recently denied an employer’s attempt to do exactly this. It rejected the employer’s argument that federal law preempts the New York law. This conflicts with a 2019 decision by a federal judge in the Southern District of New York, which could be an issue in the pending appeal.
Sexual harassment is considered to be a form of unlawful discrimination on the basis of sex in two situations:
1. When acquiescence to sexual demands is a condition of employment, known as quid pro quo sexual harassment; or
2. When unwelcome sexual conduct is so severe or pervasive that it creates a hostile work environment.
In 2018, the New York Legislature enacted a law, codified as § 7515 of the New York Civil Practice Law and Rules, prohibiting “mandatory arbitration to resolve any allegation or claim of discrimination” under the New York State Human Rights Law or other employment antidiscrimination statutes.
The plaintiff in the state court lawsuit filed suit in April 2019 for sexual harassment and retaliation under state and city law. She alleges that the employer, a multinational fashion and luxury goods company, “did everything it could to bury the problem,” and that it tried to “convince [her] that the harassment was just a byproduct of being an attractive woman who works at a company with a French culture, and thus should simply be tolerated.”
The employer moved to enforce a mandatory arbitration clause in the employment contract she signed in 2014. The New York County Supreme Court denied the motion in July 2020 on the basis of § 7515 and the state’s “well-defined and dominant public policy against sexual harassment.”
The court also found that federal law does not preempt the New York statute. The Federal Arbitration Act (FAA) governs the enforceability of arbitration agreements, and of arbitration awards when the agreement states that the arbitrator’s decision will be binding. Section 2 of the FAA, the court observed, states that the statute only applies to “contract[s] evidencing a transaction involving commerce.” The court held that “claims for sexual harassment…cannot reasonably be characterized as…’a transaction involving commerce.’” It therefore ruled that the FAA does not preempt § 7505. The court acknowledged the 2019 federal court decision that reached the opposite conclusion, but discounted it because that court did not address the question of the FAA’s scope under § 2.
The court went on the find that § 7515 applies retroactively, meaning that it prohibits enforcement of an arbitration agreement signed in 2014, before it became law. Even if it were not retroactive, the court also found that the employer issued a revised employee handbook in 2018, after § 7515 became law. The revised handbook includes provisions specific to New York that acknowledge employees’ right to file an administrative complaint or a lawsuit, instead of submitting to arbitration.
The employment attorneys at Phillips & Associates represent New York City employees in claims for sexual harassment and other unlawful employment practices. Please contact us today online or at (212) 248-7431 to schedule a free and confidential consultation with a member of our experienced and knowledgeable team.