With the increased attention being paid to the #MeToo movement and the existence of federal law that provides capped remedies and permits mandatory arbitration of sexual harassment claims,, states and cities are enacting legislation to create greater legal rights for sexual harassment claimants For example, New York recently enacted legislation that, among other things, prohibits enforcement of pre-dispute agreements mandating arbitration of sexual harassment claims. In the wake of recent U.S. Supreme Court decision in Epic Systems Corp. v. Lewis, one might wonder: Is the prohibition of voluntary arbitration agreements preempted by the Federal Arbitration Act?
In Epic, the Court reiterated that the Federal Arbitration Act (“FAA”) was enacted in response to the reluctance of some courts to enforce pre-dispute arbitration agreements. In its ruling, the U.S. Supreme Court reiterated that it is recognized law that courts must “rigorously [] enforce arbitration agreements according to their terms, including terms that specify with whom the parties choose to arbitrate their disputes and the rules under which that arbitration will be conducted.” With this in mind, it is unclear whether state legislation, such as the one passed in New York prohibiting arbitration agreements, would be preempted by the FAA. In other words, it is possible that the federal FAA and long standing court precedent favoring arbitration might override state law attempts to bar parties from agreeing to arbitrate.
We expect that there will be litigation challenging the New York law (and legislation in other states), which will focus on the pre-emption issue, i.e., can a nonfederal law override the FAA? For that reason, we suggest that employers consider back-up contractual jury trials waivers (covenants that are dependent upon state law and state court rulings).