Mandatory arbitration clauses have become one of the most contested battlegrounds in employment law. Employers love them: they keep disputes out of court, away from juries, and largely out of public view. Workers and their advocates have long argued that these clauses strip employees of meaningful access to justice. New York has tried — repeatedly — to limit their reach. The results have been mixed, and the legal landscape remains complicated.

What Is a Mandatory Arbitration Clause?

A mandatory arbitration clause is a provision in an employment contract — or sometimes a standalone agreement presented at hiring — that requires the employee to resolve any dispute with the employer through private arbitration rather than in court. The employee waives the right to a jury trial. Arbitration proceedings are typically confidential, the rules of evidence are relaxed, and the arbitrator's decision is generally final and very difficult to appeal.

These clauses often also include class action waivers, which prevent employees from joining together to bring collective claims. The combination of mandatory arbitration and class action waivers has been particularly effective at insulating employers from accountability for widespread but individually small violations — wage theft being the most common example.

New York's Efforts to Restrict Arbitration

In 2018, as part of the same legislative package that reformed NDA law, New York enacted a prohibition on mandatory arbitration clauses for sexual harassment claims. The law, codified in CPLR § 7515, declared that any agreement requiring arbitration of a sexual harassment claim was null and void as against public policy.

New York subsequently expanded this prohibition to cover all claims of discrimination, harassment, and retaliation under the New York Human Rights Law. On its face, this was a sweeping reform: no employer could force a New York employee to arbitrate a discrimination or harassment claim.

There was, however, a significant problem.

The Federal Arbitration Act Problem

The Federal Arbitration Act (FAA), enacted in 1925, establishes a strong federal policy favoring the enforcement of arbitration agreements. Federal courts have interpreted the FAA broadly, and the Supreme Court has repeatedly held that state laws that single out arbitration agreements for disfavored treatment are preempted by federal law.

New York's prohibition on mandatory arbitration for discrimination claims ran directly into this doctrine. Federal courts — including the Second Circuit, which covers New York — have held that the FAA preempts CPLR § 7515 when the employment relationship involves interstate commerce, which is virtually always the case. The result is that New York's prohibition on mandatory arbitration, while still on the books, is largely unenforceable in federal court for claims brought under federal law.

State court is a different matter. New York state courts have been more receptive to applying CPLR § 7515, and for claims brought exclusively under state law in state court, the prohibition may have more force. But the practical reality is that most significant employment discrimination cases involve both federal and state law claims, and the federal preemption issue looms large.

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act

Congress stepped in with a meaningful reform in March 2022. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act amended the FAA to provide that, at the election of the person alleging sexual assault or sexual harassment, no pre-dispute arbitration agreement or class action waiver shall be valid or enforceable with respect to those claims.

This is significant for several reasons. First, it is a federal law, so it does not face the preemption problem that plagued New York's state-law prohibition. Second, the choice belongs to the employee — the person alleging the harassment or assault gets to decide whether to arbitrate or litigate. Third, it applies to pre-dispute agreements, meaning the arbitration clause you signed at hiring cannot be used to force you into arbitration for a sexual harassment claim.

The Act does not cover all discrimination claims — it is limited to sexual assault and sexual harassment. For race discrimination, age discrimination, disability discrimination, and other claims, mandatory arbitration agreements remain generally enforceable under federal law.

What This Means in Practice

If you are a New York employee who has signed a mandatory arbitration agreement, here is the current state of play:

• Sexual harassment and sexual assault claims: Under the federal 2022 Act, you have the right to bring these claims in court, regardless of any arbitration agreement you signed. This is a firm federal right.
• Other discrimination and harassment claims under New York law: New York's CPLR § 7515 prohibits mandatory arbitration, but federal preemption limits its effectiveness when federal law is also at issue. The analysis depends on where the case is filed and what claims are brought.
• Wage and hour claims: Generally still subject to mandatory arbitration under federal law, though class action waivers in this context remain heavily litigated.
• Retaliation claims: Depend on the underlying protected activity and the specific statutes involved.

Reviewing Your Agreement

If you are considering bringing an employment claim and you have signed an arbitration agreement, the first step is to have an attorney review the specific language of that agreement. Not all arbitration clauses are the same. Some have carve-outs, some have procedural defects that make them unenforceable, and some were signed under circumstances — coercion, lack of consideration, unconscionable terms — that may provide grounds to challenge them.

The law in this area continues to evolve. Legislative efforts at both the state and federal level to further restrict mandatory arbitration in employment disputes are ongoing. If you believe you have been subjected to discrimination, harassment, or retaliation, do not assume that an arbitration clause you signed forecloses your options. Consult with an employment attorney to understand the full picture.