June 28, 2012 Articles

SEC Shuts Door on FINRA Collective Action Arbitration

Whatever doubt may have remained regarding whether “collective action” employment claims may be subject to arbitration by FINRA has now been extinguished.

By Todd M. Church – June 28, 2012

Whatever doubt may have remained regarding whether “collective action” employment claims may be subject to arbitration by the Financial Industry Regulatory Authority, Inc. (FINRA) has now been extinguished. On April 9, 2012, the Securities and Exchange Commission (SEC) approved on an accelerated basis an amendment to Rule 13204 of the Code of Arbitration Procedure for Industry Disputes (Industry Code) that will preclude arbitration of collective-action claims pursuant to the Fair Labor Standards Act (FLSA), Age Discrimination in Employment Act (ADEA), and the Equal Pay Act (EPA). The amendment was proposed by FINRA in response to recent federal court decisions differentiating collective-action claims from class-action claims, and compelling collective-action claims to FINRA arbitration. While the rule change forecloses FINRA arbitration of collective actions, a subsequent amendment to the rule change clarifies that members and their employees may still agree to arbitrate collective-action claims in other arbitration fora.

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