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Five Things You Need to Know About Connecticut Separation Agreements

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As a result of the state of the economy, in general, and in Fairfield County, in particular, we in the Westport, Connecticut office of Maya Murphy, P.C. have seen a spate of Separation Agreements brought to us by recently terminated employees.  Our experienced employment-law attorneys review and critique these Agreements, and often advocate on behalf of our clients to enhance a separation package.

Here are five things you need to know about Separation Agreements:

  1. They are here and more may be on the way. 

    Companies are scrutinizing their bottom lines to try to increase profits, decrease expenses, and improve share value or owner’s equity.  If sales can’t be increased or cost-of-goods-sold decreased, one alternative is to cut personnel.  Often senior (and more highly paid) employees are let go in favor of younger (i.e., “cheaper”) employees, thereby also raising the specter of an age discrimination claim (a topic deserving of its own post).

  2. They are complex. 

    For an employee over the age of 40, a federal statute known as the “Older Workers Benefit Protection Act” requires that your Separation Agreement contain certain provisions, including a comprehensive release of all claims that you might have against your employer.  The statute also gives you specific time periods to review the Agreement prior to signing, and even to rescind your approval after you have signed.  It is not uncommon to have Separation Agreements exceed 10 pages in length.  All of the language is important.

  3. They are a minefield. 

    Separation Agreements frequently contain “restrictive covenants,” usually in the form of confidentiality, non-solicitation, and non-competition provisions.  These can have a profound effect on your ability to relocate to another position and have to be carefully reviewed and analyzed to avoid potentially devastating long-term consequences after the Agreement has been signed and the revocation period has expired.

  4. They are not “carved in stone.”

    Although many companies ascribe to a “one size fits all” and a “take it or leave it” policy with regard to Separation Agreements, such is not necessarily the case.  Often, Maya Murphy employment attorneys can find an “exposed nerve” and leverage that point to obtain for a client more severance pay, longer health benefits, or some other perquisite to ease the client’s transition into a new job with a new employer.  Every case is factually (and perhaps legally) different and you should not assume that your severance package should be determined by those that have gone before you.

  5. You need an advocate.

    You need an experienced attorney to elevate discussion of your Separation Agreement above the HR level.  HR directors have limited discretion and are tasked with keeping severance benefits to an absolute minimum.  Maya Murphy’s goal is to generate a dialogue with more senior management to drive home the point that a particular client under certain circumstances is equitably entitled to greater benefits than initially offered.

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If you find yourself in the unfortunate position of having been presented with a Separation Agreement, you should contact an experienced employment law attorney in our Westport, Connecticut office by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Expunging a Dirty U-5—Be Careful What You Ask For!

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Expunging a Dirty U-5

The view from the impending “fiscal cliff” takes in much of Fairfield County’s “Gold Coast”—Greenwich, Stamford, Darien, and Westport.  We at Maya Murphy, P.C. represent many residents employed in the financial industry, both within and without the State of Connecticut.  Some of their financial employers may be considering reductions in personnel depending upon the results of the upcoming Presidential election, Congressional action (or inaction) concerning “taxmaggedon” and “sequestration,” and their own Q4 and year-end results.  If a financial firm retrenches, there will be a dirty U-5 on “the street.”

We are often asked about the possibility of “scrubbing” a U-5 or expunging it altogether.  The current economic climate and new proposed rules from FINRA warrant a warning that usually accompanies our advice.

The current FINRA Customer and Industry Codes do not afford “unnamed persons,” i.e., the subject of allegations but not named parties to the underlying arbitration, to seek expunging of allegations reported to the Central Registration Depository (“CRD”) on Form U-5 (and available to the public through such resources as “Broker Check”).  To rectify that situation (recognizing that a dirty U-5 impacts one’s livelihood), FINRA has proposed In re expungement rules seeking to balance the respective interests of the registered professional and the investing public.  Public comment on the proposed rules was closed on May 21, 2012.

The purpose of this post is not to critique the new rules that, while not problem-free, at least address the issue of incorrect allegations remaining on CRD records in the absence of an evidentiary hearing to determine the accuracy of those allegations.  The purpose of this post is to point out that the new rules, in whatever final form they may take, can be a cure worse than the disease.

The Original Language

There is no denying the injustice of having a registered representative’s U-5 amended to reflect a customer complaint without the representative being named as a respondent in subsequent arbitration. The net effect is to have the representative tried in absentia without the ability to present evidence or cross-examine witnesses by way of defense.  The proposed In re expungement rules, however, may not be all they are cracked up to be.  A recent FINRA arbitration decision points up the problem.

In the Matter of the FINRA Arbitration between Eduard Van Raay, Claimant v. Raymond James Financial Services, Inc., et al., Respondents (FINRA 11-04544, July 16, 2012), the underlying claim was settled and an arbitrator was appointed solely for the purpose of considering a request for U-5 expunging.  The original offending, terminating language was: “Violation of firm policy. Failure to disclose an outside business activity (personal representative relationship with a client).”  After the arbitration, the recommendation was for the language to be amended to read: “Permitted to resign. Advisor chose to continue unapproved outside business activity.”  This was hardly an improvement to that which he sought to have expunged.

