Many licensed employees in the securities industry have been required to sign contracts obligating them to resolve their employment related claims in arbitration rather than through the traditional judicial system. Thus, employees licensed through the Securities and Exchange Commission (“SEC”), New York Stock Exchange (“NYSE”), National Association of Security Dealers (“NASD”) and Financial Industry Regulatory Authority (“FINRA”) are generally obligated to arbitrate their employment law claims through a Dispute Resolution Process.
Arbitration has also increasingly become a condition of employment for employees in the non-financial sector as well. For example, Circuit City has required its employees to sign arbitration agreements as a condition of their employment to prevent them from filing their employment claims in court. Employers generally view arbitration as a more cost efficient resolution procedure than the court system.
What is Arbitration?
Arbitration is a private dispute resolution process in which an arbitrator selected by the parties decides a case rather than a judge and jury. Arbitration is typically administered by the American Arbitration Association (“AAA”) or FINRA in the securities sector. Much like the traditional court system, the aggrieved employee (the “claimant”) initiates arbitration by filing a Statement of Claim against his employer (the “respondent”) with AAA or FINRA. The arbitration agency then provides the parties a list of potential arbitrators who will ultimately decide the case. The parties rank their arbitrators in order of preference and the agency selects the arbitrator whom the parties have mutually ranked the highest. In AAA arbitrations, one arbitrator is typically appointed to hear the case. In FINRA arbitrations, a panel of three arbitrators is more common. Selecting the “right” arbitrator is an incredibly important part of the process.