FINRA: Collective Actions Can’t Be Arbitrated
For many years, employees and customers in the securities industry signed agreements that their disputes must be arbitrated before the self-regulatory organization for broker-dealers, Financial Industry Regulatory Authority (“FINRA”), previously known as the National Association of Securities Dealers (“NASD”). Compulsory arbitration has been the norm for small and large customer claims, employee disputes and large complex cases, excepting only class actions.
Rule 13204 prohibits class actions from being arbitrated under the Code:
Any claim that is based upon the same facts and law, and involves the same defendants as in a court-certified class action or a putative class action, or that is ordered by a court for class-wide arbitration at a forum not sponsored by a self-regulatory organization, shall not be arbitrated under the Code, unless the party bringing the claim files with FINRA one of the following:
(1) a copy of a notice filed with the court in which the class action is pending that the party will not participate in the class action or in any recovery that may result from the class action, or has withdrawn from the class according to any conditions set by the court; or
(2) a notice that the party will not participate in the class action or in any recovery that may result from the class action.
Now, with collective actions having increased in popularity, and despite FINRA having experienced, well-trained arbitrators hearing its cases, FINRA now believes that collective actions under the Fair Labor Standards Act (FLSA), the Age Discrimination in Employment Act (ADEA), and the Equal Pay Act of 1963 (EPA) would best be heard in the courts.
Why should these claims be excluded from arbitration under the Industry Code? The courts see differences between class actions and collective actions. See, e.g., Velez v. Perrin Holden & Davenport Capital Corp., 769 F.Supp.2d 445 (S.D.N.Y. 2011) (compelling arbitration because collective action differs from class action); Gomez v. Brill Securities, Inc., 2010 WL 4455827 (S.D.N.Y. Nov. 2, 2010) (recognizing significant differences between an opt-out class action and an opt-in collective action; Gomez v. Brill Securities, Inc., 2012 WL 851644 (NY App. 1st Dept. Mar. 15, 2012) (denying motion to dismiss or to compel arbitration of class action claims).
Bottom Line for Employers
FINRA claims that the courts have established procedures to manage both types of representative claims. It also believes that the rule change would preserve access to courts for these types of claims for employees of FINRA members. Of course it does, but couldn’t FINRA do so as well?