The Post-Arbitration Language

The original language was cryptic, susceptible to differing interpretations, and perhaps easily explained.  The post-arbitration language, however, was clear, concise, damaging, and most importantly, the product of FINRA arbitration.  Instead of vague allegations of a personal relationship with a client, the representative’s CRD will now be saddled with a finding that he chose to continue an unapproved outside business activity.  The takeaway is that the outcome would not survive a rigorous pre-arbitration risk/reward analysis.  Arbitrations, as with lawsuits, are a lot like wars—they are easier to start than to stop.  They often bring with them unintended consequences.

The new In re expungement rules present registered representatives with an additional option that was previously unavailable.  Assuming their future adoption, that does not mean that every offending CRD entry should be the subject of a FINRA arbitration.

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Whether, and when, to pursue expunging is a decision that should be discussed thoroughly with a seasoned litigator familiar with the FINRA Rules and decisions.  We, here, in Maya Murphy’s Westport, Connecticut office stand ready to assist in that regard.  Please call at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Fourth Circuit Confirms District Court Decision that FINRA Arbitration Panel is Not Bound to Apply State Procedural Law

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Wachovia Securities, LLC, v. Frank J. Brand, et al, 671 F.3d 472 (4th Cir. 2012)

In a case before the Fourth Circuit, Wachovia Securities, LLC (“Wachovia”) appealed a decision by the U.S. District Court for the District of South Carolina in which the court denied Wachovia’s motion to vacate a Financial Industry Regulatory Authority (“FINRA”) arbitration award that denied the firm’s claims in the arbitration of an employment dispute with Frank Brand and three other former employees (“the former employees”).  The Fourth Circuit affirmed the district court’s ruling that denied vacatur and confirmed the arbitration award.

Case Background

The underlying dispute in this case began when Wachovia filed a Statement of Claim with FINRA against four former employees alleging that the former employees had violated contractual and common law obligations.  The former employees were employed as individual financial advisors by A.G. Edwards & Sons, Inc. until its merger with Wachovia in October 2007.  After the merger, the former employees were employed by Wachovia until their termination in June 2008.

All four former employees later found employment with a competing brokerage firm in the same geographic area.  Wachovia alleged that the former employees had conspired with the competing brokerage firm to open an office in the area, that they had misappropriated confidential and proprietary information, and that they were soliciting current Wachovia clients and employees to join the new firm.

Arbitration

In its Statement of Claims, Wachovia requested a permanent injunction, the return of records and attorneys’ fees associated with the arbitration.  In their answer, the former employees described the dispute as “meritless” and requested the arbitration panel award them attorneys’ fees and costs incurred in defending themselves.  FINRA appointed a panel of three arbitrators to hear the matter, and requested that the parties submit proposals regarding requested attorneys’ fees and other costs during the final two days of hearings.  Wachovia was unprepared to submit its brief on the penultimate date of hearings and requested a one-day extension, which the arbitration panel granted.

On the last day of arbitration hearings, both parties submitted their briefs, each of which contained new arguments.  Wachovia argued that, under the South Carolina Arbitration Act, neither party was entitled to attorneys’ fees.   The former employees argued that they were entitled to attorneys’ fees under the  Frivolous Civil Proceeding Act (“FCPA”), codified at S.C. Code Ann. § 15-36-10.  In South Carolina, the FCPA provides both a mechanism for litigants to seek sanctions against attorneys filing frivolous claims and safeguards for attorneys facing such sanctions. These safeguards include a notice period affording the accused 30 days to respond to a request for FCPA sanctions and a separate hearing on sanctions after the verdict.

Wachovia expressed its concern that it was not being afforded either of these procedural safeguards. The arbitration panel neither held additional hearings nor requested additional briefings.  On December 18, 2009, the FINRA panel entered an award in favor of the former employees, awarding them $1.1 million for attorneys’ fees and costs under the FCPA only and denying all of Wachovia’s claims.

Review of the Arbitration Award

Following arbitration, the former employees filed a motion in federal court to confirm the arbitration award pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Wachovia filed its own motion to vacate the portion of the arbitration award granting relief to the former employees.  Wachovia contended that the arbitration panel exceeded its authority and manifestly disregarded the law in violation of the FAA, 9 U.S.C. § 10(a)(4) and that the arbitration panel also deprived Wachovia of a fundamentally fair hearing in violation of FAA, 9 U.S.C. § 10(a)(3).

The district court considered these claims in turn and rejected both claims.  Wachovia appealed the district court’s holding that the arbitrators neither deprived Wachovia a fundamentally fair hearing nor manifestly disregarded the law.

In general, judicial review of an arbitration award in federal court is severely circumscribed, 9 U.S.C. § 9-11.  When the district court denies vacatur of an arbitration award, the appellate court reviews the district court’s legal findings de novo and reviews the district court’s factual findings for clear error.

