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HR Alert: NY Court Weighs in on Employment Contract Arbitration Clauses

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In March 2022, the federal government began prohibiting forced arbitration of sexual harassment and sexual assault disputes. These sorts of arbitration provisions are commonly contained in many employment agreements, and where enforceable, they limit employee/employer disputes to resolution by arbitratration rather than bringing a lawsuit in court.

The result of the 2022 Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (“the Act”) is to prohibit employers from using pre-dispute arbitration agreements to force an employee to arbitrate sexual assault and/or sexual harassment claims instead of going to court. Moreover, the law says that employers can’t preemptively force employees to waive their right to participate in a joint, class, or collective action relating to a sexual assault or sexual harassment dispute.

What are the courts saying now?

Recent decisions from the federal district court in the New York City area, called the Southern District of New York, have now addressed the Act’s impact on previously-signed arbitration provisions where an employee alleges non-sexual harassment claims in tandem with a sexual harassment claim.

The first case, Johnson v. Everyrealm, Inc., dealt with claims brought by an employee who had agreed to a broad mandatory arbitration provision that required “any dispute or controversy” that arose out of his employment to be arbitrated.

First, the court clarified that the Act’s reference to a “case” or “action” refers to an overall legal proceeding, even one that has multiple claims or causes of action within it. This determination was necessary as the Act prohibits pre-dispute arbitration clauses from being enforced against employees who bring a case under Federal, Tribal, or State law that relates to a sexual assault or a sexual harassment dispute. In his case, Mr. Johnson had alleged many other claims in addition to his sexual harassment claim including claims for race discrimination, pay discrimination, and whistleblower retaliation.

The defendants moved to compel arbitration and argued that Johnson’s sexual harassment claims were fabricated, requiring the dismissal of those claims and then arbitration for the remaining claims.

Contrary to the defendants’ arguments, however, the court found that Johnson had plead a plausible claim of sexual harassment in violation of the New York City Human Rights Law. The court construed the Act to render the arbitration clause unenforceable as to all of the claims since Johnson had a viable sexual harassment claim. In other words, the court held that, under the Act, unrelated claims brought alongside sexual harassment or sexual assault claims won’t be booted to arbitration instead of the courthouse.

However, to be clear, the Act hasn’t rendered all mandatory arbitration provisions useless. In Yost v. Everyrealm, Inc., the same court found that Ms. Yost hadn’t plead any plausible claim for sexual harassment, and as a result, her sexual harassment claims were dismissed. The court then was left to determine whether the Act applied to the remainder of her complaint, because the claims that were the source of the Act’s protection had been dismissed.

Despite Yost and certain interest groups arguing that the Act should apply even though the sexual harassment claims had been dismissed because they weren’t frivolous, the court rejected their argument and held that the purpose of the Act is to allow claimants the opportunity to litigate their sexual harassment-type claims, not any other employment claims. In the absence of a viable sexual harassment claim, then, Yost’s remaining claims must be resolved in arbitration.

Most recently, during the summer of 2023, the Southern District of New York revisited the Act and analyzed its own prior decision in Johnson. In the newest case, called Mera v. SA Hosp. Grp., LLC, Mr. Mera allegedly was bound by a broad arbitration provision, but because he had a sexual harassment claim, he brought his lawsuit in court.

In addition to his sexual harassment claims, Mera brought unrelated wage and hour claims on his own behalf and on behalf of his coworkers. This proved to be the deciding point, allowing the court to distinguish Johnson.  It concluded that the wage and hour violations to which all non-exempt employees at the business – not just Mera – allegedly were subjected precluded Mera from litigating anything other than his sexual harassment claims in court. Stated differently, since the wage and hour claims applied to coworkers who didn’t have sexual harassment claims, Mera was required to submit the wage and hour claims to arbitration only.

What does this mean for New York employers?

Employers:  be sure to review and consider revising your existing employment agreements. If you include an arbitration clause, it may be necessary to tailor its scope so that it complies with the Act. In an ideal world, no employers will face claims for sexual harassment, but, sadly, that’s not the case. Human resource professionals and in-house legal counsel should carefully review claims to ascertain whether arbitration remains viable and a motion to compel arbitration is likely to succeed.

As a reminder, all employers in New York State are required to conduct sexual harassment prevention training annually. Our team at The Coppola Firm is here to help with live training or remote, easily-accessible training at coppolatrainings.com.

Give us a call today, and we can review your current employment agreements as well as schedule your team’s yearly training.

Lisa Coppola

Written by Lisa Coppola

Founder of The Coppola Firm

Lisa A. Coppola, Esq. understands the challenges her clients face, whether they’re starting a new business, taking their existing operations in a new direction, or facing a claim or threat.

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