Arbitration Clauses Can Cause a Rift

In Latif v. Morgan Stanley & Co., plaintiff Mahmoud Latif complained to defendant Morgan Stanley’s HR department about his co-workers’ inappropriate comments regarding his sexual orientation and religion, inappropriate touching and sexual advances.

Latif also complained of a female supervisor sexually assaulting him. Morgan Stanley terminated him one year after he first complained. Latif brought suit in federal court alleging discrimination, hostile work environment and retaliation in violation of Title VII.

Morgan Stanley moved to compel arbitration under Latif’s employment agreement. In response, Latif argued the agreement was not enforceable as to his sexual harassment claims in light of a recently adopted New York law.

The New York law, N.Y. C.P.L.R. § 7515, prohibits employers from requiring employees to arbitrate claims of sexual harassment, except where inconsistent with federal law. The court found the New York law was inconsistent with federal law — specifically, the Federal Arbitration Act (the FAA), which states that arbitration clauses shall be valid, irrevocable, and enforceable, unless grounds exist for the revocation of any contract.

Similar to AT&T Mobility v. Concepcion, where the Supreme Court held the FAA preempts state laws prohibiting waivers of class-wide arbitration, this court found that the FAA preempted the New York law because it attempted to prohibit arbitration of a particular type of claim. Latif v. Morgan Stanley & Co. LLC, 2019 U.S. Dist. LEXIS 107020.

IMPACT: Employers should carefully craft arbitration clauses to comply with state law unless and until a court determines that the law is preempted by the FAA.