Misconduct and Misbehavior

Vacating an arbitration award on the basis of FAA §10(a)(3) requires the court to find “the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to  hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.”  “Misconduct” and “misbehavior” are different from “mistake” in this context.  The first two imply that the arbitrators intentionally contradicted the law.  Mistakes lack the requisite intentionality to fall within FAA § 10(a)(3).

Wachovia did not allege that the FINRA arbitration panel acted with an intention to contradict the law, only that the arbitrators made a mistake in handling the former employees’ FCPA claim. Because Wachovia did not allege intentional misconduct, § 10(a)(3) cannot be grounds for vacatur.  Furthermore, the appellate court did not find that the arbitration panel made a mistake in not following the procedural safeguards of the FCPA.  A U.S. Supreme Court case held that the FAA pre-empted state law.  See AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011).

Although parties may consent to particular arbitration procedures in advance, it is inconsistent with the FAA for one party to demand particular state law procedural requirements after the fact.  Id. at 1750.  Therefore, the FINRA arbitration panel was not compelled to follow FCPA procedural mandates and their failure to do so does not satisfy the requirements of § 10(a)(3).

Manifest Disregard 

The Fourth Circuit adopted the position that manifest disregard continues to exist either as an independent grounds for judicial review of arbitration awards or as a judicial gloss on arbitration awards.  A court may vacate an arbitration award for manifest disregard of the law if: (1) the applicable legal principle is clearly defined and not subject to reasonable debate; and (2) the arbitrator refused to heed that legal principle.  Long John Silver’s Rests., Inc. v. Cole, 514 F.3d 345, 349 (4th Cir. 2008).  In this case, the appellate court found that whether the Panel erred by not applying the FCPA’s procedural requirements was a question that was itself not clearly defined and was certainly subject to debate. Therefore, the court held that the arbitrators did not manifestly disregard the law when they awarded the former employees $1.1 million in attorneys’ fees and costs under the FCPA.

The appellate court affirmed the decision of the district court denying Wachovia vacatur of the FINRA arbitration award.

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Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Colorado Court Confirms FINRA Arbitration Award Denying Relief for Service Member’s USERRA Claims

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Michael H. Ohlfs v. Charles Schwab & Co., Inc., 2012 WL 202776 (D. Colo. Jan. 24, 2012)

In a case before the Colorado federal district court, Michael Ohlfs (“Ohlfs”), an investment professional employed by Charles Schwab & Co., Inc., (“Charles Schwab”), filed a motion to vacate a Financial Industry Regulatory Authority (“FINRA”) arbitration award decided in favor of Charles Schwab in August 2011.  Charles Schwab petitioned the court to confirm the arbitration award and enter judgment pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  The court dismissed Ohlfs claims with prejudice and entered judgment for Charles Schwab.

Case Background

The underlying dispute in this case arose when Ohlfs returned from post 9/11 active duty military service to a Grade 56 Investment Representative position with Charles Schwab, which was lower than the Grade 57 Senior Investment Specialist he held prior to his military service.  The Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. § 4301, et seq., (“USERRA”) prohibits employment discrimination against military personnel deployed for active duty.  Ohlfs initially filed his USERRA claims in federal district court; however, the court ordered the parties to FINRA arbitration pursuant to the agreement that Ohlfs executed when he registered as a securities broker.

FINRA appointed an arbitration panel of three arbitrators to hear the matter after Ohlfs executed a FINRA Arbitration Submission Agreement, which included an agreement to be bound by the award.  Ohlfs’s claims against Charles Schwab included allegations that his re-employment in 2003 and 2004 were both in violation of USERRA § 4312, that he was discriminated against by failure to promote in violation of USERRA § 4311, and that he was discriminated against for filing a Department of Labor complaint. After ten days of hearings, the FINRA arbitration panel denied all Ohlfs’s statutory claims and all relief requested with prejudice.

Ohlfs filed a motion in federal court to vacate the FINRA arbitration award on several grounds, including unfair treatment by the FINRA arbitration panel, violation of the well-established USERRA public policy, and manifest disregard of the law.

The Allegations

To support his allegation of evident partiality by the arbitration panel, Ohlfs cited nine deficiencies in the arbitration process. The court determined that these allegations, viewed both separately and cumulatively, were insufficient to satisfy Ohlfs’s burden of demonstrating that the panel was unfair to him or partial to Charles Schwab.

One of the key allegations was that two arbitrators were biased toward Charles Schwab because of their connections to the company.  Two members of the arbitration disclosed their connections to Charles Schwab prior to hearing and deciding Ohlfs’s claims.  Because he had knowledge of facts suggesting arbitrator bias or partiality but failed to object to their participation until after the entry of the award, the court determined that Ohlfs waived his right to claim arbitrator bias on these grounds.

Another key allegation was that the arbitration panel refused to consider, or otherwise disregarded evidence, that Ohlfs presented regarding having gone from a Grade 57 Senior Investment Specialist to a Grade 56 Investment Representative following his post–9/11 military service.  Without supporting transcripts from the arbitration hearing, the court determined it had no basis on which to find unfairness or partiality.

