New York State Ban on Arbitration of Sexual Harassment Claims Preempted, Court Rules: New York Federal Court Holds That New York State’s Recently Adopted Ban on Pre-Dispute Agreements To Arbitrate Claims of Sexual Harassment Is Unenforceable as to Those Agreements Covered by the Federal Arbitration Act.

Sullivan & Cromwell LLP - July 1, 2019

The 2018-2019 New York State Budget, which was signed into law in April 2018, included a ban on pre-dispute agreements requiring arbitration to resolve sexual harassment claims “except where inconsistent with federal law.” On June 26, 2019, Judge Denise Cote, of the United States District Court for the Southern District of New York, held that this provision of the Budget is preempted by the Federal Arbitration Act (the “FAA”). Judge Cote’s ruling is consistent with prior authority holding that the FAA “preempt[s] any state rule discriminating on its face against arbitration – for example, a ‘law prohibiting outright the arbitration of a particular type of claim.’” The FAA applies to all arbitration agreements in interstate commerce (other than to agreements involving certain transportation workers), and thus there may be agreements entered into by employers operating solely within New York State which would remain enforceable.