January 11, 2021
In theory, arbitration has its merits. In practice, arbitration is rarely the byproduct of free negotiation but too often the result of a default, take-it-or-leave-it contract. Consequently, most modern-day arbitration should likely be called "mandatory" arbitration, and we should fear its use as a tool in furtherance of inequality, be the victim a consumer or an industry employee. A recent racial discrimination case sheds an unflattering and likely unwanted light upon Wall Street's use of employment offers containing pre-fabricated, so-called arbitration "agreements."
Case in Point
Six African-American former employees of Voya Financial Advisors, Inc. allege that their former employer engaged in racial discrimination and retaliation against them; and, accordingly, they filed a state lawsuit, which Voya removed on the basis of federal question jurisdiction to federal court. On November 13, 2020, Voya moved the United States District Court for the Middle District of Florida ("MDFL") to compel arbitration before FINRA and to stay the pending federal case. O'Doll Van Williams, Jr., Marcus Robinson, Gwendolyn Robinson, Brandi Whitfield, Kimberly Saunders, and Johnnie Hall, Plaintiffs, v. Voya Financial Advisors, Inc., Defendant (Order, United States District Court for the Middle District of Florida, 20-CV-2611 / January 6, 2021)
The Arbitration Clauses
Upon joining Voya, the Plaintiffs signed written agreements, each of which provided for some form of arbitration in response to certain disputes:
Williams, Whitfield, and Marcus Robinson's "Retail Agent Agreement" provide, in part [Ed: Note that Marcus Robinson's Agreement varies to the extent that the term "NASD Arbitration" is replaced with "FINRA Arbitration," and stating that the parties agreed to arbitration in Windsor, Connecticut, rather than Hartford, Connecticut]:
9. Arbitration. Agent and Company shall settle by
binding arbitration any dispute, claim, or
controversy, including, without limitation, any
claim alleged under any state or federal statute,
(i) that Agent and Company are required or
permitted to arbitrate under the rules,
constitutions or by-laws of the NASD, as may be
amended from time to time ("NASD Arbitration"), or
(ii) that arises out of or is related in any way to
this Agreement, the breach, termination, or
validity of this Agreement, or the actions of Agent
or Company with respect to one another during the
term of this Agreement. Arbitration of any dispute,
claim, or controversy that is not subject to NASD
Arbitration shall be administered by the American
Arbitration Association under its Commercial
Arbitration Rules. Judgment on any arbitration
award may be entered by any court having
jurisdiction thereof. Agent and Company consent to
arbitration in Hartford, Connecticut. Arbitration
under this Agreement shall be governed by the
Federal Arbitration Act.
Additionally, Williams signed an "Advisory Representative Agreement," which provides in part:
20. Binding Arbitration. It is understood that the
following AGREEMENT TO ARBITRATE does not
constitute a waiver of the right to seek a judicial
forum to the extent that such waiver would be void
under applicable law.
a. The parties each agree that, except as
inconsistent with the preceding sentence, all
claims or controversies, and any related
issues, which may arise at any time between
the parties (including their directors,
officers, employees, representatives, or
agents) with respect to any subject matter;
any transaction, order, or direction; any
conduct of the parties or their directors, of
employees, representatives, or agents; any
construction, performance, or breach of this
or any other agreement between the parties,
whether entered into prior to, on, or
subsequent to the date hereof; any breach of
any common law or statutory duty; or any
violation of any federal or state law of any
nature shall be resolved by binding
arbitration rather than by lawsuit in a court
of law or equity.
b. Any arbitration pursuant to this agreement
shall be in accordance with, and governed by,
a mutually agreeable arbitration forum, but,
in the absence of such agreement, then the
Code of Arbitration Procedure of the NASD, if
the NASD accepts jurisdiction, and, if not,
then the American Arbitration Association.
