Chris Lazarini Discusses FINRA’s Class Action Waivers in Employment Agreements

July 25, 2018
Securities Online Litigation Alert

Bass, Berry & Sims attorney Chris Lazarini discussed the class action case brought by former advisers of Credit Suisse Securities (USA) who sought recovery of their unvested deferred compensation following the closure of Credit Suisse Securities (USA)’s Private Banking Division. Relying on the terms of its employment dispute resolution program, Credit Suisse Securities (USA) moved to dismiss the litigation and compel arbitration. Applying the Supreme Court’s recent ruling in Epic Systems Corp. v. Lewis, the court upholds Credit Suisse Securities (USA)’s motion holding that arbitration agreements in which an employee agrees to arbitrate any claims against his employer individually rather than on a class or collective basis are enforceable.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SOLA, please visit the SOLA website to sign up for the newsletter.

Laver vs. Credit Suisse Securities (USA), LLC, No. 18-cv-00828 (N.D. Cal., 6/21/18)

*Class action waivers in employment agreements are enforceable. 

**FINRA Rule 13204’s prohibition against compelling a member of a certified or putative class to arbitrate may be contractually waived. 

Plaintiff is a former financial adviser in Credit Suisse Securities (USA)’s (“CSSU”) Private Banking Division. Like other CSSU advisers, Plaintiff agreed to abide by CSSU’s employment dispute resolution program (“EDRP”). The EDRP prohibits employees from bringing employment-related claims as part of a class action and has a three-stage dispute resolution process: an internal grievance procedure, mediation before a JAMS neutral, and JAMS or AAA arbitration, to be held in New York unless the parties agreed otherwise.

A primary component of Plaintiff’s and other CSSU advisers’ compensation was CSSU’s deferred compensation program which generally took the form of stock awards. The awards were lost if an adviser voluntarily resigned or was terminated for cause before the awards vested; however, if there was a “change in control” at CSSU, all unvested deferred compensation awards became due. In 2015, CSSU announced the closure of its Private Banking Division, telling its advisers to find new jobs. When Plaintiff joined UBS, CSSU refused to honor his outstanding unvested deferred compensation awards, claiming he forfeited the awards because he “voluntarily resigned” from CSSU, the same position it took with respect to all advisers who did not join Wells Fargo, which CSSU had authorized to recruit its brokers.

Plaintiff filed this putative class action on behalf of CSSU advisers who, like Plaintiff, left CSSU after the firm announced the closure of its Private Banking Division and joined firms other than Wells Fargo. Relying on its EDRP, CSSU moved to dismiss or stay the litigation or, in the alternative, to transfer it to the Southern District of New York, where CSSU filed a petition to compel arbitration. Plaintiff opposed both motions and the petition in New York, citing Ninth Circuit precedent and FINRA Rule 13204, both of which, he argued, rendered the class action waiver unenforceable.

The Court rejects Plaintiff’s contentions. First, the Court bows to the Supreme Court’s recent ruling in Epic Systems Corp. v. Lewis, 584 U.S. ___, (May 21, 2018, see SOLA 2018-20) (holding that arbitration agreements in which an employee agrees to arbitrate any claims against his employer individually rather than on a class or collective basis are enforceable). The Court also questions Plaintiff’s reliance on Rule 13204, given that no FINRA proceedings have been invoked before the Court. In any case, the Court relies on the Second Circuit’s opinion in Cohen v. UBS Financial Services, Inc. (SOLA 2015-25), the only precedent cited by either party that was not undermined by Epic, to hold that Rule 13204 cannot bar contractual pre-dispute waivers of class action procedures, such as the one in the EDRP.

The Court also rejects Plaintiff’s reliance on Regulatory Notice 16-25, which reminds member firms that their customers and employees do not forfeit their right to use FINRA’s arbitration process by signing an agreement specifying a different arbitration venue, especially given that he is challenging the arbitration process. Nor will it give deference to comments from FINRA’s Assistant Chief Counsel of Dispute Resolution that employment agreements requiring employees to waive their right to participate in collective actions are contrary to the Industry Code. The Court dismisses the case and denies the motion to transfer, but states that the Southern District of New York is better positioned to determine the scope of, and forum for, any arbitration.

(From the Editor of SOLA: This decision is worthy reading. It may be the first federal court decision to apply SCOTUS’s May 21 Epic decision. It also provides commentary on the meaning and impact of Reg Notice 16-25, which we have not seen before.)