On June 19, 2019, the New York State Senate and Assembly passed legislation that would, if signed into law, broaden the scope of last year’s ban on clauses requiring employees to arbitrate sexual harassment claims so as to prohibit such clauses with respect to all types of discrimination claims. As reported on this blog, this ban on mandatory arbitration clauses was deemed invalid, as contrary to federal law, by the June 26, 2019 decision of the U.S. District Court for the Southern District of New York in Latif v. Morgan Stanley & Co. LLC, et al. (S.D.N.Y. No. 18-11528). It is too early, however, to declare the death of New York’s ban on mandatory arbitration clauses in harassment and discrimination claims. Absent diversity of citizenship, plaintiffs’ counsel may choose to assert only state-law claims in an effort to eliminate federal court jurisdiction over an employer’s petition to compel arbitration. As motions to compel arbitration will continue to be decided by New York state courts, employers should be mindful of the relevant New York decisions when drafting arbitration agreements and dispute resolution programs.

Like federal law, New York state law generally favors the enforcement of arbitration agreements. But there are important caveats. Initially, Section 7503 of the CPLR requires courts to decide certain threshold issues before compelling arbitration, including: whether there is an agreement to arbitrate; whether the agreement has been followed; and whether the underlying claim is barred by the statute of limitations. In addition, the New York Court of Appeals has held that certain issues are so “interlaced with strong public policy considerations that they have been placed beyond the reach of an arbitrator’s discretion.” Assoc’d. Teachers v. Board of Ed., 33 N.Y.2d 229, 335 (1973); accord City of NY v. Uniformed Fire Off. Ass’n., 95 N.Y.2d 273, 281 (2000); see also Merrill Lynch Pierce Fenner & Smith v. Benjamin, 1 A.D.3d 39, 44 (1st Dep’t. 2003).

In Brady v. Williams Capital Group, LP, 14 N.Y.3d 459, 467 (2010), which involved claims of race and gender discrimination, the Court of Appeals recognized that the policy favoring arbitration must sometimes yield to “an equally strong policy requiring the invalidation of such agreements when they contain terms that could preclude a litigant from vindicating his/her statutory rights in the arbitral forum.” The Brady court observed that arbitrator fees may “preclude a litigant from effectively vindicating her federal statutory rights.” Therefore, the Court of Appeals concluded that New York courts must evaluate whether the cost of arbitration is prohibitive on a case-by-case basis and consider: (1) the litigant’s ability to pay the fees; (2) the cost differential between arbitration and court litigation; and (3) whether the costs of arbitration might deter a party from bringing claims.

Employees may try to invoke these cases to argue that, regardless of what the federal district courts have said on the matter, their discrimination claims should not be arbitrated because New York has a strong public policy—as evidenced by the recent legislation—favoring judicial resolution of discrimination claims, and/or because arbitration is purportedly an ineffective means of vindicating their right to a discrimination-free workplace. The first contention, though, is belied by the fact that New York’s statutory nullification of mandatory arbitration clauses is expressly qualified: it applies “[e]xcept where inconsistent with federal law.” As explained here, the Latif opinion expressly rejected the arbitration ban as inconsistent with federal law. Further, under the rules of statutory construction, the New York legislature is presumed to be aware of the federal cases invalidating state legislation that purports to ban arbitration agreements. Thus, it will be difficult to argue that New York has a strong public policy against arbitrating claims of employment discrimination.

In light of the Court of Appeals precedent referenced above, however, employers doing business in New York should review arbitration agreements and dispute resolution programs to ensure that they provide employees with an effective means to vindicate their statutory rights. Employers should carefully evaluate any provision that requires employees to share arbitration costs, or requires an unsuccessful employee to pay costs or attorney’s fees. Likewise, employers should review any choice-of-venue provision that might require an employee to arbitrate in a distant forum, which may increase costs. Employers should also evaluate any choice-of-law provision that subjects New York-based employees to the laws of other states. Employers may also wish to emphasize that they engage in interstate commerce, as this may support arguments that arbitration agreements should be reviewed under the Federal Arbitration Act, even in state court. Finally, employers should review any procedural rules that restrict the employee’s right to participate in the arbitrator selection process, and should evaluate whether any permitted arbitral forum offers a diverse roster of neutrals.

