Arbitration agreements are frequently used in employment contracts, although some states have attempted to limit their use. New York is one of these states. Over the past several years, the state’s legislature has limited the use of pre-dispute arbitration clauses in sexual harassment or sexual assault employment cases, and tried to ban mandatory arbitration in employment disputes altogether. This highlights the need for employers to ensure that their New York employment arbitration agreement complies with both state and federal law.

If you’re considering adding an arbitration agreement clause to your employee contracts, SixFifty can help you stay on top of changes to the law.

Arbitration agreements in New York employment

Arbitration agreements often appear in employment contracts. These agreements ensure that the parties resolve any disputes that arise through arbitration, rather than a lawsuit. This alternative dispute resolution method employs a neutral third-party arbitrator who hears the case and decides the final legal resolution. This is typically a faster, more streamlined process than litigation, which is subject to strict procedural and evidentiary rules and can drag out for years.

Arbitration is also more private, whereas lawsuits are a matter of public record, and rulings cannot be appealed, except in rare and specific circumstances. Employees still retain the right to file discrimination or harassment claims with appropriate government agencies, such as the Equal Employment Opportunity Commission.

Are employment arbitration agreements enforceable in New York?

The laws governing New York arbitration agreements are somewhat murky. First, it’s important to note that President Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 into law in March 2022. This law restricts employers from requiring mandatory arbitration for workplace sexual harassment or sexual assault claims.

Similarly, New York’s CPLR Section 7515 renders mandatory arbitration agreements unenforceable when it comes to claims of discrimination. Several federal judges ruled in years past that the Federal Arbitration Act preempts CPLR 7515, meaning that the state restrictions on arbitration are not enforceable because the federal law supersedes it. While the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 now reinforces the sexual harassment and sexual assault portions of CPLR 7515, it’s unclear whether the state law can lawfully ban arbitration of other discrimination claims like retaliation and harassment.

While it appears that mandatory arbitration agreements in New York employment contracts are still enforceable in certain circumstances, the law continues to evolve. Employers must be aware of the changing laws to ensure compliance.

Who pays for employment arbitration in New York?

At this time, cost-sharing provisions in New York employment arbitration agreements are enforceable, with limitations. The New York Court of Appeals in Matter of Lorraine C. Brady v. The Williams Capital Group, LLP (2010) set a three-prong test to determine whether arbitration fee-sharing is enforceable:

  1. Whether the employee can pay their share of the arbitration fees and costs;
  2. The difference in estimated cost between arbitration and litigation; and
  3. Whether the cost difference is so high that it would deter the litigation by the employee.

On the other hand, the Model Employment Arbitration Procedures of the American Arbitration Association have an “employer pays” provision. A 2012 study, cited in 2019 by the New York State Bar, “found that employers paid for 100% of the costs in 95% of disputes in arbitrations pursuant to compelled, employer-promulgated programs and procedures less an employee-paid filing fee equivalent to a federal court filing fee (currently $400 in the Southern and Eastern Districts of New York).”

In short, cost-sharing might be legal in some circumstances, but AAA best practices dictate the employer pay the cost of arbitration.

How do you create a New York employment arbitration agreement?

When you’re ready to create your own New York employment arbitration agreement, it’s important that you or your legal team carefully research the current status of state and federal laws. Arbitration has frequently been spotlighted over the last few years in an effort to expand employee rights and protections—which means your research and drafting can be expensive and time-consuming. Yet if you rely on one-size-fits-all arbitration clauses from a template, there’s no guarantee they will be enforceable.

SixFifty is the best option for New York employers. We’ve done the research for you, so you can automatically generate your own state-specific employment documents. Simply answer a few questions about your company and download the generated document. Best of all, we’ll update you if the law ever changes, so you can regenerate compliant documents when necessary.

Ready to get started? Schedule a free product demo today!