Vacating an Arbitration Award on Statutory Grounds

Federal courts may vacate an arbitration award under four narrowly defined statutory grounds, 9 U.S.C. § 10(a), including “evident partiality” on the part of the arbitrators.  An arbitration award may also be vacated for a limited number of judicially created reasons, such as violations of public policy, manifest disregard of the law, and denial of a fundamentally fair hearing. Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001).   Errors in the arbitration panel’s findings of fact, interpretation of the law, or application of the law do not justify vacating an award unless such errors correlate to a manifest disregard for the law. See Hollern v. Wachovia Sec., Inc., 458 F.3d 1169, 1172 (10th Cir. 2006).

Vacating an Arbitration Award on Non-Statutory Grounds 

Courts have limited authority to vacate an arbitration award for non-statutory reasons.  An arbitration award may be set aside on public policy grounds if: (1) the award creates an explicit conflict with other laws and legal precedents as opposed to general considerations of supposed public interests; and (2) the violation of such public policy is clearly shown. United Paperworkers Int’l Union, AFL–CIO v. Misco, Inc., 484 U.S. 29, 43 (1987).

Ohlfs argued that the FINRA arbitration award in favor of his employer clearly violated USERRA’s well-defined public policy of protecting members of the armed forces from employment discrimination because the award absolved the employer of any wrongdoing without determining the merits of Ohlfs’s claims.  The court determined that this argument was an attempt to attack the arbitration award on the basis of the arbitration panel’s failure to issue a reasoned decision.  FINRA Rule 1304(g) provides for an “explained decision” that sets forth the general reasons for the arbitration award.

However, such a decision is provided only in the event that the parties jointly request such a decision twenty days prior to the first scheduled hearing.  FINRA Rule 13514(d).  An explained decision was not required in this case under FINRA’s rules because the parties did not jointly request such a decision.  Therefore, Ohlfs failed to carry his burden of proof on the matter.

Vacating an Arbitration Award Based on Disregard of the Law

In order to vacate an arbitration award based on the arbitrators’ manifest disregard of the law, “the record [must] show the arbitrator[s] knew the law and explicitly disregarded it.” Dominion Video Satellite, Inc. v. Echostar Satellite, L.L.C., 430 F.3d 1269, 1275 (10th Cir. 2005).  The court determined that, in the absence of an explanation for the award, Ohlfs cannot demonstrate that the panel manifestly disregarded the law under USERRA based on the fact that it found for Charles Schwab on his claims. The award itself provided no basis to find an “explicit” disregard of the law. Charles Schwab presented substantial evidence in its defense during the arbitration, and the court cannot second guess the panel’s factual findings.

The court denied Ohlfs’s motion for vacatur and entered judgment in favor of Charles Schwab as set forth in the FINRA arbitration award dated August 9, 2011.

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Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

New York Court vacates FINRA Arbitration Award and remands to Arbitration Panel for clarification

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Matter of Kaufman v. Kaufman Bros., LP, 33 Misc. 3d 1046; 935 N.Y.S.2d 447; 2011 N.Y. Misc. LEXIS 5215; 2011 NY Slip Op 21383 (1st Dept., 2011)
Case Background

Petitioner’s employment with Kaufman Brothers LP (“KBRO”) was terminated for allegedly interfering with the hiring of a new employee.  After his termination, Petitioner alleged that KBRO and the other Respondents engaged in malicious conduct by threatening to report his alleged criminal activities, fraudulently inducing him to default on a loan from his 401K, threatening to interfere with his new employment, and placing false information on his permanent record. Thereafter, Petitioner filed a claim with the Financial Industry Regulatory Authority (“FINRA”).

In subsequent amended filings, he asserted two claims.  Petitioner’s first claim was for defamation relating to alleged false information in the U5 termination notice and the second claim was for extreme emotional distress.  Respondents filed their answer denying the allegations as contained in Petitioner’s statement of claim, with counterclaims.

The Court’s Decision

A FINRA panel of arbitrators considered the matter and ruled that the Respondents were jointly and severally liable for and shall pay to Petitioner compensatory damages in the amount of $182,500.00.  The panel also recommended the expungement of and the addition of certain information in the Petitioner’s form U5 and the deletion of the criminal disclosure reporting page.  Finally, the Petitioner was found liable to KBRO for compensatory damages in the amount of $15,000.00.  All remaining claims for relief were denied.

Petitioner moved to confirm the award and the Respondents opposed the petition and cross-moved to vacate the award and modify the award against the Petitioner.  The Court found that the Petitioner did not make a wrongful termination claim and that his claims were for defamation and intentional infliction of emotional distress.  The claim for defamation was dismissed even though the body of the award referred to the defamatory language in the form U5.

