On March 18, 2021, the First Department, the appellate court located in Manhattan, issued a decision that set back, but did not eliminate, the fight against mandatory arbitration of employment discrimination cases. The court’s decision in Newton v. LVMH Moet Hennessy Louis Vuitton, 2021 N.Y. App. Div. LEXIS 1666 (1st Dept. Mar. 18, 2021), provides a key insight into the legal battleground surrounding compelled arbitration.
It has now become commonplace for employers to require employees, as a condition of their employment, to agree not to submit any discrimination claims that may arise to a jury. Rather, employees are compelled to agree that any claim will instead be submitted to arbitration, where their claims will be resolved by a lawyer or retired judge. Arbitration is a far less favorable forum than court for employees’ claims, which is why employers compel employees to “agree” to have their claims heard in arbitration, rather than by a jury.
As we have previously noted this blog (https://www.schwartzandperry.com/blog/2020/july/new-york-state-court-issues-groundbreaking-decis/), the lower court’s July 2020 decision in Newton interpreted a relatively recent state law (CPLR §7515) to invalidate many arbitration agreements.
The appeals court, however, reversed that decision and held that CPLR §7515 could not invalidate the arbitration agreement at issue since it was signed before the law was enacted.
The court then punted on some of the key issues presented by the lower court’s decision. Namely, the court held that it “need not resolve” the question of whether CPLR §7515 “is inconsistent with” the Federal Arbitration Act (“the FAA”). The FAA, enacted nearly a century ago in 1925, has been the bedrock for courts upholding arbitration agreements, since that law expressed a strong “preference” for arbitration. The lower court had noted that the FAA did not apply to an employment contract in NY and was superseded by CPLR §7515.
The appeals court sidestepped this crucial question and held that the arbitration agreement was not “unconscionable to the extent that it requires arbitration of” employment discrimination cases. The court noted that “Plaintiff can still pursue [her] claims against defendant in arbitration and hold it accountable,” though the court did not address the significant disadvantages that employees face in arbitration.
The lower court’s decision in Newton opened the door that the New York State legislature created with CPLR §7515 to prevent victims of employment discrimination from being forced into arbitration. The First Department’s reversal mostly closes that door, but leaves a crack that will be explored in future decisions. We’ll keep you posted.