How would a court resolve a broker-dealer's action to enforce its class action waiver, which would require the court to disregard FINRA Rule 13204? The Supreme Court has identified one exception to the FAA's mandate: if a “contrary congressional command” displaces the FAA. Thus far, the Court has not had occasion to examine whether a class action waiver in a broker-dealer's employment agreement with an employee is enforceable under this exception. While the Court seems very supportive of these waivers, the securities industry is different. Securities arbitration is heavily regulated, and pronouncements by the SEC--when exercising power expressly delegated to it by Congress--make it clear that class actions in court should be preserved for both investors and broker-dealer employees.
This article analyzes this issue and concludes that these class waivers are not enforceable. Part II details the regulatory framework in the securities industry relevant to this issue. Part III explains why FINRA, as a forum, does not accept class actions and why the SEC believes court-filed class actions should be preserved for employees of broker-dealers. Part IV describes the framework the Supreme Court directs courts to use when analyzing alleged conflicts between two Congressional Acts. Part V argues that FINRA's Rule 13204 barring FINRA member firms from forcing employees to waive their right to pursue class action claims in court conflicts with and supersedes the FAA's general pronouncement to enforce arbitration agreements as written. Part VI concludes.
Jill I. Gross, The Final Frontier: Are Class Action Waivers in Broker-Dealer Employment Agreements Enforceable?, 12 Penn. St. Arb. L. Rev. 96 (2020), https://digitalcommons.pace.edu/lawfaculty/1173/.