The panel of arbitrators made an award of $182,500.00 without explaining on which claim and also made an award of $15,000.00 on the counterclaim without the benefit of explanation.  The Court concluded that the arbitrators failed to address and dispose of the issues raised by the parties and did not make specific findings of fact and credibility.  The petition to confirm the arbitrator’s award was denied and the cross-motion to vacate the award was granted.  The Court ordered that the matter be remanded to the arbitration panel for clarification.

California Court Does Not Compel FINRA Arbitration of Statutory Discrimination Claims

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John Simmons v. Morgan Stanley Smith Barney, LLC, et al, 2012 WL 1900110 (S.D. Cal. May 24, 2012)
Case Background

In January 2008, John Simmons (“Simmons”) was offered employment by Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) as the Executive Director and District Manager in the Global Wealth Management Department.  The offer letter stated that Simmons would be entitled to a $1 million forgivable loan, relocation benefits and a stock award.  Simmons accepted the employment offer by signing the Morgan Stanley offer letter. In February 2008, Simmons and Morgan Stanley entered into a bonus agreement and a promissory note that each contained a clause agreeing to arbitrate disputes related to these instruments in accordance with the Financial Industry Regulatory Authority (“FINRA”) rules.

During March in 2008, Simmons signed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”) which also contained an arbitration clause citing FINRA rules.  In May 2009, Simmons and Morgan Stanley entered into a second bonus agreement and a second promissory note, each of which contained the same arbitration clauses as the previous instruments.  During March in 2011, Simmons’s employment with Morgan Stanley was terminated. In September 2011, Morgan Stanley initiated a Statement of Claim with FINRA seeking to arbitrate its claim against Simmons for violation of the bonus agreements and promissory notes.

Simmons’ Allegations

In December 2011, Simmons initiated an action in California state court asserting statutory claims for discrimination pursuant to Cal. Govt.Code section 12940(a) and for violation of 42 U.S.C. § 2000e (“Title VII”).  Simmons claimed that Morgan Stanley employees made disparaging remarks to him regarding his religious beliefs because he was a member of the Church of Jesus Christ of Latter Day Saints.

Simmons also alleged that, despite his high level of performance, he was not paid in accordance with the terms of his employment agreement.  Finally, the complaint also alleged that, in February 2011, shortly before his termination, Simmons informed his supervisor that he was aware of the fact that he was paid less than other co-workers who performed similar duties but who did not share his religious beliefs.

Simmons’s complaint stated that these discrimination claims were “inextricably related” to Morgan Stanley’s allegations that he violated the two promissory notes because he was “illegally terminated before he was able to fully perform his obligations thereunder.” In addition to the two statutory discrimination claims, Simmons’s complaint also asserted non-statutory claims of wrongful termination in violation of public policy, fraud, and breach of contract.

Enforcing an Arbitration Agreement

Morgan Stanley removed the matter to the United States District Court for the Southern District of California and filed motions to compel arbitration and stay litigation.  Simmons filed a motion for a preliminary injunction asserting that he should not be compelled to arbitrate the claims that Morgan Stanley filed with FINRA in September 2011. Simmons presented five distinct legal arguments for why he should not be compelled to arbitrate with Morgan Stanley.  The federal court dedicated the most discussion to Simmons’s argument that the arbitration agreements which he allegedly entered into did not encompass his statutory discrimination claims.

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, embodies both a fundamental principle that arbitration is based in contract and a federal policy favoring arbitration.  A written arbitration agreement “shall be valid, irrevocable and enforceable,” unless the arbitration agreement can be invalidated by a generally applicable contract defense, such as fraud, duress and unconscionability.  9 U.S.C. §2.

Therefore, federal courts deciding motions to compel or stay arbitration examine (1) whether a valid arbitration agreement exists; and (2) whether the agreement encompasses the dispute at issue.  Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008).  Courts apply state contract law to determine whether an arbitration agreement exists and whether such agreement is enforceable.  Only if both findings are affirmative can a federal court enforce an arbitration agreement in accordance with its terms.

Statutory Remedies

Causes of action premised on statutory rights are just as subject to contractual arbitration agreements as non-statutory common law claims.  However, Congress may pass federal legislation that removes certain claims from the purview of the FAA.  Precedent within the Ninth Circuit is that “a Title VII plaintiff may only be forced to forego her statutory remedies and arbitrate her claims if she has knowingly agreed to submit such disputes to arbitration.” Renteria v. Prudential Ins. Co. of Am., 113 F.3d 1104, 1105-06 (9th Cir. 1997)(citing Prudential Ins. Co. of America v. Lai, 42 F.3d 1299, 1305 (9th Cir.1994)).

Both the public policy of protecting victims of sexual discrimination and the Congressional intent motivating Title VII legislation required that there be a knowing waiver of statutory remedies for civil rights violations, including employment discrimination based on gender.  Id. at 1108.  An earlier case within the Ninth Circuit held that parallel state anti-discrimination laws were made part of the Title VII enforcement scheme.  Lai, 42 F.3d at 1301 n.1.  Because the agreements to arbitrate in the February 2008 and May 2009 promissory notes and bonus agreements did not explicitly state that Simmons waived his right to a jury trial on claims of statutory employment discrimination, the court  refused to find that Simmons knowingly waived his statutory remedies on these claims.