Furthermore, employers should consider disclosures that remind employees of the benefits of arbitration. Arbitration agreements often advise employees that discovery is limited in arbitration and that they are forfeiting their right to a jury trial, without also noting the reasons why an employee might prefer arbitration—e.g., it is generally faster than traditional litigation and provides employees with the option of resolving claims confidentially. Indeed, in Latif, the plaintiff sought unsuccessfully to keep his identity confidential. And the recent New York legislation allows nondisclosure clauses in settlement agreements if requested by the employee, recognizing that some employees may value confidentiality. Of course, given the sensitivity around nondisclosure agreements, employers need to careful when discussing the benefits of confidentiality.

In sum, the Latif decision is a welcome development for many, and provides support for enforcing arbitration agreements. Nevertheless, until New York courts review the soon-to-be-expanded ban on mandatory arbitration clauses, employers should draft arbitration agreements and dispute resolution programs with the expectation that they will be challenged in state court.

Launched more than a decade ago, the #MeToo movement made its way into the national (and international) conversation in 2017, and, by 2018, the movement had such momentum that it spurred a cornucopia of new state laws.  One of these new laws, which became effective July 11, 2018, is a New York State statute that prohibits employers from requiring employees to submit sexual harassment claims to mandatory arbitration.  This new law is codified in Section 7515 of the Civil Practice Law & Rules of the State of New York (“C.P.L.R.”), entitled “Mandatory arbitration clauses; prohibited.”  Section 7515 reflects the New York State Legislature’s (which consists of the New York State Assembly and the New York State Senate) determination that employees should be allowed to have their sexual harassment claims adjudicated in a court of law, if that is their preference.  The introductory clause of Section 7515 also indicates, however, that legislators understood that an unqualified prohibition of mandatory arbitration might not pass muster under federal law:

Prohibition. Except where inconsistent with federal law, no written contract, entered into on or after the effective date of this section shall contain a prohibited clause as defined in paragraph two of subdivision (a) of this section.  (C.P.L.R. § 7515(b)(i).)

Hence, the statute engendered substantial uncertainty among employers.  Now, almost one year after C.P.L.R. § 7515 became law, a U.S. District Court Judge, the Hon. Denise Cote of the Southern District of New York, has addressed this confusion by opining on whether New York State may outlaw privately negotiated agreements to submit all disputes, inclusive of claims for sexual harassment, to arbitration.  In Latif v. Morgan Stanley & Co. LLC, et al., No. 1:18-cv-11528 (S.D.N.Y. June 26, 2019),  Judge Cote delivered a clear message about the collision of C.P.L.R. § 7515, which operates to constrain parties’ rights to agree to arbitrate claims, and the Federal Arbitration Act (the “FAA”), which, as repeatedly reinforced by the U.S. Supreme Court in recent years, mandates substantial deference to private arbitration agreements.  Employers, especially those in the financial services industry, have reason to cheer Judge Cote’s opinion in Latif, which restores a degree of certainty about whether a mandatory arbitration clause governing an employment relationship may still be enforced—at least in some courts.

The essential facts are as follows: Mahmoud Latif (“Latif”) signed an employment agreement (the “Offer Letter”) that incorporated by reference Morgan Stanley’s mandatory arbitration program.  Read together, these documents formed the “Arbitration Agreement” between Latif and Morgan Stanley.  The Arbitration Agreement provided that any “covered claim” that arose between Latif and Morgan Stanley would be resolved by final and binding arbitration, and that “covered claims” included, among other causes of action, discrimination and harassment claims.  Nevertheless, Latif commenced an action against Morgan Stanley in federal court, asserting, among other charges, claims of sexual harassment under federal, state and municipal law.  The Morgan Stanley defendants moved to compel arbitration of the entire case, inclusive of the sexual harassment claims.  Latif opposed that motion on the basis of C.P.L.R. §7515, which, according to Latif, expressed New York State’s “general intent to protect victims of sexual harassment,” and required the Court to retain jurisdiction over the sexual harassment claims—even though those claims fell clearly within the ambit of the Arbitration Agreement.

