District Court Finds Class Action Waiver Clauses in Employment Agreements Are Permissible Under FINRA Rules 13204(a) and (b)

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On December 4, 2012, in Cohen v. UBS Financial Services, Inc., et al, 12-CIV-2147 ("Cohen"), the United States District Court for the Southern District of New York addressed whether Rules 13204(a) and (b) of the FINRA Code of Arbitration Procedure precluded enforcement of class action waiver clauses in arbitration agreements with financial advisors.

In Cohen, financial advisors filed a putative class action alleging claims for purported violations of the Fair Labor Standards Act, the California Labor Code, and the California Unfair Competition Law.  The financial advisors' compensation plan included an arbitration provision that provided as follows:

[Y]ou and UBS agree that any disputes between you and UBS including claims concerning compensation, benefits or other terms or conditions of employment . . . Will be determined by arbitration . . . By agreeing to the terms of this Compensation Plan . . . , you waive any right to commence, be a party to or an actual or putative class member of any class or collective action arising out of or relating to your employment with UBS . . ."

Rules 13204(a) and (b) of the FINRA Code of Arbitration Procedure state that "class action claims may not be arbitrated under the Code" and that "[a]ny claim that is based upon the same facts and law, and involves the same defendants as in a . . . Putative class action . . . shall not be arbitrated under the Code." 

The financial advisors argued that these rules precluded enforcement of the class action waiver clauses.

The Court disagreed stating that "Plaintiffs' selective reading of the Code as absolutely prohibiting class and collective waiver is incorrect." The Court reasoned that Rule 13204 also provides that its subparagraphs:

do not otherwise affect the enforceability of any rights under the Code or any other agreement. [emphasis in Court's Order.] The rule therefore: (1) recognizes that parties may choose to enter into additional agreements beyond the scope of the Code; and (2) provides that the Code does not affect the enforceability of these additional agreements. That the arbitration agreements here would preclude Plaintiffs from pursuing a class or collective action does not change the Court's view."