Arbitrator to determine whether employer rescinded the arbitration agreement in sexual harassment case

The Appellate Division, First Department, has held that an arbitrator and not a court must determine whether a company rescinded a mandatory arbitration agreement by telling its employees in a written policy that sexual harassment claims may be filed in court. This ruling vacates a State Supreme Court ruling that held that New York's recent law that intended to outlaw mandatory arbitration in such cases is not preempted by the Federal Arbitration Act.

The case is Newton v. LVMH, issued on March 18. I argued the appeal on Newton's behalf. A few years ago, in the wake of the "Me Too" movement, New York enacted CPLR 7515, which states that sexual harassment claims should not be subject to mandatory arbitration. The plaintiffs' bar and sexual harassment activists hailed this law because it brings these cases into the open and not behind closed doors, and the courthouse is a more hospitable place to litigate these claims than private arbitration, in which arbitrators are not required to comply with the rules of evidence or even settled case law. (Also, there is no appeal from an adverse arbitration ruling, and the employer pays the arbitrator for her time on the case). But many courts have held that Section 7515 is a nullity because the Federal Arbitration Act authorizes the arbitration of employment discrimination cases. In Newton's case, the state trial court ruled in her favor, determining that the FAA does not preempt Section 7515. That ruling made news, as it was among the few arbitration rulings that favors the plaintiff. 

The First Department does not directly resolve whether the FAA renders Section 7515 a nullity, as it decides that Section 7515 does not have retroactive effect. That ruling means Newton cannot invoke Section 7515. Another appellate court is going to have to decide whether Section 7515 is enforceable in light of the FAA, which has been interpreted quite broadly over the years by the Supreme Court to include just about any claim you can imagine, so long as the parties have signed an arbitration agreement, usually at the outset of the plaintiff's employment when, let's face it, her bargaining position is minimized and management is not going to negotiate away its desire to take any employment disputes to arbitration.

What makes this case unique is that, after New York enacted Section 7515, it issued policy language to employers that found its way into personnel handbooks. LVMH, which includes the Louis Vuitton brand for which Newton works, did place that language into its policy manual, telling employees that they may pursue their sexual harassment claims in state court. That is what Newton did. 

Does the policy language supersede the arbitration agreement that Newton signed a few years earlier? The First Department cannot say, because the arbitration agreement also says that issues of arbitrability are to be resolved by an arbitrator. Newton tried to get around that threshold issue by arguing that this issue implicates strong issues of state public policy against sexual harassment, and the issue also touches upon traditional contract law, which is always a matter for the courts. The First Department disagreed, holding that the issues of whether an arbitration agreement may be rescinded by subsequent company policy is not a matter of strong state public policy. The court did not address the contract issue.