Securities Broker/Dealers and Arbitration of Employee Discrimination Claims

U.S. Supreme Court Enforces Arbitration of Employment Disputes...
In March of 2001, the United States Supreme Court held that agreements to arbitrate employment disputes are enforceable under the federal arbitration act. Opponents of arbitration had convinced the Ninth Circuit Court of Appeals (governing California and other Western states) otherwise. The Supreme Court reversed that  Ninth Circuit decision. Circuit City Stores, Inc. v. Adams.

 However, you must have an agreement to arbitrate before you can enforce it. The standard arbitration agreement embodied in the Form U-4 that your licensed employees have signed no longer covers all employment disputes.

...but the NASD Restricts Arbitration of Employee Discrimination and Sexual Harassment Claims...
Traditionally, all employees licensed with the NASD were required to arbitrate all employment disputes. When they signed the Form U-4 to become licensed, they signed a broad arbitration agreement. However, in recent years strong forces successfully pushed to limit the scope of Form U-4 arbitration agreements. Form U-4 no longer requires that employee discrimination or sexual harassment claims be arbitrated.

...unless You Have a Separate Agreement.
To assure arbitration of employee discrimination and sexual harassment claims, you and your employees must enter an arbitration agreement separate from the Form U-4 . (Rule 10201 of the Code of Arbitration Procedure, as amended Jan. 1, 1999.)

It has now been over two years since this restriction became effective. Do you have supplemental arbitration agreements with your licensed employees? And what about your unlicensed employees? They never have been covered under the Form U-4 provisions, and the mailroom is as likely an incubator for a sexual harassment lawsuit as is the trading floor.

Ted Meikle has served as an attorney since 1980, including 4 ½ years as general counsel for a securities broker/dealer. He is now in private practice. This column is provided as general educational material and not as legal advice.

 © Ted S. Meikle