By Andrew Garcia

A federal court has slowed the momentum by legislatures—in this case, New York state’s—to bar arbitration in employment cases. A New York U.S. District Court judge has struck down the application of a recent state law which allowed employees to avoid mandatory pre-dispute employment agreements to arbitrate sexual harassment claims.

The statute at issue, NYCPLR § 7515, originally passed and signed into law a year ago, aimed to void arbitration clauses in employment contracts that require the use of arbitration proceedings to resolve workplace sexual harassment claims in New York state. In June, the New York Senate and Assembly passed amendments to § 7515 that expanded this prohibition to agreements that sought to arbitrate all workplace discrimination claims.

This year’s bill, awaiting Gov. Andrew Cuomo’s expected signature (see http://bit.ly/2SKnH0c), was a victory for lawmakers like the sponsor, State Democratic Senator Alessandra Biaggi. (She wrote on Twitter on June 19: “6 months & 2 public hearings later, we passed #BiaggiBill S6577 to expand protections for survivors, & hold New York employers, agencies, & organizations liable for all forms of workplace sexual harassment and discrimination.” See @SenatorBiaggi.)

But any victories may be short-lived. A federal court found that the currently enacted version of § 7515 was preempted by the Federal Arbitration Act and therefore invalid about a week after the amendments passed both New York houses.

On June 26, U.S. District Court Judge Denise Cote issued an opinion that deemed a recently modified New York State law preempted by the Federal Arbitration Act.  Latif v. Morgan Stanley & Co. LLC et al., No. 18cv11528 – Document 52 (S.D.N.Y. 2019) (available at http://bit.ly/2y9w6AL). In Latif, the plaintiff filed a suit against his employer, alleging discrimination and sexual assault claims. At the beginning of his employment, Latif signed an offer letter that incorporated by reference Morgan Stanley’s CARE Arbitration Program Arbitration Agreement.

Judge Cote found that the application of § 7515 to invalidate the parties’ agreement to arbitrate Latif’s claims would be inconsistent with the FAA. The opinion states that § 7515 does not displace the FAA’s presumption that arbitration agreements are enforceable. Judge Cote did not address the viability of § 7515 in purely an intrastate matter where the FAA would not be implicated.

The recently passed amendments to § 7515 are part of a growing trend in state and federal legislatures to pass laws that ban pre-dispute arbitration agreements for sexual harassment claims and more. In 2018, the Maryland legislature passed the Disclosing Sexual Harassment in the Workplace Act, which prohibited employers from enforcing arbitration agreements for sexual harassment or retaliation claims. In Vermont, the legislature passed “An Act Relating to the Prevention of Sexual Harassment,”  which prohibited agreements that prevent an employee from filing a sexual harassment claim in court.

The states have moved faster than Congress, but there is no shortage of proposals at the federal level. In the current session, there have been at least 11 new bills introduced to amend the FAA, the Fair Labor Standards Act, or the National Labor Relations Act to prohibit most employment and consumer pre-dispute arbitration agreements.

Table 1: 116^th Legislative Session Bills Pertaining to Arbitration (Senate = S; House = HR)

The bill with the most co-sponsors (215 House members and 34 Senators) and the most prominent media coverage is the Forced Arbitration Injustice Repeal (FAIR) Act, which would ban pre-dispute arbitration in employment, consumer, antitrust, and civil rights disputes. Introduced in both the House and the Senate, the FAIR Act was recently referred to the House Subcommittee on Antitrust, Commercial, and Administrative Law.

Another bill with growing support (96 House members and 18 Senators co-sponsoring) is the Bringing an End to Harassment by Enhancing Accountability and Rejecting Discrimination (BE HEARD) in the Workplace Act. The BE HEARD in the Workplace Act bans all pre-dispute arbitration agreements that require arbitration of a work dispute, and all post-dispute arbitration agreements where an employee’s consent was coerced, or if the agreement was not in sufficiently plain language likely to be understood by the average worker.

The BE HEARD in the Workplace Act would also amend the NLRA to expand “Unfair Labor Practices” to situations where an employer enters into or attempts to enforce any agreement that prevents litigation, or support of joint, class, or collective claims arising from or relating to the employment of a worker, coerces the worker to enter into such an agreement, and retaliates against a worker for refusing to enter into such an agreement. The House bill, sponsored by Rep. Katherine Clark, D., Mass., is currently in the Subcommittee on the Constitution, Civil Rights, and Civil Liberties.

Another key bill, with 48 members of the House and 18 Senators co-sponsoring, is the Restoring Justice for Workers Act. This bill would amend the NLRA to prohibit pre-dispute arbitration agreements that require arbitration of work disputes, retaliation against workers for refusing to enter into arbitration agreements and ensure that post-dispute arbitration agreements are “truly voluntary.” The House bill, sponsored by Rep. Jerrold Nadler, D., is currently in the Subcommittee on Antitrust, Commercial, and Administrative Law.

The Latif holding that the FAA preempts § 7515 might push federal and state lawmakers to accelerate the momentum of the pending federal legislation. Judge Cote in Latif notes that the law already had been cited by the U.S. Supreme Court, in dissent, as an example of state action that seeks to protect workers’ ability to bring sexual harassment suits in court in the wake of other top court decisions backing employment arbitration. See Lamps Plus v. Varela, 139 S. Ct. 1407, 1422 (2019) (Ginsburg, J., dissenting) (available at http://bit.ly/2GxwFbC).

Although legislation that has sought to ban fully pre-dispute arbitration agreements has not been successful, this could change given the political landscape and outcome of the 2020 election.

The author, a Summer 2019 CPR Institute intern, is a law student at Brooklyn Law School.