Is It “Time’s Up” For Arbitrating Employment Matters In New York?

by Dechert LLP
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In the wake of a strong public reaction to the “Time’s Up” and “#MeToo” movements, states across the country are enacting legislation aimed at expanding and bolstering sexual harassment and discrimination protections in the workplace. Among the trailblazers to institute such sweeping changes are Washington and New York, though many other states, including Pennsylvania, are not far behind with bills pending to address these concerns.

To date, New York has enacted the broadest-sweeping legislation in reaction to the public outcry for stronger workplace protections against sexual harassment. On April 12, 2018, New York’s Governor Andrew Cuomo signed the “New York State Budget Bill for Fiscal Year 2019” (S-7848A) (the Budget Bil”) on the heels of the New York City Council’s passing of a package of bills captioned the “Stop Sexual Harassment in NYC Act” (Int. No. 632-A) (the NYC Act) on April 11, 2018. Both on a state and city level, New York’s new legislation significantly overhauls the pre-existing framework by expanding sexual harassment protections in the workplace and imposing new restrictions on employers seeking to resolve claims of sexual misconduct.

Expansion of Protection under the Laws

1. Scope of Protections

Under pre-existing provisions of the New York State Human Rights Law, only employees and interns could sue for sexual harassment and discrimination, thus effectively excluding from protection individuals who fell outside these categories. The Budget Bill, however, has now expanded the scope of these protections to non-employees as well, making it an unlawful discriminatory practice for an employer to permit sexual harassment of independent contractors, subcontractors, consultants, vendors, or any other contracted service provider. (Part F). An employer will be liable for sexual harassment of non-employees where the employer knew, or should have known, about the harassment and failed to take remedial action.

The NYC Act also expands the scope of sexual harassment protections so that now all city employers, even those with fewer than four employees, must abide by the New York City Human Rights Law’s prohibitions. (Int. No. 657-A). The City Act also extends the statute of limitations for filing a sexual harassment claim with the City Commission on Human Rights from one year to three years. (Int. No. 663-A).

2. Anti-Harassment Training

Poised to take effect in October 2018, the Budget Bill also mandates annual sexual harassment training by all employers for all employees. (Part E). Employers are free to either adopt the model training program and sexual harassment policy drafted by the New York State Division of Human Rights, or they may develop their own policies and programs in accordance with the standards in the state’s model.

Similarly, the NYC Act requires that employers with 15 or more employees provide “interactive” workplace anti-harassment training for all employees annually, which entails “participatory teaching whereby the trainee is engaged in a trainer-trainee interaction, use of audio-visuals, computer or online training program or other participatory forms of training as determined by the commission.” (Int. No. 632-A). The NYC Act also requires employers to maintain records of training sessions and all accompanying sign-in sheets for the training sessions for three years.

Under both state and city legislation, training programs and policies must include, at a minimum, a definition of sexual harassment with examples, information on complaint procedures and remedies available to those facing sexual harassment, and information on the legal recourse available to complainants.

3. Anti-Harassment Posters and Pamphlets

The NYC Act also requires that all New York City employers display anti-sexual harassment posters in the workplace and distribute information pamphlets on sexual harassment policies to all new employees, both of which will be created by the City Commission on Human Rights. (Int. No. 630-A).

Potential for Undermining Confidentiality Protections

Concurrently with the expansion of employee protections under New York’s state and city anti-sexual harassment legislation, there is likely to be a significant retraction of many of the protections afforded to employers under the previous regimes. Effective July 9, 2018, many of the confidentiality protections employers previously enjoyed will be curtailed.

1. Mandatory Arbitration Provisions

The Budget Bill prohibits any contractual provision that requires parties to submit their sexual harassment claims to mandatory arbitration, except where inconsistent with federal law or as part of a collective bargaining agreement. (Part B). It remains to be seen whether this carve-out to the mandatory arbitration prohibition is intended to address the Federal Arbitration Act and whether courts will ultimately hold that the FAA preempts state law, thereby rendering this provision invalid.

2. Non-Disclosure Agreements

Similarly, the Budget Bill will also significantly erode an employer’s confidentiality protections through its ban on nondisclosure agreements. Employers will be prohibited from mandating that in any potential settlement agreement involving sexual harassment, such resolution is conditioned on the nondisclosure of the “underlying facts and circumstances to the claim or action.” (Part D). However, the Budget Bill does offer an exemption from this blanket prohibition where the employee wishes the circumstances to remain confidential. If this is the case, the Budget Bill sets forth a process akin to that under the federal Age Discrimination in Employment Act for the parties to agree to such a nondisclosure provision. The employee must be given twenty-one days to consider the provision, after which time the provision is memorialized in an agreement signed by all the parties. The employee then has seven days after execution during which he or she can revoke the agreement. Although not clearly addressed, it does not appear that the twenty-one day provision is waivable by the employee.

3. Concerns for Arbitration

In light of these significant limitations on confidentiality with respect to dealing with employee sexual harassment allegations, and assuming that the ban on mandatory arbitration of such claims survives judicial scrutiny, it remains to be seen whether employers will continue to include mandatory arbitration provisions in their employment contracts. Without the protection of litigating sexual harassment claims in a confidential forum and without the additional protection of being able to negotiate a confidential resolution of these claims at any stage in the proceedings, the overall benefits of including an arbitration provision for other types of employment and non-employment-related claims may be diminished.

While arbitration is generally less costly and less time-consuming than litigation, employers will likely weigh these benefits against the perceived drawbacks of this forum, such as the limited appellate recourse available and the lack of transparency. While in the past the assurance of confidentiality often tipped the balance in favor of mandatory arbitration, it remains to be seen whether New York’s rejection of employer-favored confidentiality provisions and mandatory arbitration of sexual harassment claims will lead some companies to abandon the use of arbitration to resolve employment-related disputes all together.

Next Steps

With new state sexual harassment legislation in effect and city legislation soon to be in effect, New York employers should begin preparing for these significant changes to the employment-law landscape.

1. Review and revise current policies

Employers should review and revise their sexual harassment policies to extend protection to nonemployees and ensure that their policies comply with the Budget Bill and NYC Act’s minimum standards.

2. Prepare for training programs

Employers should begin preparing for mandated training programs so that as soon as the state’s model training program and anti-harassment policies are in effect, they can effectively and efficiently incorporate these mandates into their practice. Once training is underway for all employees, employers should carefully and accurately maintain records of all training sessions held and all signed acknowledgements of employee attendance.

3. Review existing agreements and employee contracts

In light of the prohibition on nondisclosure agreements in this area, employers should review any form employment-related agreements and revise as necessary to remove any requirement governing the compelled confidentiality of sexual harassment claims. Employers should also review their policies and employee contracts regarding arbitration and include clearly drafted severability clauses to deal with the possibility that their arbitration provisions may be held invalid with respect to sexual harassment claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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