Arbitration Clauses in New York: Key Rules and Exceptions

New York's Approach to Arbitration Clauses

New York generally enforces arbitration agreements under both the Federal Arbitration Act (FAA) and the New York Arbitration Act (CPLR Article 75). However, New York has carved out specific exceptions and applies its own unconscionability standards that can affect enforceability.

The Sexual Harassment Exception

In 2018, New York enacted CPLR Section 7515, which prohibits mandatory arbitration of sexual harassment claims. As amended, this provision:

• Voids any clause requiring arbitration of sexual harassment allegations
• Applies to agreements entered into on or after the effective date
• Has faced questions about federal preemption under the FAA, but the 2022 Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (a federal law) now provides similar protections at the national level

Unconscionability in New York

New York courts evaluate whether an arbitration clause is unconscionable using a sliding scale:

• Procedural unconscionability: Was the clause hidden in fine print? Did the employee have any ability to negotiate? Was there a significant disparity in bargaining power?
• Substantive unconscionability: Are the terms unreasonably one-sided? Does the clause limit available remedies? Are the arbitration costs prohibitive?

New York courts require a showing of both procedural and substantive unconscionability, but a strong showing in one element can offset a weaker showing in the other.

What Courts Evaluate

• Whether the arbitration agreement was knowingly and voluntarily entered into
• Whether the clause covers the specific dispute at issue
• Whether the arbitration process provides a fundamentally fair forum
• Whether the employer has waived its right to arbitrate by engaging in litigation

Red Flags

• Clauses that require arbitration of sexual harassment claims
• One-sided provisions allowing only the employer to access courts
• Prohibitively expensive arbitration cost provisions
• Clauses buried in lengthy onboarding documents with no opportunity for review
• Waivers of statutory rights without clear and knowing consent
• Extremely short time limits for initiating claims

When to Consult a Lawyer

Consider consulting a New York employment attorney if you have a sexual harassment claim and your contract includes an arbitration clause, if you believe the arbitration agreement was presented unconscionably, or if you need to evaluate the scope of claims covered by your agreement.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.