Cohen v. UBS Fin. Servs., 2012 U.S. Dist. LEXIS 174700 (S.D.N.Y. Dec. 3, 2012).

A recent ruling from the Southern District of New York provides further clarification regarding the use of arbitration clauses in employment agreements. On December 4, 2012, District Judge Barbara S. Jones granted UBS AG’s (“UBS”) motion to compel arbitration in a class action lawsuit seeking overtime pay pursuant to the Fair Labor Standards Act (“FLSA”) along with additional claims arising under the California Labor Code (“CLC”) and the California Unfair Competition Law (“CUCL”).  In Cohen v. UBS Financial Services, Inc., several Financial Advisors of defendant UBS signed an arbitration agreement wherein they agreed that employment related disputes, including claims arising under the FLSA, would be determined by arbitration.  The arbitration agreement was included as part of UBS’s Financial Advisor Compensation Plan as well as various other agreements executed between Plaintiffs and UBS.

Plaintiffs claimed that compelling arbitration would prevent them from pursing their case individually as the cost to do so would prove tremendously burdensome.  In support of their argument plaintiffs relied on In re Am. Exp. Merchants’ Litig., 667 F.3d 204 (2d Cir. 2012) cert. granted, 133 S. Ct. 594 (U.S. 2012) in contending that enforcement of the “class-action waiver” provision precluded plaintiffs from asserting their statutory rights. Plaintiffs claimed that proceeding on an individual basis entails incurring substantial costs that outweigh any potential benefit.  Judge Jones was not persuaded by plaintiffs’ argument and held that if plaintiffs successfully prove their claim in arbitration they would be entitled to damages and attorneys’ fees thereby vindicating their statutory rights under the FLSA.  Additionally, the Court noted the Supreme Court’s holding in AT & T Mobility LLC v. Concepcion 131 S.Ct. 1740, 1748 (2011) stating that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Therefore, a per se finding that “class-action waivers” are unenforceable in this context would conflict with the FAA.

Plaintiffs also claimed that the arbitration agreement violated the Financial Industry Regulatory Authority (“FINRA”) Code of Arbitration Procedure for Industry Disputes (the “Code”).  FINRA rule 13204 states in part that class action claims cannot be arbitrated. However, Judge Jones noted that the FINRA rules do not preclude parties from entering into additional agreements that are beyond the scope of the code and therefore not subject to enforcement by FINRA.

A special thanks to Cynthia Thomas, a law clerk at Cullen and Dykman LLP, for helping with this post.

Topics:  Arbitration, Arbitration Agreements, AT&T Mobility, Class Action, Class Action Arbitration Waivers, Employment Contract, FINRA, FLSA, Investment Adviser, Statutory Rights, UBS

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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