By Francine Foner, Esq., Ty Hyderally, Esq.
LVMH Moët Hennessy Louis Vuitton Inc. (“LVMH”), based in Paris, France, is comprised of 75 “houses” of high-end products, including 17 houses in LVMH’s Fashion and Leather Goods sector, which includes Louis Vuitton, Fendi, Christian Dior, Givenchy, and Marc Jacobs. LVMH’s website boasts that it maintains an employee code of conduct for all its executives and employees, which states that LVMH prohibits all forms of discrimination and physical, sexual, verbal or psychological violence and harassment. However, according to her complaint, when LVMH’s NY-based vice president of legal affairs and litigation counsel, Andowah Newton (“Newton”), suffered persistent and pervasive sexual harassment by a senior management employee, she was met with scorn and retaliation. Newton alleges that LVM demanded that she apologize to her harasser, and LVMH promoted him and insisted his sexual behavior was part of the culture at a French company. Newton then filed suit in the New York Supreme Court against LVMH, alleging violations of the New York State Human Rights Law (New York Executive Law § 290, et seq.) and the New York City Human Rights Law (New York City Administrative Code § 8-101, et seq.).
LVMH moved to stay the action and compel arbitration of Newton’s sexual harassment claims based on an arbitration clause in Newton’s current employment agreement, which she entered into on December 17, 2014. That arbitration provision states, in pertinent part, that Newton agrees to submit to binding arbitration:
[A]ll disputes and claims of any nature that Employee may have against Company, or any of its . . . employees . . . in their capacity as such, . . . including any and all statutory, contractual, and common law claims (including all employment discrimination claims) . . .
However, on July 10, 2020, the New York Supreme Court issued a decision refusing to compel arbitration of Newton’s sexual harassment claims, based upon New York Statute CPLR 7515, enacted in 2018, “eradicating mandatory arbitration of sexual harassment claims.” Newton v. LVMH Moët Hennessy Louis Vuitton Inc., No. 154178/2019, 2020 WL 3961988, 2020 N.Y. Slip Op. 32290(U) (N.Y. Sup Ct, New York County July 10, 2020). Although CPLR 7515 prohibits such arbitration clauses “entered into on or after” the law’s effective date of July 11, 2018, the Court interpreted the law as also declaring “null and void” then-existing mandatory arbitration clauses, such as the one in Newton’s 2014 employment agreement.
The Court rejected LVMH’s claim that the Federal Arbitration Act (the “FAA”) (9 USC § 1, et seq.), a federal law which requires certain arbitration clauses to be enforced, and required that the parties proceed to arbitration of Newton’s sexual harassment claims, in lieu of litigating the claims in court. The Court found that the FAA, by its express terms, applies only to “a transaction involving commerce.” The Court further reasoned that “[b]ecause claims for sexual harassment, or other discrimination-based claims, cannot reasonably be characterized as claims concerning or ‘arising out of’ ‘a transaction involving commerce,’ and additionally because the instant case involves purely intrastate activity, [i.e, the alleged discrimination took place in LVMH’s New York City offices] the FAA cannot reasonably be said to apply to the Arbitration Agreement’s reference to arbitration of sexual harassment or other discrimination-based claims.”
In rejecting application of the FAA to sexual harassment claims, the Court respectfully disagreed with a 2019 decision by the United States District Court for the Southern District of New York which held otherwise, Latif v Morgan Stanley & Co. LLC (2019 WL 2610985 [SDNY June 26, 2019). In doing so, the Court noted that the Latif decision did not address the FAA’s language limiting its scope to “a transaction involving commerce” (9 USC § 2), or any of the other considerations discussed by the Court.
The Court further reasoned that to find that the FAA applied to sexual harassment claims would have made the enactment of CPLR 7515 entirely futile. As the Court opined, “[t]o suggest that the Legislature toiled to promulgate the general rule of CPLR 7515 only to have it immediately swallowed up by a ‘federal law’ exception, would be to suggest an ‘objectionable, unreasonable or absurd consequence’” and that “a plain and proper reading of the FAA does not support the notion that CPLR 7515 was preempted from the moment of its inception, by the FAA.”
The Court further held that CPLR 7515’s prohibition of mandatory arbitration of sexual harassment claims “is reasonably construed to apply retroactive to the time prior to its enactment in 2018, such as in 2014 when [Newton’s] Arbitration Agreement came into existence.” In opining that the Legislature intended retroactive application of the statute’s “null and void” provision, the Court explained that “no prospective-only language was inserted by the Legislature with regard to nullification of “prohibited clauses” then in existence.”
The Court also found that arbitration of Newton’s sexual harassment claims could not be compelled on a wholly separate ground, namely, that on November 26, 2018, not long after CPLR 7515 came into effect on July 11, 2018, LVMH published and distributed to all its employees, including Newton, an updated employee handbook containing “Non-Discrimination and Anti-Harassment Policy,” which expressly provided employees with the option to “file a complaint in state court.” In addition, the employee handbook stated in its policy and on the acknowledgment form that “[t]hese policies fully replace and supersede any and allwritten Company policies on these subjects…”
Therefore, the Court held that this policy was intended to supersede and effectively nullified the 2014 arbitration clause, based upon the express language in the handbook, as well as the timing of the issuance of the new policy shortly after the enactment of CPLR 7515.
On July 23, 2020, LVMH filed a Notice of Appeal to the Appellate Division, First Department, which is currently pending. This case is sure to be followed with keen interest by all sides!
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