Michael Marra

In the early January lead up to his 2018 State of the State Address, New York Governor Andrew Cuomo unveiled nearly two dozen policy and legislative proposals. The 18th of those proposals sets forth a package of legislative initiatives collectively titled “Combat Sexual Harassment in the Workplace.” By seeking to ban all “mandatory arbitration” agreements, Proposal 18 presents one change to New York law that would have wide ranging effects on how private employers and employees navigate harassment (and possibly other) claims. However, other elements of the Proposal, though aimed at harassment in the public sector, may portend a future evolution of the laws regulating private employers. Forward-looking private employers wary of the often-unintended consequences of expansive legislation will rightly be immediately concerned by the legislative proposal to ban arbitration agreements.

Over the course of the month following the State of the State address, the Governor’s office has clearly signaled the crown jewel of his Proposal on sexual harassment is legislation to abolish the enforcement of mandatory arbitration clauses in employment agreements. In a January 30 press release detailing his proposals, the Governor promised that banning mandatory arbitration agreements would “help ensure that no one has to ever say the words, ‘Me too,’ ever again.” Receiving far fewer headlines, and relegated to a few bullet points trailing the mandatory arbitration messaging are other, seemingly narrowly focused, components of Proposal 18: (1) ending taxpayer funded settlements of claims against individual state actors; (2) an anonymous whistleblower process across all branches of state and local government; (3) a proposed uniform code of sex harassment policies across those same branches; (4) ending confidential settlements of sex harassment and assault cases in government cases unless “it is the express preference of the victim;” and (5) annual reporting by private employers with government contracts as to the number of “sexual harassment violations and nondisclosure agreements executed” each year.

Banning Pre-Employment Arbitration Agreements Is Not a Simple Fix. The Governor’s case for banning arbitration agreements is clearly stated, and powerful on its surface: sexual harassment, misogyny and sexism (as the targeted evils were recently identified by Melissa DeRosa, Secretary to the Governor) are scourges against women and society that should be eliminated; by requiring employees to enter into arbitration agreements at the outset of employment, employers stifle the voices of harassment victims by taking away a public forum in which to adjudicate harassment claims; the confidential nature of arbitration shields harassers from suffering the appropriate consequences of their actions, contributes to future harassment of other women and opens the door for retaliation against reporting victims; and as a result, victims are less likely to bring forth their claims. As a known national leader in support of women’s rights and opportunities, Governor Cuomo has promised to continue his leadership on these important issues that affect many women.

But the arbitration ban may raise more issues than it resolves, and thoughtful employers should be aware.

The Governor’s primary legislative action may distribute its most certain benefits to plaintiff’s lawyers at the expense of employers, and as discussed below, even victims themselves. Laws against discrimination and harassment are unique in awarding attorney fees to plaintiff’s lawyers who “successfully” represent victims (e.g., achieving either a favorable verdict or, practically, any financial settlement). Moving from a landscape where some (but certainly not all) cases are brought in arbitration, to one in which all claims are publicly detailed in a formal complaint (subject in many cases to a pre-complaint investigation by the EEOC or similar state agency) gives more control to plaintiffs’ lawyers about how they achieve one of their goals: maximizing the amount of a settlement payment, and consequently, their fee. Make no mistake, the Governor’s proposal is not likely to result in a tide of harassment trial victories: Data analyzed by Lex Machina found that over a recent eight-year period, almost 55,000 discrimination, harassment and retaliation cases were filed in federal court, with approximately one percent of those resulting in a jury trial verdict in favor of the plaintiff. But the threat of a public complaint, unwanted publicity, the high costs of formal litigation complete with complex rules governing digital and electronic information, the negative impact on other employees whose personal conduct and relationships may come to light as collateral damage, and distress felt by investors at the same time are all elements that may drive an employer’s valuation of a claim as much as the merits. This is not to say that in some—perhaps many—situations, these factors align with the extremely worthy goals of stopping and/or punishing sexual harassers. But in many other situations, mandating that harassment claims be brought in court as a default will serve to increase leverage against employers in cases whose merits vary wildly. The burdens created by publicizing even weak harassment claims—especially those involving senior executives and personally embarrassing details—will undoubtedly impact an employer’s appetite to seek a final adjudication on the merits of a claim. When viewed in light of other legislative initiatives percolating in Albany, such as lowering the bar for successful sex harassment claims and expanding whistleblower protections, forcing matters into the courts will put the state’s thumb firmly on the scale regardless of the merits of a particular case.

Ironically, the ban on arbitration agreements creates conditions that may even be less conducive to victims raising their voices. Those same factors of publicity, embarrassment and the like may impact a victim and others they care about powerfully. In other cases, a victim’s trauma over a public discussion of claims and the employer’s defenses may be extreme. In such circumstances, a victim may prefer a confidential process. It will not be an option unless the employer agrees after it becomes aware of the claim. A New York employee might prefer a claim be fairly adjudicated in a private forum where it can be resolved quickly, but the accuser may have no other options but to subject him or herself and others to a public airing of the details of their lives. While it is generally accepted that publicly filed claims (or threatened claims) result in larger settlement payments, that is, of course, dependent in part on the alleged victim willingness to follow through with a public complaint.

Moreover, the demonization of arbitration agreements unfairly paints arbitration as something of a rigged star chamber, to be unfavorably compared with the court system. It is anything but. Arbitration is not just confidential (to all), but arbitrators are impartial and are often experts in employment law with advanced training to understand “both sides” of a matter. Each party equally participates in selecting the arbitrator and the rules of arbitration ensure fairness, due process and guarantee the availability of all remedies available at law. Moreover, arbitration regularly trims months, if not years, from the traditionally long resolution process.

The Other Elements of Proposal 18 Should Not Be Ignored by Private Employers. On the face of Proposal 18, private employers might pay little attention to initiatives to create an anonymous whistleblower process and uniform sex harassment policies for all public employees, or to severely limit the availability of confidentiality clauses in settlement of harassment cases against state and local government. But the success of these initiatives could easily result in dangerous, future legislation aimed at private employers. We can imagine a world in which private businesses someday cope with complaints made to an anonymous report line administered by the state or its vendor, or in which confidential settlements become impossible if one of many claims is based on alleged sexual harassment. Combined with an end to pre-employment arbitration agreements, the resulting increase in claims—and unresolvable claims—could choke state courts already operating with stretched resources in many counties. Moreover, uniform sex harassment guidelines—drafted without private employer input or consideration—might be raised by a private employee as a standard by which her employer’s conduct should be measured, i.e., a “best practice, and who is to say that those standards would not be considered impactful in a court’s analysis, or a pre-litigation risk analysis?

Lastly, the Proposal 18 requirement that various private employers report their sex harassment “violations” and NDAs is a likely entrée to future legislation or may even promote (and aid in) adversarial actions involving those businesses, which would, in turn, lead the businesses to respond to harassment claims differently, perhaps not as the Governor would hope.

As Proposal 18 begins its path toward becoming law, employers must not lose sight of the bills that will impact both their immediate and more distant futures.

Michael Marra is co-regional managing partner of Fisher Phillips’ New York office, representing luxury brands, advertising and media services companies, and technology and emerging growth companies.