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NY’s Prohibition of Arbitration for Harassment Overruled By Federal Court

In July 2018, New York passed a law prohibiting the use of arbitration in sexual harassment cases. That law was expanded in 2019 to include all harassment and discrimination claims. In a case predating the law’s expansion, a New York federal district court has held that the 2018 provision violates the Federal Arbitration Act (FAA).

Mahmoud Latif alleged that he was discriminated against, subjected to a hostile work environment, and retaliated against while working at Morgan Stanley. Latif claimed that offensive comments were made about his sexual orientation as well as his religion and that he endured inappropriate touching. He alleged that he complained to human resources and was terminated following his complaint. In its standard offer letter of employment, Morgan Stanley incorporates an agreement to resolve claims by arbitration. Covered arbitrable claims included “statutory discrimination, harassment and retaliation claims.” The FAA expressly governed the agreement.

When Morgan Stanley moved to compel arbitration, Latif objected that his sexual harassment claim should not be arbitrated under the New York law prohibiting it. The federal district judge concluded that the New York law was inconsistent with the FAA and that the FAA is clear in cases where there is a conflict. The FAA supersedes state law and a strong presumption of favoring enforcement is contained within the FAA. The judge noted that the recent law banning all mandatory arbitration in discrimination case would likely have the same problem with enforceability.