By:  John F. Fullerton III

This is the third in our series of posts on practice and procedure in employment-related arbitrations before FINRA.  Check back often for future posts, subscribe by e-mail (see the sidebar), or follow @FSemployer on Twitter so you don’t miss any updates!

Once upon a time, it was mandatory under Form U4 that registered representatives file any statutory claims of discrimination (such as age, gender, or race discrimination) in arbitration rather than in court.  A well known Supreme Court case decided in 1991, Gilmer v.  Interstate/Johnson Lane Corp., upheld that requirement. Starting in January 1999, however, the requirement for registered persons to arbitrate claims of statutory employment discrimination was eliminated from the rules of the NYSE and NASD, FINRA’s predecessor organizations.  Since then, discrimination claims still can be and often are heard and decided by FINRA arbitrators—but only if both parties voluntarily agree to arbitration, either before or after a dispute arises.  In other words, arbitration of statutory discrimination claims is no longer a required condition of employment for all registered representatives by virtue of language in the U4, but rather, must be agreed to separately in an employment agreement or an employer's mandatory arbitration program.

Today, Rule 13201 of the FINRA Code of Arbitration for Industry Disputes (PDF) provides:

A claim alleging employment discrimination, including sexual harassment, in violation of a statute, is not required to be arbitrated under the Code. Such a claim may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose. If the parties agree to arbitrate such a claim, the claim will be administered under Rule 13802.

“Statutory employment discrimination claim” is defined elsewhere in the Rules as “a claim alleging employment discrimination, including a sexual harassment claim, in violation of a statute.”  Because of their unique status, statutory discrimination claims are administered differently than other types of industry disputes involving associated persons employed by FINRA members.  These procedures are set forth in Rule 13802 (PDF).

One difference is that all claims of $100,000 or less are heard by a single arbitrator, unlike other cases, where claims between $25,000 and $100,000 are usually heard by a single arbitrator but can be heard by a panel of three arbitrators upon written agreement of the parties.  If the amount of a discrimination claim is more than $100,000, the panel consists of three arbitrators, unless the parties agree in writing to having the case heard by a single arbitrator.

If a discrimination case is heard by a single arbitrator, the arbitrator is drawn from FINRA’s list of “public” arbitrators (as opposed to the list of non-public or “industry” arbitrators), but must meet certain special qualifications applicable in statutory discrimination cases, unless the parties agree in writing otherwise.  If the panel consists of three arbitrators, the arbitrators are all public arbitrators, unlike other industry disputes involving associated persons, for which the panels are comprised of two public arbitrators and one non-public arbitrator.  Further, one of the three public arbitrators, who serves as the Chairperson, must meet the special qualifications applicable only in statutory discrimination cases, unless the parties agree in writing otherwise.

Under these special requirements, the arbitrator must possess:

  • a law degree (Juris Doctor or equivalent);
  • membership in the Bar of any jurisdiction;
  • substantial familiarity with employment law; and
  • ten or more years of legal experience, of which at least five years must be in either:
    • law practice;
    • law school teaching;
    • government enforcement of equal employment opportunity statutes;
    • experience as a judge, arbitrator, or mediator; or
    • experience as an equal employment opportunity officer or in-house counsel of a corporation;
  • and, in addition, the arbitrator may not, within the five years prior to being appointed, have represented “primarily” the views of employers or of employees, meaning 50% or more of the arbitrator's business or professional activities cannot have come from representing employers or employees within the previous five years.

The requirements of a law degree and bar membership can be waived if the parties agree to do so, but only after a dispute arises.

In terms of administrative fees, Rule 13802 provides that the party a party who is a current or former associated person and is required to arbitrate pursuant to a pre-dispute arbitration agreement "shall pay a non-refundable filing fee according to the schedule of fees set forth in Rule 13900(a)" (PDF),  subject to a fee cap of $200.  The FINRA member / employer must pay the remainder of all applicable arbitration fees.

The arbitrators are authorized under Rule 13802 to award any relief that would be available in court under the statutes at issue.  The award itself must contain many of the same elements as other FINRA awards—e.g., a summary of the issues, including the type of dispute involved, the damages or other relief requested and awarded, and a statement of any other issues resolved—but must also include a statement regarding the disposition of any statutory claims.  Finally, the panel is explicitly authorized to award reasonable attorneys’ fees, in whole or in part, as part of the remedy in accordance with applicable law.

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