In granting Morgan Stanley’s motion to compel arbitration, inclusive of the sexual harassment claims, Judge Cote held that C.P.L.R. §7515 could not serve as the basis to invalidate the Arbitration Agreement.  The Court’s rationale is straightforward: C.P.L.R. §7515 purports to nullify agreements to arbitrate sexual harassment claims “except where inconsistent with federal law,” and the statute is indeed inconsistent with the FAA’s “strong presumption that arbitration agreements are enforceable.”  Judge Cote therefore stayed Latif’s court action pending the outcome of arbitration proceedings.

In light of the foregoing, to maximize the likelihood of full enforcement of an arbitration agreement, inclusive of claims for sexual harassment, employers should promptly consider the prospect of removal of a New York State court action to federal court, if circumstances otherwise permit such removal.

Finally, employers also should note that, on June 19, 2019, the New York State Legislature voted to amend Section 7515 to prohibit not only the mandatory arbitration of sexual harassment claims, but also the mandatory arbitration of any allegation or claim of discrimination.  While, as of this writing, the amendment has not yet been signed into law by the executive, it appears safe to predict that states will continue, in the near future, to attempt to prohibit or constrain mandatory arbitration of discrimination/harassment claims in a way that generates apparent conflict with federal law.  The Supreme Court’s adjudication of a constitutional challenge to C.P.L.R. §7515, and/or like statutes, under the Supremacy Clause of the U.S. Constitution seems to be a likely end-game.

Our colleagues 

As we previously reported, on April 9, 2019, the New York City Council passed Int. 1445-A, which prohibits employers from pre-employment drug testing for marijuana and tetrahydrocannabinols (“THC,” the active ingredient in marijuana). On May 10, 2019, Int. 1445-A became law by operation of the New York City legislative process, which automatically made the bill law after 30 days without action by Mayor de Blasio. The law becomes effective May 10, 2020, giving New York City employers one year to prepare.

Under the law, employers, labor organizations, and employment agencies, and all of their agents, are prohibited from requiring a prospective employee to submit to a marijuana or THC drug test as a condition of employment. This conduct is now characterized as an “unlawful discriminatory practice.” There are, however, several exceptions to the law. For example, the law will not apply to employees in the following roles: safety-related positions, transport-related positions, caregivers, and certain federal contractors. Further, to the extent that a collective bargaining agreement requires drug testing, the law will not apply to such testing. Please see our Act Now Advisory for further details related to these exceptions. …

Read the full post here.

Tuesday, May 7, 2019 – Downtown Dinner Program

Wednesday, May 8, 2019 – Repeat Suburban Lunch Program

Join our colleagues Lauri Rasnick, Kevin Ryan, and Peter Steinmeyer for an interactive panel discussion which will provide insights into recent developments and expected trends in the evolving legal landscape of trade secret and non-competition law. This program will also discuss unique issues and developments in the health care and financial services industry. Our colleagues will also be joined by Thomas J. Shanahan, Associate General Counsel at Option Care.

Issues arising from employees and information moving from one employer to another continue to proliferate and provide fertile ground for litigation. Many businesses increasingly feel that their trade secrets or client relationships are under attack by competitors—and even, potentially, by their own employees. Individual workers changing jobs may try to leverage their former employer’s proprietary information or relationships to improve their new employment prospects, or may simply be seeking to pursue their livelihood.

How can you put yourself in the best position to succeed in a constantly developing legal landscape?

Whether you are an employer drafting agreements and policies or in litigation seeking to enforce or avoid them, you will want to know about recent developments and what to expect in this area.

