January 15, 2012

SEC Publishes for Comment Proposal to Exempt Collective Actions from FINRA Arbitration

By Jill Gross

In a Federal Register notice issued last week, the SEC published for public comment a proposal to amend Rule 13201 of the FINRA Code of Arbitration Procedure for Industry Disputes to expressly preclude employees of FINRA members from arbitrating collective actions arising under the Fair Labor Standards Act, the Age Discrimination in Employment Act or the Equal Pay Act of 1963.   The impetus for the rule change was a November 2010 decision by a U.S. District Court for the Southern District of New York (Hugo Gomez et al. v. Brill Securities, Inc.,No. 10 Civ. 3503, 2010 U.S. Dist. LEXIS 118162(S.D.N.Y. Nov. 2, 2010)) holding that a collective action was not a “class action” within the meaning of Rule 13204 of the Industry Code.   In its ruling, the court ignored long-standing Interpretive Guidance from FINRA that it intended to include collective actions within the meaning of Rule 13204’s preclusion of class action arbitration. 

 FINRA’s rule change proposal is a glimmer of good news for individuals seeking to vindicate through consolidated actions small dollar-value claims in the wake of the Supreme Court’s AT&T Mobility v. Concepcion decision precluding states from invalidating class action waivers in arbitration agreements on unconscionability grounds.

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