Legal requirements for contract-based mandatory arbitration of discrimination claims in New York

Legal Status of Mandatory Arbitration for Discrimination in New York

Under New York Civil Practice Law and Rules (CPLR) § 7515, mandatory arbitration clauses for discrimination claims are prohibited in employment contracts. While federal law often preempts state statutes, recent federal legislation has significantly curtailed the enforceability of these clauses for sexual harassment and assault, aligning with New York's protective stance.

The Scope of CPLR § 7515

New York law is explicit in its attempt to preserve the right of employees to seek redress in court for discrimination. The statute applies to any contract entered into on or after April 12, 2018.

Key Prohibitions

• Mandatory Arbitration: Employers cannot require employees to sign agreements that mandate arbitration for discrimination claims.
• Class Action Waivers: Agreements that attempt to waive the right to participate in class actions regarding discrimination are generally unenforceable under this framework.
• Scope of Claims: The law covers all forms of discrimination prohibited under the New York State Human Rights Law.

Key takeaway: Any contract clause requiring mandatory arbitration for discrimination claims is void as a matter of New York public policy, unless it is found to be preempted by the Federal Arbitration Act (FAA).

Action Item: Audit your current employment agreements to ensure they contain a 'severability' clause, which prevents the entire contract from being invalidated if the arbitration provision is found unenforceable.

Federal Preemption and the FAA

The primary legal tension in New York exists between CPLR § 7515 and the Federal Arbitration Act (FAA). Courts have historically held that the FAA preempts state laws that discriminate against arbitration agreements.

The Impact of Federal Legislation

The landscape shifted significantly with the passage of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. This federal law:

1. Invalidates pre-dispute arbitration agreements for sexual assault and sexual harassment claims.
2. Applies to all employment contracts regardless of state law.
3. Allows employees to choose between arbitration and a court trial for these specific claims.

Action Item: If your organization operates in multiple states, ensure your arbitration agreements are drafted to comply with the strictest applicable standard—usually the federal EFAA—to avoid litigation risk.

Red Flags in Arbitration Clauses

When drafting or reviewing contracts, certain language often triggers judicial scrutiny or outright rejection in New York courts.

• Overbreadth: Clauses that attempt to cover 'all disputes' without carving out statutory discrimination claims.
• Unconscionability: Provisions that impose prohibitive costs on the employee or limit discovery in a way that prevents a fair hearing.
• Hidden Terms: Arbitration rules incorporated by reference that are not provided to the employee at the time of signing.

Key takeaway: Courts are increasingly hostile toward 'take-it-or-leave-it' arbitration agreements that lack transparency. Always provide the arbitration rules explicitly in the contract or as an attachment.

Action Item: Review your arbitration clauses for 'carve-out' language that explicitly excludes claims that are non-arbitrable under state and federal law.

Best Practices for Compliance

To minimize risk, legal teams should adopt a proactive approach to contract lifecycle management.

1. Explicit Carve-outs: Include a clear statement that the arbitration requirement does not apply to claims prohibited by law, including discrimination claims under the NYSHRL.
2. Voluntary Agreements: If you prefer arbitration, ensure the agreement is presented as a voluntary option rather than a condition of employment.
3. Regular Audits: Update template agreements annually to reflect changes in both New York state law and federal court precedents.

Action Item: Implement a standardized review process for all new hire contracts to ensure they do not inadvertently include unenforceable mandatory arbitration language.

How TermScore Simplifies Compliance

Ensuring your contracts comply with the evolving landscape of New York and federal arbitration law is complex and time-consuming. TermScore uses advanced AI to automatically scan your employment agreements, identifying unenforceable mandatory arbitration clauses and flagging potential risks before they reach the signature stage. By integrating TermScore into your legal workflow, you can maintain compliance across your entire contract portfolio with precision and speed.