The New York Supreme Court Enforces New York’s State Law Prohibiting Mandatory Arbitration of Employment Discrimination Claims and Refuses to Compel Arbitration in Harassment Lawsuit

Key Points:

• On July 13, 2020, the New York Supreme Court in Andowah Newton v. LVMH Moët Hennessy Louis Vuitton Inc., Sup. Ct., N.Y. County, July 13, 2020, J. Nock, Index No. 154178/2019, slip op at p. 16, allowed the plaintiff employee (“Plaintiff”) to continue litigating her sexual harassment claims in court, rather than compelling arbitration under the terms of an arbitration agreement that she had signed.
• The Court held that New York’s prohibition on mandatory arbitration in Section 7515 of the Civil Practice Law and Rules was not preempted by the Federal Arbitration Act. The decision creates a split of authority regarding this issue.
• The Court also found that CPLR 7515 applies retroactively to make any offending arbitration clause already in existence null and void.
• In the alternative, the Court held that the defendant employer’s (“Defendant” or “Company”) own updated policies, which, in compliance with New York law requirements, informed employees they could bring claims in court, superseded the Plaintiff’s earlier agreement to arbitrate her claims.
• It remains an open question whether this decision will withstand appellate scrutiny and, if upheld, whether the Court’s holding will extend more broadly to other types of employment discrimination claims, such as quid pro quo harassment claims.

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The Decision

On July 13, 2020, the New York Supreme Court in Andowah Newton v. LVMH Moët Hennessy Louis Vuitton Inc., Sup. Ct., N.Y. County, July 13, 2020, J. Nock, Index No. 154178/2019, slip op. at p. 16, denied a motion to compel arbitration and enforced Civil Practice Law and Rules (CPLR) 7515, which prohibits agreements the require arbitration for certain employment discrimination claims.

Before Newton, it seemed clear that CPLR 7515 would be preempted by the Federal Arbitration Act (FAA) (see here for our prior discussion at the time), as federal courts indeed have found.¹ Under Newton, however, at least some employment claims brought in New York state court may remain in court even though the employee entered into an arbitration agreement.

In Newton, after the Plaintiff filed a sexual harassment claim in New York Supreme Court, the Company moved to compel arbitration, relying on an arbitration agreement the Plaintiff had signed in 2014 (the “2014 Arbitration Agreement”). Id. at pp. 2-3. The Court accepted the Plaintiff’s argument that CPLR 7515, which was enacted on July 11, 2018, and prohibits clauses mandating arbitration for employment discrimination claims, made Plaintiff’s arbitration agreement null and void. Id. at p. 12. In finding for the Plaintiff, the Court rejected the Company’s argument that the FAA, which generally requires enforcement of arbitration clauses, should preempt state law. Id. at p. 7. The Court noted that the FAA, by its terms, only applies to “a transaction involving commerce” (Id. at p. 6), and reasoned that claims for sexual harassment “cannot reasonably be characterized as claims concerning or ‘arising out of’ ‘a transaction involving commerce.’” Id. The Court also relied upon the fact that “the acts of sexual harassment and related retaliation alleged in [Plaintiff’s] complaint occurred intrastate – in [the Company’s] New York City offices.” Id. at p. 7.

In addition to rejecting the Company’s federal preemption argument, the Court also applied the New York law retroactively to make any contract existing at the time the law was enacted null and void. Id. at p. 11. This made the Plaintiff’s 2014 Arbitration Agreement null and void even though the Plaintiff entered into it years prior to the enactment of CPLR 7515. Id.

As an alternative ground for ruling in the Plaintiff’s favor, the Court analyzed the Company’s 2018 revised Non-Discrimination and Anti-Harassment Policy (the “Policy”). The Court held that the updated Policy itself nullified the Plaintiff’s 2014 mandatory arbitration agreement in that the Policy’s language detailed “avenues” through which victims can “lodge complaints,” including the express option to “file a complaint in state court.” Id. at p. 13. The Policy also stated that it would “supersede and fully replace” all prior policies relating to workplace discrimination, a statement repeated on the acknowledgement form that Plaintiff herself signed. Id. at pp. 13-14. Given this language, and the fact that the Policy was issued very soon after New York’s prohibition against mandatory arbitration of employment discrimination claims was embodied in CPLR 7515,² the Court concluded that the “the 2014 Arbitration Agreement’s mandate of arbitration of such claims became nullified of the Company’s own accord.” Id. at p. 14. In so holding, the Court also relied on the fact that “nothing in the 2014 Arbitration Agreement provid[ed] that it would remain effective even in the face of a future official Company policy expressly designed to address the very matter that was at stake [in the Agreement]” and, moreover, that “nothing in the 2018 Employee Handbook provid[ed] that it [would] not apply in the face of a prior arbitration agreement addressing the very matter at stake in that subsequent policy document.” Id.

Why the Newton Decision Matters and What It Means for New York Employers Right Now.

1. According to Newton, employment discrimination claims brought in New York state court that involve purely intrastate activity and no economic impact (such as harassment claims without a discharge) cannot be subject to arbitration agreements.

The Newton Court’s holding will make it more difficult to enforce arbitration provisions where harassment claims involve conduct in the same state without an economic impact. If Newton is followed, claims alleging hostile work environment harassment in a single office, and not alleging termination or another economic injury, could remain in court.

2. Claims involving interstate activity and claims with an economic component likely are still subject to arbitration.

The Newton Court is silent on whether other employment discrimination claims that may not be on “all fours” with its reasoning would be preempted by the FAA. For instance, the Court’s reliance on the fact that the Plaintiff’s harassment occurred exclusively in one office in one state suggests that a future harassment claim, where a victim and a perpetrator are in different states, or even where a company’s human resources department or other relevant decision makers are located in a state different from the victim or perpetrator, would call for a different result. Further, the Court expressly distinguished Supreme Court precedent³ that found an agreement to arbitrate employment-related disputes enforceable under the FAA because the case involved a termination, something that resulted in a loss of salary and benefits, and required back pay to remedy (Newton, at pp. 9-10), again, suggesting a termination claim would result in a different holding because such “economic” claims inherently are “transaction[s] involving commerce.”

3. Employers should consider reviewing their policy documents to prevent future arguments that its updated policies do not render prior arbitration agreements unenforceable.

As noted above, one of the Court’s reasons for nullifying the 2014 Arbitration Agreement was the express language in the employer’s policies, which should be instructive for employers on how to revise and improve their anti-harassment policies. As in Newton, many companies have updated their written policies to bring them in compliance with a New York law that requires employers to inform employees of external avenues where they can pursue claims of employment discrimination, including pursuing an action in court. Companies should review their policies in light of Newton and consider adding language to make clear that any existing arbitration provisions remain in effect. Employers should also remove any language stating that the updated policy “supersedes,” “nullifies” or even “voids” any prior policies. These changes will help an employer distinguish the reasoning put forth by the Newton Court, which resulted in the updated policy nullifying the Plaintiff’s arbitration agreement.

¹ See Latif v. Morgan Stanley & Co. LLC, No. 18-CV-11528 (DLC), 2019 WL 2610985 (S.D.N.Y. June 26, 2019); White v. WeWork Companies, Inc., No. 20-CV-1800 (CM), 2020 WL 3099969 (S.D.N.Y. June 11, 2020).

² When originally enacted on July 11, 2018, CPLR 7515 prohibited mandatory arbitration of sexual harassment claims, but a recent amendment, effective October 11, 2019, broadened the prohibition against mandatory arbitration to all employment discrimination claims.

³ Equal Employment Opportunity Commission v Waffle House, Inc., 534 US 279 (2002).