There shall be at least three arbitrators
unless otherwise agreed by the parties. The
award of the arbitrators, or of the majority
of them, shall be final and binding upon the
parties, and judgment upon the award rendered
may be entered in any federal or state court
having jurisdiction. Any arbitration shall be
commenced by delivery to the other party of a written demand for arbitration setting forth
in detail the claim or controversy to be
c. The arbitrators shall be entitled to order
specific performance of the obligations
imposed by this Agreement.
Saunders, Hall, and Gwendolyn Robinson signed a "Registered
Representative Agreement," which provides in part that:
i. Arbitration. Any controversy or claim between
the parties will be settled by arbitration in
accordance with the rules of the Financial Industry
Regulatory Authority, and judgment upon the award
may be entered in any court having jurisdiction.
The arbitrators may award reasonable expenses,
attorneys' fees and costs.
FINRA Rule 13201
The above arbitration clauses should not be considered in a vacuum; however, and must be read subject to:
FINRA Code of Arbitration Procedure for Industry Disputes Rule 13201: Statutory Employment Discrimination Claims and Disputes Arising Under a Whistleblower Statute that Prohibits the Use of Predispute Arbitration Agreements
(a) Statutory Employment Discrimination Claims
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.
(b) Disputes Arising Under a Whistleblower Statute that Prohibits the Use of Predispute Arbitration Agreements
A dispute arising under a whistleblower statute that prohibits the use of predispute arbitration agreements is not required to be arbitrated under the Code. Such a dispute may be arbitrated only if the parties have agreed to arbitrate it after the dispute arose.
Voluntary Agreements or Contracts of Adhesion?
Citing the above agreements and arbitration provisions, Voya argues that the Plaintiffs' claims fall within the ambit of the arbitration agreements, and, as such, arbitration should be compelled and the federal court action stayed. As briefly summarized by the Court:
[P]laintiffs challenge the validity of the agreements on the
ground that this suit involves a claim of employment
discrimination, which is carved out from FINRA's rule on
mandatory arbitrations. (Doc. # 17 at 5). Plaintiffs argue
that this carveout, and the fact that the broad agreements do
not expressly include employment discrimination claims,
evidences an intent not to arbitrate such claims. (Id.).
Additionally, Plaintiffs posit that these agreements
represent invalid contracts of adhesion. (Id.).
at Page 9 of the MDFL Order
MDFL Says Agreements are Valid
In finding the agreements to arbitrate enforceable, the Court first notes that under the Federal Arbitration Act ("FAA") arbitration agreements are valid, irrevocable, and enforceable absent grounds that revoke the contract at issue. The test used by MDFL is characterized as an FAA requirement to compel arbitration upon a showing that "(a) the
plaintiff entered into a written arbitration agreement that
is enforceable 'under ordinary state-law' contract principles
and (b) the claims before the court fall within the scope of
the agreement." at Page 10 of the MDFL Order. MDFL found that each of the operative arbitration agreements was valid under the applicable state's law. As to various of the Plaintiff's defenses against the enforceability of the arbitration clauses, the Court finds in part that although Plaintiffs "argue that the arbitration clauses are unenforceable because they are "contracts of adhesion," they provide no factual support thereof and this statement therefore amounts to no more than a legal conclusion." at Page 13 of the MDFL Order. In similar fashion, the Court rebuffs Plaintiffs' unconscionability defense because the demonstration of a "mere inequality of bargaining power that exists between an employee and employer is an insufficient reason to find an arbitration agreement unenforceable." at Page 14 of the MDFL Order.
The Court then moves on to the key question of whether the scope of the enforceable arbitration agreements include Plaintiffs' racial discrimination claims. In finding that the racial claims fall within the agreements' scope, the Court notes in pertinent part that:
And, although Plaintiffs contend that Rule 13201 of
FINRA's Code of Arbitration Procedure precludes compelling
arbitration of racial discrimination claims here, the Court
does not find this logic persuasive. (Doc. # 17 at 5). Rule
13201 provides that employment discrimination claims are "not
required to be arbitrated" under FINRA's Code, and rather
that such claims "may be arbitrated only if the parties have
agreed to arbitrate [them]." FINRA Rule 13201(a). Because the
Court has already found that the broad arbitration clauses
include an agreement to arbitrate racial discrimination
claims, Rule 13201 - even if it applies here - is satisfied.
