FINRA Lawyer Blog
On July 15, 2022, FINRA filed Regulatory Notice 22-15 and announced the amendment of its Code of Arbitration for Industry Disputes to conform to the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, Pub. L. No. 117-90, 136 Stat. 26 (2022). The amendments permit person with claims of sexual assault or sexual harassment to pursue those claims in court irrespective of any agreements otherwise mandating arbitration.
Background
FINRA members historically forced employees to arbitrate claims of sexual harassment or assault by use of agreements containing pre-dispute arbitration clauses. The pre-dispute arbitration clauses were typically contained within a Form U4, employment agreements or provisions within an employee manual that the employee was bound by.
Use of pre-dispute arbitration clauses for claims of sexual harassment or sexual assault was upended by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. FINRA has now changed its rules to comport with the Act.
Amendments to FINRA’s Rules
FINRA Rule 2263
Rule 2263 (titled: Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4) now includes a new Section 4 stating:
“A party alleging a sexual assault claim or sexual harassment claim that has agreed to arbitrate before the dispute arose may elect post dispute not to arbitrate such a claim under the Code. Such a claim may be arbitrated if the parties have agreed to arbitrate it after the dispute arose.”
FINRA Rule 13100
Rule 13100 contains definitions applicable to the Code of Arbitration Procedure for Industry Disputes. FINRA has added a definition for “sexual assault claim,” meaning:
“a claim involving a nonconsensual sexual act or sexual contact, as such terms are defined in section 2246 of title 18 of the United States Code or similar applicable Tribal or State law, including when the victim lacks capacity to consent.”
FINRA also added a definition for “sexual harassment claim,” meaning:
“a claim relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.”
FINRA Rule 13201
Rule 13201, as amended, applies to arbitration of statutory discrimination claims and codifies a prohibition against the use of pre-dispute arbitration agreements for claims under a whistleblower statute, or claims sexual harassment or sexual assault. Rule 13021 now includes a new Section (c) stating:
“A party alleging a sexual assault claim or sexual harassment claim that has agreed to arbitrate before the dispute arose may elect post dispute not to arbitrate such a claim under the Code. Such a claim may be arbitrated if the parties have agreed to arbitrate it after the dispute arose. If the parties arbitrate such a claim, the claim will be administered under Rule 13802.”
FINRA Rule 13803
Rule 13803 is triggered when a claimant files certain claims (such as a sexual harassment claim) in court and other claims (such as a compensation claim, for example) in arbitration. In an instance like this, a member is now permitted to file a motion forcing the employee to consolidate all outstanding claim in the court proceeding.
Herskovits PLLC has a nationwide practice representing individuals in the securities industry with claims of sexual assault or sexual harassment. Feel free to call us for a consultation at (212) 897-5410.