Legal Briefings

ARBITRATION CLAUSES CAN CAUSE A RIFT
In Latif v. Morgan Stanley & Co., plaintiff Mahmoud Latif complained to defendant Morgan Stanley’s HR department about his co-workers’ inappropriate comments regarding his sexual orientation and religion, inappropriate touching and sexual advances. Latif also complained of a female supervisor sexually assaulting him. Morgan Stanley terminated him one year after he first complained. Latif brought suit in federal court alleging discrimination, hostile work environment and retaliation in violation of Title VII. Morgan Stanley moved to compel arbitration under Latif’s employment agreement. In response, Latif argued the agreement was not enforceable as to his sexual harassment claims in light of a recently adopted New York law. The New York law, N.Y. C.P.L.R. § 7515, prohibits employers from requiring employees to arbitrate claims of sexual harassment, except where inconsistent with federal law. The court found the New York law was inconsistent with federal law — specifically, the Federal Arbitration Act (the FAA), which states that arbitration clauses shall be valid, irrevocable, and enforceable, unless grounds exist for the revocation of any contract. Similar to AT&T Mobility v. Concepcion, where the Supreme Court held the FAA preempts state laws prohibiting waivers of class-wide arbitration, this court found that the FAA preempted the New York law because it attempted to prohibit arbitration of a particular type of claim. Latif v. Morgan Stanley & Co. LLC, 2019 U.S. Dist. LEXIS 107020.
Impact: Employers should carefully craft arbitration clauses to comply with state law unless and until a court determines that the law is preempted by the FAA.

JIMMY JOHN’S NO-POACH POLICY LEAVES BAD TASTE
Sylas Butler was an employee for a Jimmy John’s sandwiches franchise in Illinois. After Butler’s hours were reduced, he attempted to transfer to another Jimmy John’s franchise. He discovered he could not transfer because the franchises have contracts with Jimmy John’s corporate that contain “no poach agreements,” — agreements that prohibit franchisees from hiring each other’s employees. Butler brought a class action lawsuit on behalf of current and former Jimmy John’s employees, alleging the sandwich company violated the Sherman Antitrust Act, and committed unfair and deceptive business practices under state law. The United States District Court for the Southern District of Illinois held that Butler stated a valid claim under the Sherman Act and state law. The court rejected Jimmy John’s argument that the no-poach agreements were merely “vertical” restraints on trade between Jimmy John’s corporate and franchisees, and not “horizontal” restraints upon trade between competitors, which are typically illegal. The effect of the no-poach agreements was horizontal, as under the contract, the franchisees had the ability to enforce the no-poach agreements against each other as third-party beneficiaries. Butler v. Jimmy John’s Franchise, LLC, 331 F. Supp. 3d 786 (S.D. Ill. 2018).
IMPACT: Courts are increasingly skeptical of no-poach agreements that restrict the ability of employees to seek gainful employment.

Rachel L. Schaller, Daniel Saeedi and Suzanne Grossman are attorneys at Taft Stettinius & Hollister LLP. To comment, email editors@workforce.com.