Additionally, a number of courts in the Eleventh Circuit
have previously found that parties can be compelled to
arbitrate racial discrimination claims pursuant to a valid
arbitration agreement. . . .
at Pages 18 - 19 of the MDFL Order
Accordingly, MDFL granted Voya's Motion to Compel Arbitration and to Stay the Federal Lawsuit; and, further, referred the case to FINRA arbitration and stayed the court proceedings.
Bill Singer's Comment
I will try to contain my anger with the MDFL Order because it is based upon sound, legal reasoning. On the other hand, I detest the jurisprudence because it becomes a tool used to deny access to a court for those raising valid claims of sexual, age, and other forms of discrimination and harassment.
A simple way of explaining my sense of outrage is to look at the absurdity of FINRA's Rule 13201. What does that Rule say? Clearly, it asserts in pertinent part that "a claim alleging employment discrimination . . . is not required to be arbitrated under the Code." Frankly, that's a sensible approach. Employment disputes that allege bona fide violations of one's constitutional rights should not be litigated before a FINRA arbitration panel because, as far as I'm concerned, FINRA is nothing more than a glorified trade group and FINRA is too often a lap dog in the service of its large member firms. Far too often, FINRA is about protecting employers at the expense of employees, of entrenching the power of large member firms at the expense of small member firms -- its is a self-regulatory-organization in which vested interests hold sway over the less powerful and far more vulnerable. All of which highlights the arch cynicism inherent in the second sentence of paragraph Rule 13201(a):
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
In the first breath, FINRA's Rule 13201 says that employment discrimination claims are not required to be arbitrated. In the second breath, such claims "may be arbitrated only if the parties have agreed to arbitrate . ." Sure, that seems magnanimous and who the hell is going to argue with the rights of each American citizen to freely choose whether to arbitrate or not?
Here's the problem with all that crapola in Rule 13201: It's virtually impossible to become an employee of any FINRA member firm without agreeing to an arbitration provision that eviscerates your right to opt out of the mandatory arbitration of employment discrimination disputes.
Note that in different Voya agreements subject to different state laws and entered into by different employees, each and every such agreement somehow includes -- by default -- an "agreement" to submit employment discrimination claims to so-called arbitration. In fact, there is virtually no scenario by which a wannabe employee of any FINRA member firm is offered the option to "agree" (or not) to mandatory arbitration of racial, sexual, age, or any other form of employment discrimination.
Consequently, Rule 13201 is hypocritical garbage and the powers-that-be at FINRA are guilty of going along with this shameful charade.
If FINRA and its undistinguished Board of Governors truly cared about protecting the industry's employees and ensuring that its members lived the credo of "conduct consistent with just and equitable principles of trade," then the self-regulatory-organization would have promulgated a rule that enshrined the civil rights of the industry's men and women, and, accordingly, Rule 13201 should have insisted that no employment agreement could contain a mandatory arbitration provision pertaining to "statutory employment discrimination claims."
The willingness to arbitrate should not be strong armed via a take-it-or-leave-it employment offer that presents a default demand to waive that very right to disagree as a precondition for industry employment. In my world and on my Wall Street, employers would submit negotiable employment agreements that would not be permitted under FINRA Rule to include any arbitration provision. Following the execution of said agreement and the creation of an employment relationship, I welcome the free negotiation of whatever arbitration agreement an employer and a then-existing-employee would each agree to enter into. Such an agreement would indeed by the product of free negotiation and free will -- unlike the coerced arbitration agreements that now exist industry-wide. Frankly, FINRA Rule 13201 is a hideous bit of cynicism that is made all the more offensive by FINRA's wink and nod.