As we reported on June 21, New York blew the lid off 30 years of sexual harassment and discrimination law by passing legislation that, among other things, bars mandatory arbitration of all claims of discrimination. That earthquake was followed by a substantial aftershock: according to a federal court, that provision of the state law doesn’t square with federal law, which specifically permits arbitration of these claims.

This latest monkey-wrench was thrown into the gears just last week by federal district court Judge Denise Cote when she held that New York’s arbitration law prohibiting arbitration of sexual harassment claims (effective as of July 2018 and reported on by this blog last year) is preempted by the Federal Arbitration Act (“FAA”), and is therefore invalid. This is the first case deciding the merits of this arbitration exclusion. And although Judge Cote didn’t formally rule on the more general, brand-new bar on arbitration of all discrimination claims (harassment or not), she observed in a footnote that the more general bar suffers from the same problem and is probably preempted by federal law, too.

This decision will likely result in a failure-to-launch of the arbitration prohibitions in this latest round of legislation. But for now, here’s the unsettling message for employers navigating the ever-shifting landscape of discrimination law obligations: the new provisions of New York law barring mandatory arbitration of all employment discrimination claims will be struck down, but for the time being, you can’t count on it.


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In a ruling that widens the divide between federal appellate courts, the Ninth Circuit sided today with the Seventh Circuit and the National Labor Relations Board (“NLRB”) in holding that the class action waiver provision of a company’s arbitration agreement with employees violates the National Labor Relations Act (“NLRA”). Prior to this decision, the Seventh Circuit was alone in its dissention from the federal majority with respect to this issue.

The United States Supreme Court in AT&T Mobility v. Concepcion made clear that class waivers are enforceable under the Federal Arbitration Act (“FAA”), at least in the context of consumer class actions, and that state laws that inhibit the full effectuation of the FAA are void. The NLRB, however, in its continuing bid to establish its relevance in the contemporary workplace, has challenged class waivers executed by employees; in D.R. Horton, Inc. v. NLRB, the NLRB held in 2012 that employees’ Section 7 rights are violated by such waivers, and that the FAA does not override this right. The NLRB’s ruling in D.R. Horton spawned a great deal of commentary and litigation – the NLRB’s ruling that class waivers are unenforceable was itself rejected by an appellate court in the Fifth Circuit. A host of federal appellate courts, as well as lower courts, have also criticized the NLRB’s ruling and refused to adopt its reasoning. Notably, the Fifth Circuit decision emphasized that the use of class action litigation is a procedural, rather than a substantive right, and that prohibiting class action waivers would discourage arbitration and, thus, violate the spirit and purpose of the FAA.


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Ambiguities in employee arbitration agreements may force employers to litigate putative class action claims in arbitration. The California Supreme Court delivered this cautionary message by its recent holding in Sandquist v. Lebo Automotive, Inc. In Sandquist, the plaintiff, an African-American male, filed a discrimination class action on behalf of “current and former employees of color” following his separation from the company. The company filed a motion to compel individual arbitration, relying on an arbitration clause the plaintiff signed in three separate documents upon commencing his employment. The trial court granted the company’s motion, concluding that the existing case precedent required the court – rather than the arbitrator – to determine whether class arbitration was available. Ultimately, the trial court interpreted the arbitration agreements’ as impliedly prohibiting class arbitration and, on that basis, struck the class allegations.

Upon review, the Court of Appeal reversed the trial court, holding that the arbitrator, not the trial court, must determine whether an arbitration agreement permits class arbitration. The California Supreme Court granted review and, on July 28, 2016, a narrowly divided Court affirmed the Court of Appeal, holding that the question of whether a court or an arbitrator decides if an arbitration agreement permits class claims should be determined on a case-by-case basis, specifically focusing on the agreement’s terms and resolving any ambiguities in favor of the non-drafting party. By its decision, the Court placed itself at odds with numerous federal appellate courts that have held that such questions are for a court, not an arbitrator, to decide.


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