Mandatory arbitration clauses often appear in employment contracts, collective bargaining agreements, and partnership agreements. But how do they impact disputes involving employment issues, discrimination claims, and sensitive matters such as sexual harassment? Here's what high-income professionals and business owners need to understand.
Arbitration vs. Litigation: Key Distinctions
Arbitration typically requires disputes to be resolved privately, outside of court, with limited rights to appeal. Employers have favored arbitration for its confidentiality and efficiency, while employees might prefer court litigation for its transparency and potential jury verdicts. However, recent developments have significantly impacted the enforceability of arbitration clauses.
Recent Changes to the Law (Effective March 3, 2022)
An amendment to the Federal Arbitration Act (FAA) significantly altered the landscape for arbitration clauses involving sexual harassment or assault claims:
- Prohibition of mandatory arbitration: Mandatory arbitration clauses for claims related to sexual harassment or sexual assault are now federally prohibited. This prohibition applies broadly to all claims under federal, state, or tribal laws.
- Retroactive effect: Existing mandatory arbitration clauses cannot be enforced against sexual harassment claims before March 3, 2022.
- Collective actions: Employees cannot be barred from participating in class actions or collective claims relating to sexual harassment or assault, regardless of contractual provisions.
New York State Specific Considerations
New York State law (Civil Practice Law and Rules § 7515) attempted a broader prohibition against arbitration for all discrimination claims. However, due to federal preemption, this state law has limited practical effect. The FAA generally overrides state restrictions, except regarding sexual harassment and assault claims as outlined above.
Implications for Employers and Employees
- Review your employment contracts and arbitration agreements, especially if they were drafted prior to March 2022.
- Amend contracts to comply with the new federal law to avoid potential legal challenges.
- Consider updating policies to address handling claims of sexual harassment transparently.
Employees and high-income professionals:
- Understand your rights under existing contracts. Even if you've signed a mandatory arbitration clause, sexual harassment claims now provide the option of court litigation.
- Evaluate current disputes or claims with legal counsel, recognizing the expanded protections available under federal law.
How We Can Help
Navigating the complexities of arbitration requires careful strategy. Our litigation firm focuses on business litigation, employment litigation, matrimonial and divorce matters, and trust and estate disputes. We understand how high-income professionals, business owners, and executives can leverage these recent changes effectively.
Contact us today to ensure you're positioned to achieve the best possible outcome.
You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.
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