Therefore, the court concluded that these arbitration provisions did not encompass Simmons’s first claim for violation of Cal. Govt. Code section 12940(a) and his second claim for Title VII violation.  However, the court determined that Simmons’s remaining non-statutory claims were encompassed by the existing arbitration agreements.

Arbitration Provisions

An arbitration provision may be challenged “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.   Under California law, a contract clause is unenforceable only if it is both procedurally and substantively unconscionable. Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir.2007)   Procedural unconscionability analysis focuses on the oppression or surprise of a contract clause.  The court found that the arbitration provisions at issue contain a minimal element of procedural unconscionability because they were standard FINRA agreements and clearly visible.  Substantive unconscionability considers the effect of the contract clause, specifically whether the clause is so one-sided as to shock the conscience.  Id. at 1075.

The court found that the arbitration provisions were substantively unconscionable because the rules of FINRA may require Simmons to pay hearing session fees in excess of what he would pay in court.  However, the single substantively unconscionable provision can be severed from the arbitration agreements; therefore, the court held that the arbitration agreements in the February 2008 and May 2009 promissory note and bonus agreements were enforceable once the unconscionable provision was severed.

The Court’s Decision

The court granted Morgan Stanley’s motion to compel arbitration on Simmons’s non-statutory claims pursuant to the arbitration provisions set out in the February 2008 and May 2009 promissory note and bonus agreements.  Likewise, pursuant to 9 U.S.C. § 3, the court granted Morgan Stanley’s motion to stay litigation on these claims pending arbitration.  Because the court found that valid arbitration provisions exist, it denied Simmons’s motion for a preliminary injunction.

With respect to Simmons’s first two claims of employment discrimination under California and federal statutes, the court denied Morgan Stanley’s motions to compel arbitration and stay litigation.  Simmons was permitted to litigate these claims in federal district court.

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Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Federal Appellate Court Affirms Lower Court Ruling Not to Vacate FINRA Award

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Javier Aviles v. Charles Schwab & Co., Inc., 435 Fed.Appx. 824 (11th Cir. 2011) (per curiam)

In a case before the United States Court of Appeals, Eleventh Circuit, Javier Aviles (“Aviles”) appealed a decision by the United States District Court for the Southern District of Florida that confirmed a Financial Industry Regulatory Authority (“FINRA”) arbitration award of $1.4 million in favor of Charles Schwab & Co., Inc. (“Charles Schwab”).   The appellate court affirmed the district court ruling.

Case Background

In 2007, Aviles left his employment with Charles Schwab to join Banc of America Investment Services, Inc. (“BAI”).  Later that year, Charles Schwab came to believe that Aviles was improperly soliciting its clients.  Schwab filed a Statement of Claims with FINRA against both Aviles and BAI, alleging multiple claims arising from Aviles’s resignation from Charles Schwab and his subsequent employment with BAI

These claims included: breach of contract, misappropriation and misuse of trade secrets, breach of duty of loyalty, breach of fiduciary duty, tortious interference with contractual and business relations and unfair competition.  BAI was later dismissed from the arbitration proceedings.  In April 2009, the arbitration panel entered an award finding Aviles liable to Charles Schwab for $1.4 million.

The Court’s Decision

Aviles filed a timely motion to vacate the arbitration award in state court, and Charles Schwab removed to federal court.  After removal, Aviles filed a motion to amend in order to add a new claim of arbitrator bias.  The district court found that the grounds for vacating the award set out in the original motion were without merit.  Additionally, the district court found that the amended motion was not filed in a timely manner and did not relate back to the original motion.  Finally, the district court found that the claim of arbitrator bias contained in the proposed amended motion also failed to warrant vacatur of the arbitration award.

Appellate courts do not use a different legal standard to review arbitration related judicial decisions:  district court findings of fact are reviewed for clear error and district court legal conclusions are reviewed de novo.  The Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), provides limited statutory grounds for vacating an arbitration award, including where arbitrators refused to hear evidence pertinent and material to the controversy, or where there was “evident partiality” or corruption in the arbitrator.

Seeking Vacatur by Challenging an Evidentiary Decision

When a party seeks vacatur by challenging an evidentiary decision of the arbitration panel, he must show that the arbitrator’s refusal to hear pertinent and material evidence prejudiced the rights of the parties to the arbitration’s proceedings.  Rosensweig v. Morgan Stanley & Co., 494 F.3d 1328, 1333 (11th Cir. 2007).

Aviles argued that the arbitrators refused to hear evidence material to the controversy because the arbitration panel excluded unsworn declarations completed by former Charles Schwab clients who had followed Aviles to BAI.  Aviles asserted that these were material to the controversy because they demonstrated that the clients decided to transfer their accounts to BAI because it was in their personal best interest to maintain the relationship with Aviles.

