In an opinion highly favorable to FINRA member firms, the Second Circuit Court of Appeals ruled on June 30, 2015 that Rule 13204 of the FINRA Code of Arbitration Procedures does not prevent member firms from enforcing otherwise sound arbitration agreements and class/collective action waivers. In Cohen v. UBS Financial Services, Inc., (Docket No. 14-781-cv), the plaintiff, a UBS financial advisor, filed a putative collective action under the Fair Labor Standards Act (“FLSA”) in federal court, seeking unpaid overtime compensation on behalf of himself and other UBS brokers. UBS moved to stay the federal court litigation and compel arbitration of Cohen’s individual claims based on Cohen’s pre-dispute employment agreement that: 1) required him to arbitrate any FLSA claims, and 2) waived his right to file or participate in any actual or putative class or collective actions relating to his employment. The district court granted UBS’s motion and ordered Cohen to arbitrate his individual claims with FINRA.
On appeal, Cohen acknowledged that he signed his employment agreement containing these arbitration and class waiver provisions, but argued that FINRA Rule 13204 prohibited arbitration of his claims. Rule 13204 provides that “a member or associated person may not enforce an agreement to arbitrate in [FINRA] against a member of a certified or putative collective action with respect to any claim that is subject to the certified or putative collective action until the collective action certification is denied or the collective action has been certified.” In essence, Cohen argued that by filing a putative collective action in federal court (a right he waived in his employment agreement), Rule 13204 barred arbitration of his claims while his putative collective action remained viable (i.e., the court had not denied a motion for conditional certification and had not decertified any conditionally certified collective group).
The Second Circuit rejected Cohen’s argument, finding that Rule 13204 “says nothing about class action waivers, and cannot be read to bar enforcement of them.” The court further held that Cohen could not use the collective action he filed in federal court (in direct contravention to his employment agreement) as a shield to bar the arbitration of his individual claims. Accordingly, the appellate court affirmed the district court’s order requiring Cohen to arbitrate his individual claims.
This opinion by the Second Circuit is obviously very beneficial to brokerage firms who require their financial advisors to sign pre-dispute class and collection action waivers. Had the Cohen court accepted the plaintiff’s argument, registered representatives could potentially avoid such a waiver by filing a class or collective action in court and arguing that the mere existence of such a lawsuit would prevent employers from enforcing such waivers. We expect that employees and their counsel will continue to devise theories to avoid such agreements, but fortunately it appears that Rule 13204 is an ineffective vehicle for doing so.