New York State Attorney General Dennis Vacco has called for ending mandatory arbitration of all types of employment claims in the securities industry.
In a comment letter to the SEC regarding the NASDR's proposal to end mandatory arbitration of Title VII sexual harassment and discrimination claims, Vacco recommended that the SEC "broaden the rule to include common law claims" such as wrongful termination, defamation, breach of contract, etc.
Vacco's letter was one of four commentaries sent to the SEC, which put the NASDR's proposal out for comment Dec. 17, 1997. The NASDR released the proposed rule change last summer.
By allowing only discrimination claims to go to court, the NASD risks creating a two-track system that Vacco and other commentators believe could cause problems.
"Splitting such claims into separate forums duplicates the fact-finding process of claims which, by nature, inextricably intertwine," Vacco wrote. "Moreover, the duplicity would prove extremely costly and time-consuming to employees, and would impose undue hardship on them."
Another commentator, New York plaintiffs' attorney Jeff Liddle, also predicted that pursuing claims in two separate forums would allow firms to play one forum against the other, to their "advantage, as they have the resources to grind out litigation in the hope of causing plaintiffs to quit or prospective plaintiffs to avoid suing," Liddle wrote in a comment letter, which also suggested that the SEC should remove all employment claims from arbitration.
W. Hardy Callcott, vice president and deputy general counsel at Charles Schwab & Co. in San Francisco, predicted that by allowing split claims, "the court case and the arbitration might occur in different states, requiring different lawyers." In a bifurcated case, one proceeding will have to end before the other, and that raises a whole list of questions, he wrote, such as: "Should factual and legal issues resolved in the first proceeding be treated as resolved for the purposes of the second proceeding? Does the relief awarded in the first proceeding overlap with the relief sought in the second proceeding?" And when disputes "inevitably" arise between a court and an arbitration panel, "there is no simple mechanism to resolve them," he noted.
Vacco, who was scheduled to hold public hearings on the issue of discrimination and sexual harassment in the securities industry on Jan. 22, also said that the NASDR "should prohibit private predispute arbitration agreements" in line with a July 1997 Equal Employment Opportunity Commission policy statement. The EEOC believes such agreements are unfair if employees are made to sign them as a condition of either getting or retaining a job. The NASDR's proposal says discrimination and harassment claims "may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose."
The fourth comment letter came from EEOC Chairman Gilbert Casellas, which included a full copy of that policy statement, just in case the SEC missed it the first time. That's unlikely, since U.S. Rep. Edward Markey (D-Mass.) promptly sent a personal copy to SEC Chairman Arthur Levitt when the EEOC policy was first issued.
Nevertheless, most brokerage firms are expected to develop their own predispute agreements if the NASD eliminates its requirement to arbitrate discrimination claims.
An SEC spokesperson says the agency will continue to accept comment letters until it takes official action on the proposal.