During this program, the panel will discuss:

  • Legal trends in the enforceability of non-competes
  • New and pending state and federal legislation, including the Massachusetts Noncompetition Agreement Act
  • Recent judicial decisions regarding restrictive covenants, including an important California case concerning provisions barring solicitation of employees
  • New cases and statutes regarding protection of trade secrets
  • Continuing governmental scrutiny of “no poach” agreements and restrictions on low wage workers

To register, click here. 

ACC Chicago is an Approved Illinois CLE Provider. 1 General Credit Hour (pending) for this program. Participants seeking MCLE credit need to sign in and provide their Illinois Bar number

On April 5, 2019, FINRA published Regulatory Notice 19-10 (the “Notice”) addressing the responsibilities of member firms when communicating with customers about departing registered representatives.  As the Notice indicates, in the event a registered representative leaves a member firm, FINRA aims to avoid any disruption in the service of customer accounts and to ensure that customers can make a “timely and informed choice” about where to maintain their assets. The Notice contains two key points about what is expected of member firms in terms of customer communications when a registered representative departs.

First, the Notice states that firms should have policies and procedures to ensure that customers whose accounts were serviced by a departing registered representative do not experience an interruption in service, and receive information regarding how their accounts will continue to be serviced, including but not limited to: (i) how, and to whom, the customer may communicate questions and trade instructions; and (ii) the representative to whom the customer is now assigned.  Firms should thus be prepared to communicate immediately with customers and to relay specific information about who will be handling their accounts in the absence of their prior representative.

Second, the Notice provides that, when registered representatives leave the firm, the firm should provide additional information when asked by customers.  If a customer asks a member firm questions about a departing registered representative, the Notice states that the member firm should provide customers with “timely and complete answers” about the departing representative.  Addressing an apparent concern that customers may have received distorted or inaccurate information in the past, the Notice states that communications with customers in reference to departing representatives must be fair, balanced, and not misleading.

With respect to information that should be provided if responsive to a customer inquiry, the Notice highlights:

  1. clarification that the customer may choose either to retain his or her assets at the current firm to be serviced by a new registered representative, or to transfer those assets to another firm; and
  2. reasonable contact information of the departing registered representative, i.e., a phone number, email address, or mailing address – provided that the representative consented to disclosure of his or her contact information to customers.

Attorneys who counsel registered representatives have long advised representatives to ensure that they provide their new contact information and consent to its disclosure when they resign from their employment.  With FINRA’s issuance of Regulatory Notice 19-10, member firms should take the opportunity to review their policies and procedures regarding communications with customers at the time of registered representative departures to ensure that they are compliant with FINRA’s expectations.  If there are non-solicitation obligations applicable to the departing registered representatives, employers should consider how these may be impacted, if it all.  Further, firms should provide training regarding these policies and expectations to employees whose duties may be impacted by them.

Webinar – Spring/Summer 2019

Internship programs can help employers source and develop talent, but they do not come without their pitfalls. If you are an employer at a tech startup, a large financial institution, a fashion house, or something else entirely, and you plan on having interns this summer, this webinar is for you. Learn the steps for creating a legally compliant internship program.

For many years, the U.S. Department of Labor (“DOL”) used the “six-factor test” when determining whether an employee was legally considered an unpaid intern, such that the intern would not be subject to the wage and hour requirements of the Fair Labor Standards Act. This changed at the beginning of 2018, when the DOL adopted the “primary beneficiary test” in a move allowing increased flexibility for employers and greater opportunity for unpaid interns to gain valuable industry experience. Employers that fail to follow the requirements to ensure that an intern is properly treated as an unpaid intern, rather than an employee who is entitled to minimum wages and overtime, could face costly wage and hour litigation.

Our colleagues Jeffrey M. LandesLauri F. Rasnick, and Ann Knuckles Mahoney guide viewers on how they can establish lawful unpaid internship programs. This webinar also addresses the extent to which wage and hour laws apply to interns, and the seven factors that make up the “primary beneficiary test.” This webinar provides viewers practical tips for administering an internship program, whether paid or unpaid, by identifying key considerations for all stages of the internship process.

