Recent State-Court Decision Manufactures Raised Eyebrows
On July 10, 2020, a New York State Supreme Court Judge issued a surprising decision finding that not only did a private arbitration agreement not bar a plaintiff’s court complaint, but that a company policy amended the parties’ previously executed employment agreement. The decision, Newton v. LVMH Moet Hennessy Louis Vuitton Inc., Index No. 154178/2019 (Sup. Ct. New York County, July 10, 2020), has not been posted on publicly available websites but can be obtained through legal research services. The judge’s legal analysis raised numerous issues for manufacturers.
The company employed Newton as a vice president. In 2014, Newton signed a formal employment agreement setting forth standard employment terms and incorporating a separate arbitration agreement governing all disputes concerning Newton’s employment. If Newton initiated an arbitration, the company agreed to pay all fees for the arbitrator and any filing files. In November 2018, the company issued a new sexual harassment and discrimination policy stating, among other things, that an individual complaining of harassment or discrimination could file a complaint in state court as one of several methods to redress her claim. In April 2019, Newton filed her lawsuit in state court alleging hostile environment sexual harassment, discrimination and retaliation. Relying on the employment agreement which included a binding arbitration agreement, the company move to stay the action and compel arbitration.
The Court rejected the motion. First, relying on a state law which expressly invalidated agreements to arbitrate sexual harassment and discrimination claims, the court ruled that the agreement to arbitrate became void by operation of law. In doing so, the court rejected the argument that the Federal Arbitration Act (which expressly authorizes enforcement of arbitration agreements between employees and employers) superseded the state law. Secondly, and perhaps more surprisingly, the court ruled that the company’s adoption of its policy operated to amend the written agreement between the parties.
Frequent readers will note that I have long written about the enforceability of arbitration agreements and the issues associated with them. See, among other posts, “Protecting a Manufacturer’s Competitive Advantage” (Oct. 10, 2019); “Manufacturers Revisit Mandatory Arbitration Agreements” (July 24, 2019).
The court’s decision raises significant issues about the enforceability of any manufacturer’s employment agreement. Usually, an employment (or any other) agreement cannot be unilaterally changed by one party. Usually, the law recognizes that the modification of a written agreement requires both parties to agree. But by holding that a company’s unilaterally adopted policy operated to modify previously negotiated and executed agreements, the court manufactured an unprecedented change in the law. (We can ignore for a moment that the company likely adopted the policy because state law required it to do so. See “New York Adopts New Tools to Fight Gender-Based Harassment” (Apr. 27, 2018).)
While the Newton decision likely will be appealed, for the time being, ever manufacturer may wish to consider the impact of its changing policy on pre-existing agreements.