On July 11, 2018, New York State enacted a sweeping new law aimed at combatting sexual harassment in the employment context.  A year later, on July 22, 2019, the U.S. District Court for the Southern District of New York ruled that the law’s prohibition from requiring employees to submit sexual harassment claims to mandatory arbitration was preempted by the Federal Arbitration Act (FAA).

The court’s decision is a straightforward application of the FAA.  Section 2 of the FAA provides that arbitration agreements are enforceable except on grounds that would invalidate any type of contract.  The U.S. Supreme Court has consistently applied the FAA to invalidate state laws that target the enforceability of arbitration agreements and do not apply generally to all types of contracts.  As New York’s prohibition on mandatory arbitration clauses was clearly targeted at arbitration agreements, it fell squarely within the type of prohibition that is preempted by Section 2 of the FAA.

This decision comes as welcome news to employers, and shows that the FAA remains a powerful tool to ensure that arbitration agreements are enforced even in the face of state legislation.  Employers with questions regarding arbitration agreements would do well to consult with able counsel.