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New York’s #MeToo Arbitration Law Faces Appeals Court Battles

Jan. 11, 2021, 3:30 PM

Fox News Network and LVMH Moet Hennessy Louis Vuitton will continue to battle with workers who want to keep their harassment and discrimination claims in court, in pending challenges that highlight the clash between arbitration clauses and state laws that aim to nullify them.

These cases are among the lawsuits filed by workers, including those this year against WeWork, Best Buy Co., and Baker Bros. Advisors LP, who wielded an arbitration carveout enacted by New York in 2018 for all cases involving employment discrimination.

At least two federal judges have ruled the Federal Arbitration Act—a law that favors enforcement of arbitration contracts and has been bolstered by the U.S. Supreme Court over the past two decades—preempts New York’s law.

But one state judge in July said the law allowed a former LVMH executive to bring her sexual harassment claims in court even though she signed an arbitration agreement—a decision that LVMH appealed.

The New York law was one of several state measures enacted in the wake of the #MeToo movement that sought to curb the widespread use of pacts that keep workplace disputes in private arbitration and out of public courts.

Similar laws in New Jersey and California face challenges from business groups seeking to clarify that the federal law preempts these attempts to limit arbitration.

Rulings in these cases could provide clarity for attorneys who advise companies on their arbitration policies, despite the fact that the FAA is a powerful barrier.

“On the employer side, they want clarity from the courts on how and when they enforce their arbitration agreements,” said Ruth Rauls, a partner at Saul Ewing Arnstein & Lehr, who practices in New York and New Jersey. “When states pass laws that cause the law to be murky, it makes it more difficult for everyone to figure out.”

Worker advocates have said arbitration allows companies to shield persistent harassment and discrimination. Proponents of the dispute resolution process say it’s quicker and more effective than litigation, and doesn’t necessarily benefit only employers.

“There is a certain symbolism to the constituencies that fight to eliminate arbitration, but they know in their heart of hearts that they have no hope of success,” said Sarah Cole, a professor and chair of alternative dispute resolution for The Ohio State University’s Moritz College of Law. “It does suggest that this is an important issue and keeps it in the mind of Congress.”

Business Uncertainty

More than half of workers are subject to mandatory arbitration, which has steadily increased over the decades, according to a 2018 study. Some large technology companies, including Microsoft Corp. and Google Inc. voluntarily ended their arbitration programs for certain employment claims.

Congress during the Biden administration could revive attempts to amend the FAA to allow more carveouts for workplace disputes. Absent that federal action, states like New York have stepped in with their own arbitration laws.

However, the state measures could create uncertainty for businesses that want to arbitrate employment disputes and lead to fights in court, attorneys and academics said.

In New Jersey, the U.S. Chamber of Commerce is fighting a state law that has arbitration carveouts. A court allowed that case to move forward, and trial is set for early 2021.

In California, a federal appeals court weighed a challenge to a law that also tried to limit the use of the arbitration agreements by banning employers from forcing workers to sign them as a condition of employment.

Robert Whitman, a Seyfarth Shaw partner in New York, said he sees no reason why companies that are already committed to arbitration as a method to resolve workplace disputes, shouldn’t hold that position in states with stricter arbitration laws.

“The state laws do create some uncertainty. There is a straightforward legal argument, but that said, no lawyer ever wants to tell a client, ‘Don’t worry about that law, it doesn’t mean what it seems to mean,’” Whitman said. “A law on the books may leave plaintiffs’ lawyers to take their chances and file a lawsuit in court on the theory that arbitration is prohibited.”

Federal Preemption

Over the past year, New York federal judges in discrimination lawsuits against Morgan Stanley and WeWork ruled that the FAA preempts the state’s arbitration law, meaning the workers can’t pursue their harassment and discrimination claims in court.

In the Morgan Stanley case, a former associate alleged he was bullied for being Muslim and gay. The WeWork case involves a former in-house attorney who accused the company of race and gender discrimination, unequal pay, and retaliation.

Both disputes were sent to arbitration, and the workers’ attempts to appeal the preemption issue to the U.S. Court of Appeals for the Second Circuit were shot down on various grounds.

The Second Circuit, however, is currently weighing a jurisdictional issue in a case against Fox News filed by Andrea Tantaros, a former co-host of Fox’s “The Five.” Tantaros, who wants to keep her sexual harassment claims in court, and is seeking to invalidate her arbitration agreement with the network under New York’s law.

The appeals court will decide whether her challenge belongs in federal or state court before reaching the merits of her case, which could eventually address preemption.

Attorneys and media representatives for Fox News declined to comment. Tantaros’ lawyer, didn’t immediately respond to emailed requests for comment.

State Court Gives Hope

Over the summer, a New York state judge reached a different conclusion on preemption in the case of Andowah Newton, LVMH’s vice president of legal affairs.

Newton claimed in a 2019 lawsuit that a senior level manager routinely leered at her, made inappropriate comments, and physically assaulted her. After years of alleged harassment, she filed a formal complaint. She said she was asked to apologize to her harasser.

The company filed a motion to send her claims to arbitration pursuant to an agreement she signed.

New York Supreme Court Judge Louis Nock ruled in favor of Newton on that issue, finding no federal preemption of New York’s law.

Nock said the state law applies because the alleged harassment happened in New York and didn’t trigger the FAA, which covers activity that involves interstate commerce. Because of this, he said, the arbitration clause Newton signed was null and void.

The company, represented by Winston Strawn, is appealing that decision, according to a Dec. 18 filing. The company didn’t comment beyond providing the information about the appeal.

“Arbitration agreements shield bad actors and allow the companies they work for to look the other way with no real repercussions, thereby giving harassers and discriminators free reign to victimize employees over and over,” said Newton’s attorney, Megan Goddard, a civil rights lawyer who practices in New York.

She added, “We will continue to do what we can to effect change via the courts, and the Newton decision is certainly a step in the right direction, but we may need Congress to stop the Federal Arbitration Act from running ramshod over discrimination laws.”

Seyfarth Shaw’s Whitman said the question of following a state or federal decision is nuanced. Normally a federal court’s interpretation of federal law will be entitled to more weight than a state court ruling.

But he said if a judge finds a state court’s interpretation more persuasive than the federal court’s, and there was no controlling decision on point, then that judge could adopt the state court’s reasoning.

‘Disheartening’ Conclusion

Susan Crumiller, a civil rights attorney in Brooklyn, said the state court’s ruling in Newton’s case gave her hope that the New York law would have a chance in other cases where she represented workers who had signed arbitration agreements.

These include a sexual harassment case against Best Buy Co., and a pregnancy discrimination case against Baker Bros. Advisors LP.

Attorneys and company spokespeople for Baker Brothers and Best Buy didn’t respond to emailed requests for comment.

Crumiller said after several months, she and her clients in both cases decided to consent to arbitration in the interest of keeping the cases moving along quickly.

“We could see that the companies thought that the threat of arbitration was a powerful threat that was going to scare us, and that we would have suffered great delays if we had waited for the Newton decision,” she said. “So we decided to just forge ahead. It was a tough decision, though. It’s disheartening.”

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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