Click here to request complimentary access to the webinar recording and presentation slides.

As has been reported by the New York Times, NBC, and other outlets, asset-management firm TCW is defending a lawsuit filed by a former fund manager, Sara Tirschwell, charging the firm with gender discrimination and retaliation, among other allegations. Ms. Tirschwell’s lawsuit has received media attention not only because of the substantial damages that she demands (in excess of $30 million), but also—and perhaps, principally—because the suit has been characterized as Wall Street’s first public brush with the #MeToo movement.

The basic contours of the dispute are familiar. TCW maintains that it terminated Ms. Tirschwell for performance reasons. According to TCW, Tirschwell committed multiple, serious compliance violations, and also was unable to generate the target level of investment in her distressed debt strategy fund. Ms. Tirschwell, for her part, claims that TCW’s stated reasons for her termination were pretextual. She contends that her submission of a formal complaint of sexual harassment against her supervisor, whom she had dated for a time before joining TCW, was the true reason for her termination. In Ms. Tirschwell’s view, TCW’s termination of her employment only nine days after she submitted her complaint to HR was no coincidence.

Despite the familiar outlines of the dispute, Ms. Tirschwell’s claims present a significant wrinkle—one that makes this case particularly worth following for employers in the financial services sector. Ms. Tirschwell alleges that her supervisor and former paramour leveraged his support of her fund into a renewal of their sexual relationship, and that he withdrew this support when Ms. Tirschwell ultimately refused to continue the relationship—ostensibly dooming the fund.

Hence, while the case highlights considerations for management that cut across industries, these issues receive a critical overlay in the Wall Street context of this dispute: how might management’s decision-making be impacted where the alleged modality of harassment or retaliation implicates return on investment?

At base, the Tirschwell case serves as a reminder that employers must proceed cautiously when an employee otherwise identified for probable termination (or any other adverse action) for legitimate reasons, as was Ms. Tirschwell by TCW’s account, complains internally—whether to HR, a supervisor, or otherwise—of harassment. Any post-grievance adverse action might later be cast as retaliatory—and might be presumed as such if it follows immediately on the heels of a grievance, as in Ms. Tirschwell’s case. Before taking adverse action, employers should always consider whether an employee’s issues have been documented and communicated sufficiently, and whether employees who engaged in comparable conduct faced similar consequences in keeping with firm policies. This sort of analysis, though, becomes even more critical with the complicating factor of a harassment grievance added to the mix. Further, even where there exists an unquestionable record of the employee’s transgressions, if circumstances allow, an employer should ideally complete a thorough investigation of the employee’s allegations before going forward with the adverse employment action.

Even if the firm has done everything right, though, an employee still may accuse the firm of retaliation. Now, the firm’s principal question is whether to settle quietly even if it believes there is no liability, or dig in and defend its actions in court. Much of the time, firms have chosen the first option, valuing discretion above all else. But that calculus already may be in the process of changing, at least in some cases, as states, such as New York and New Jersey, chip away at nondisclosure provisions in settlement agreements in response to the #MeToo movement. How might that calculus change further where, as with Ms. Tirschwell’s claims, the allegations would tend to engender pressure—and, potentially, additional suits—from the firm’s clients and/or stakeholders? Debunking allegations of financial malfeasance in the context of litigation with an employee would not necessarily preclude, as a matter of law, investors and stakeholders from levying similar allegations in a separate suit. Nevertheless, as a matter of optics, a firm might choose to contest allegations like Ms. Tirschwell’s vehemently, in a public forum, so as to assure its investors and stakeholders regarding its stewardship of their assets—and, in so doing, perhaps deter a pile-on of legal action.

We have also recently seen shareholder suits alleging a breach of fiduciary duty arising from the way that companies have responded to employee accusations of sexual harassment. The Tirschwell case, though, seems unique in that, according to Ms. Tirschwell, the alleged harassment/retaliation itself placed stakeholders in financial peril. Depending on the outcome of the dispute between Ms. Tirschwell and TCW, might would-be plaintiffs claiming harassment/retaliation be inclined to generate leverage by suggesting, like Ms. Tirschwell’s allegations, that the alleged misbehavior exposed investors and stakeholders? Though not every plaintiff could draw a line between alleged harassment and investor well-being as straight as the one Ms. Tirschwell seems to have drawn, one assumes that creative arguments could link the two together, in some way, in many cases.