The chair of the arbitration panel stated that he would not allow documents that were not sworn or authenticated; however, he would sign subpoenas to allow Aviles to present this evidence in an acceptable manner and would also permit telephonic testimony if someone was out-of-town or otherwise unable to attend the hearings.

The appellate court determined that the exclusion of the unsworn declarations did not prejudice Aviles’s right to present all evidence pertinent and material to the controversy.  The chair of the arbitration panel offered Aviles alternate avenues to submit this evidence, and Aviles decided not to avail himself of those options.  Therefore, the district court did not err in its ruling that the arbitration award could not be vacated on the grounds that arbitrators refused to hear evidence.

Seeking Vacatur by Challenging Impartiality

When a party seeks vacatur by challenging the impartiality of the arbitration panel, he must show that the alleged partiality is “direct, definite and capable of demonstration rather than remote, uncertain and speculative.” Gianelli Money Purchase Plan & Trust v. ADM Investor Servs., 146 F.3d 1309, 1312 (11th Cir. 1998).

Aviles presented an affidavit from a FINRA arbitrator not serving on his panel indicating that the chair of the arbitration panel made statements illustrating a clear bias against him.  Specifically, the affidavit alleges that the chair stated that when a court enters a preliminary injunction or a temporary restraining order against a financial advisor prior to arbitration, the arbitrator’s only remaining task is to quantify and award damages.  Aviles had been served with a preliminary injunction prior to the arbitration proceedings.

The court found that the statements in the affidavit did not indicate that the chair of the arbitration panel was biased against Aviles. According to the court, the affidavit at most illustrated that the chair of the arbitration panel had an incorrect understanding of a legal issue, which is not enough to demonstrate bias or hostility toward a party.  Therefore, the district court did not err in its ruling that the arbitration award could not be vacated on grounds of arbitrator bias.

Because the district court did not err in ruling that there were insufficient grounds to vacate the arbitration award on the basis of refusal to hear evidence and arbitrator bias, the appellate court affirmed the district court ruling denying Aviles’s motion to vacate the arbitration award.

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Should you have any questions relating to FINRA, arbitration or employment issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Fairfield County Employment Law Attorneys

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Did your employer refuse to honor a promise made to you? Have your rights been violated in the workplace?
Your should seek immediate legal help to protect your rights before the statute of limitations expires on your potential claims.

At the Westport, Connecticut law offices of Maya Murphy, P.C. we represent executives, directors, managers, and other employees throughout Connecticut, including Fairfield and New Haven counties who are involved in disputes with their employers. We have a great deal of experience in the area of employment law and a record of success in getting employers to live up to their legal obligations.

We can help you in your employment-related dispute.

Our Trial Attorneys Can Make the Difference

Our firm has shown the ability to take these cases to trial and to win judgments on behalf of our clients. We handle a variety of employment law concerns and litigation related to:

  • Severance package disputes
  • Executive compensation disputes
  • Non-compete agreements
  • Trade secrets and confidential information
  • Director’s, officer’s, and manager’s contracts and disputes
  • Executive employment agreements
  • Executive retirement plans

Over the last twenty years, we have represented thousands of satisfied clients in employment related cases. In fact, the quality of our work in this area of practice is so high that the majority of our work in the area of employment law comes solely from the referrals of other clients and attorneys who are familiar with what we do.

Beware the Casual Employee Complaint

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The United States Supreme Court had overturned long-standing law in the Federal Districts of Connecticut and New York with respect to employee claims of retaliation for registering a complaint with an employer under the Fair Labor Standards Act (“Act”). In this case note, we will tell you how the law changed, and how employers should adopt changes in policy and procedure to protect themselves from a new and difficult-to-defend source of employment-related liability.

Fair Labor Standards Act

 

 The Fair Labor Standards Act was passed in 1938 and subsequently amended by the Equal Pay Act of 1963. The Act sets forth employment rules concerning minimum wages, maximum hours, and overtime pay. The Act contains an anti-retaliation provision prohibiting the discharge of or discrimination against any employee who has “filed any complaint” related to the Act. In 1993, the United States Court of Appeals for the Second Circuit (whose jurisdiction includes Connecticut and New York) decided Lambert v. Genesee Hospital, 10 F.3d 46 (2d Cir. 1993).
There the Court held that “[t]he plain language of this [anti-retaliation] provision [of the Act] limits the cause of action to retaliation for filing formal complaints, instituting a proceeding, or testifying, but does not encompass complaints made to a supervisor.” Id. at 55. Such was the settled law within this Circuit until March 22, 2011, when the Supreme Court issued its decision in Kasten v. Saint-Gobain Performance Plastics Corp., 2011 U.S. LEXIS 2417 (2011).
Kasten v. Genesee Hospital