The Tirschwell case should serve as a reminder to employers to be vigilant and proactive when it comes to harassment: create robust policies and procedures prohibiting harassment and for handling complaints, take all complaints seriously, and take prompt action when harassment policies are violated.

Our colleague Tzvia Feiertag at Epstein Becker Green has a post on the Health Employment and Labor Blog that will be of interest to our readers in the financial services industry: “NJ Employers and Out-of-State Employers with NJ Residents Prepare: State Updates Website on Employer Reporting for New Jersey Health Insurance Mandate.”

Following is an excerpt:

As employers are wrapping up their reporting under the Affordable Care Act (“ACA”) for the 2018 tax year (filings of Forms 1094-B/C and 1095-C/B with the IRS are due by April 1, 2019, if filing electronically), they should start preparing for new reporting obligations for the 2019 tax year.

After a string of failed efforts to repeal the ACA, Congress, through the Tax Cuts and Jobs Act of 2017 (“TCJA”), reduced the federal individual shared responsibility payment assessed (with limited exceptions) against individuals who failed to purchase health insurance to $0 beginning January 1, 2019. In response, to ensure the stability and provide more affordable rates for health coverage, States, such as New Jersey, have stepped in and adopted their own individual health insurance mandates. New Jersey’s individual health insurance mandate requires employers to verify health coverage information provided by individuals. To assist with employer reporting, New Jersey has launched an official website (lasted updated on March 19, 2019) with guidance on the filing requirements. …

Read the full post here.

Our colleague Nancy Gunzenhauser Popper at Epstein Becker Green has a post on the Retail Labor and Employment Law Blog that will be of interest to our readers in the financial services industry: “April Fools’ Joke? No—NYC Employers Really Have Two Sets of Training Requirements.”

Following is an excerpt:

Don’t forget – April 1 marks the beginning of a new set of sexual harassment training requirements in New York City. While the training requirement began across New York State on October 9, 2018 (and must be completed by October 9, 2019), the City imposes additional requirements on certain employers. Both laws require training to be provided on an annual basis.

While the State law requires training of all New York employees, regardless of the number of employees in the State, the City law applies only to employers with 15 or more employees. However, when counting employees under the City law, an employer must also count independent contractors who work for the employer in New York City.

Read the full post here.

Our colleague Laura A. Stutz at Epstein Becker Green has a post on the Health Employment and Labor Blog that will be of interest to our readers in the financial services industry: “Race Discrimination on the Basis of Hair Is Illegal in NYC.”

Following is an excerpt:

The New York City Commission on Human Rights published legal enforcement guidance defining an individual’s right to wear “natural hair, treated or untreated hairstyles such a locs, cornrows, twists, braids, Bantu knots, fades, Afros, and/or the right to keep hair in an uncut or untrimmed state.”   The guidance applies to workplace grooming and appearance policies “that ban, limit, or otherwise restrict natural hair or hairstyles”:

[W]hile an employer can impose requirements around maintaining a work appropriate appearance, [employers] cannot enforce such policies in a discriminatory manner and/or target specific hair textures or hairstyles. Therefore, a grooming policy to maintain a ‘neat and orderly’ appearance that prohibits locs or cornrows is discriminatory against Black people because it presumes that these hairstyles, which are commonly associated with Black people, are inherently messy or disorderly. This type of policy is also rooted in racially discriminatory stereotypes about Black people, and racial stereotyping is unlawful discrimination under the [New York City Human Rights Law].

A grooming or appearance policy prohibiting natural hair and/or treated/untreated hairstyles to conform to the employer’s expectations “constitutes direct evidence of disparate treatment based on race” in violation of the City’s Human Rights Law. …

Read the full post here.