In Kasten, the Supreme Court conducted a thorough exegesis of the phrase “filed any complaint” in the context of whether the statutory language included oral, as well as written complaints, and whether oral complaints thereby constituted protected conduct under the Act’s anti-retaliation provision. The case involved an employee who complained orally to his supervisor about the physical placement of time clocks so as to deprive workers of compensable time. The employee was fired soon after his complaint.
The Supreme Court found the text of the statute to be inconclusive as to its meaning and harkened back to the words of Franklin D. Roosevelt and pre-World War II census data to further divine the Act’s legislative intent. The Supreme Court ultimately concluded: “[t]o fall within the scope of the anti retaliation provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection. This standard can be met, however, by oral complaints, as well as by written ones.” Kasten at * 23.
Left unanswered by the Court, however, is the actual level of clarity and detail required to elevate some employee “letting off steam” (e.g., to a supervisor at a Friday night, after-work happy hour) to the protected activity of “filing of a complaint.” Turning the already murky waters opaque, the Court offered this guidance: “[t]he phrase ‘filed any complaint’ contemplates some degree of formality, certainly to the point where the recipient has been given fair notice that a grievance has been lodged and does, or should, reasonably understand the matter as part of its business concerns.”
Dangers to Employers
Lurking behind the Court’s holding is the spectre of an employee dismissed for cause suddenly recalling his prior oral complaint to his supervisor about violations of the Act, thus playing his anti-retaliation “get out of jail free” card. While the Supreme Court paid lip service to the requirement that an employer be given “fair notice” (albeit orally) of a claimed violation of the Act, it “[left] it to the lower courts to decide whether Kasten [the plaintiff-employee] will be able to satisfy the Act’s notice requirement.” Id. at * 27. As of this point, there is no such lower court advice to depend upon, but there are steps an employer can now take to reduce its exposure to a fabricated, after-the-fact claim of employer retaliation.
Employer Protections
Employee Handbooks or Company Policies and Procedures Manuals should be amended to require that all employee complaints to supervisors or management be written (even if anonymous) on a form prescribed by the employer and delivered to a specific location (e.g., suggestion box) or a designated member of management. A sample form should be appended to the Handbook or Manual as an Exhibit, and a supply of forms should be made readily (but discretely) available to employees. The Company needs to establish a usual, customary, and accepted practice of addressing only written employee complaints, irrespective of their subject, seriousness, or source.
The complaint forms should be numerically serialized upon receipt and logged in so that there is no question as to whether or when it was received. In this way, the company can argue that the absence of such a written complaint form raises a rebuttable presumption that no such complaint was ever made. It will thus deprive a discharged employee of the opportunity after he is fired to conjure up a “stealth” retaliation claim based upon a “phantom” oral complaint.
In the meantime, supervisors and management should be made aware that seemingly innocuous oral complaints from employees about wages and hours are sufficient to trigger the anti-retaliation provision of the Act and should be investigated and acted upon.
Contact Us
The Attorneys at Maya Murphy, P.C. regularly draft or review Employee Handbooks and advise employers on the full spectrum of employment law and employer-employee relations. For additional information, call at (203) 221-3100 or contact JMaya@mayalaw.com.
 

NYC Expands Law to Ensure Employers Provide Adequate Accommodations to Pregnant Employees

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According to Day Pitney, an expansion to the New York City Human Rights Law to include pregnancy discrimination will go into effect. Under the new law, NYC employers with four or more employees will have a duty to provide reasonable accommodations to pregnant women and those who suffer medical conditions related to pregnancy and childbirth.

Reasonable Accommodations

Examples of reasonable accommodations listed in the bill include assistance with manual labor, bathroom breaks, disability leave for a reasonable period of time arising from childbirth, breaks to facilitate increased water intake and periodic rest breaks for those who stand for long periods of time.

The Legislative Intent section of the bill suggests that when an employee requests a reasonable accommodation in order to maintain a healthy pregnancy, it generally is not reasonable for the employer to place that employee on an unpaid leave of absence.

Although the New York City Commission on Human Rights and the New York courts have not yet interpreted or applied this new law, the Legislative Intent section suggests that employers may have a duty to accommodate pregnant employees with medical restrictions by providing such employees modified job duties, assistance to perform certain job duties or alternative job duties.

Accommodation Requirements

An employer is required to provide such accommodations that would permit the employee to perform the “essential requisites of the job,” unless (i) the employer is unaware that the employee is pregnant, has given birth or has a related medical condition; (ii) providing the accommodation will result in an undue hardship for the employer; or (iii) the employee would not be able to perform the essential requisites of the job even with the accommodation.

NYC employers will be required to provide written notice of these new pregnancy and childbirth accommodation rights to new employees at the start of their employment and to existing employees within 120 days of the law’s effective date of January 30, 2014. In addition to providing each individual employee with written notice of these rights, employers also should post in a conspicuous location the poster provided by the New York City Commission on Human Rights. The poster is available here.

Violations of the Law

Employees who believe their employers have violated the new law will have the ability to file a claim with the New York City Commission on Human Rights or pursue a private right of action in court without first exhausting administrative remedies. Remedies for violating the law include back pay, front pay, compensatory damages, punitive damages, attorney fees and costs.

Credit: Basil Sitaras