Notice To Members 93-64

SEC Approves Amendments Concerning Arbitration of Employment-Related Disputes: Effective October 1, 1993

Published Date:

September 01, 1993

SUGGESTED ROUTING

Senior Management
Legal & Compliance

Executive Summary

On August 25, 1993, the Securities and Exchange Commission (SEC) approved amendments to Part I, Section 1, and Part II, Sections 8 and 9, of the Code of Arbitration Procedure (Code) to clarify that employment-related disputes are arbitrable and to provide that employment discrimination or employment claims involving public policy issues should be heard by a panel composed of a majority of public arbitrators.

The amendment is effective October 1, 1993. The text of the amendment follows this Notice.

Background

On August 25, 1993, the SEC approved amendments to Part I, Section 1, and Part II, Sections 8 and 9, of the Code. The amendments clarify that employment-related disputes are arbitrable under the Code and provide that in cases involving employment discrimination or employment claims involving public policy issues, the panel should consist of a majority of public arbitrators.

Amended Section 1 of the Code provides that disputes, claims, or controversies arising out of the employment or termination of employment of an associated person are eligible for submission to arbitration. This change insures that a party to such disputes may compel arbitration. The amendment to Section 8 specifies that matters arising out of the "employment or termination of employment" of an associated person are arbitrable. The amendments cure an existing ambiguity between the language of Section 8, which requires the arbitration of disputes "eligible for submission under Part I between or among members and/or associated persons," and Part I, Section 1, which does not refer to employment disputes as eligible for submission. A new subsection 2 to Section 1 also clarifies that such employment-related disputes are eligible for submission if they are between or among members and associated persons. Finally, amendments to subsection 1(3) clarify that disputes between or among associated persons and public customers are eligible for submission to arbitration.

The NASD has amended Section 8 to clarify that employment disputes are arbitrable through language which parallels the language of the New York Stock Exchange's arbitration code. Amended Section 8 requires the submission of a claim arising out of the employment or termination of employment of an associated person by and with a member.

The NASD also amended Section 9(a) to provide that claims arising out of the employment or termination of employment of an associated person, and that relate exclusively to disputes involving employment contracts, promissory notes, receipt of commissions, or wrongful discharge, the panel of arbitrators shall be made up of industry arbitrators as provided by Sections 9(b)(i), (b)(ii), or 10 of the Code. In all other instances, including age, sex, or race discrimination, sexual harassment claims, or other public policy issues would govern selection of Section 13 or 19, the panel of arbitrators. This would result in a panel with either a single public arbitrator or a majority of public arbitrators. These amendments reflect the NASD's view that disputes involving employment contracts, promissory notes, receipt of commissions, and wrongful discharge implicate industry practice and require industry experience.

Other disputes, however, involving public policy issues such as employment discrimination and sexual harassment require little industry expertise and the interests of the parties are better served by a panel consisting of a majority of public arbitrators.

Questions concerning this Notice may be directed to the NASD Arbitration Department at (212) 480-4881.

Text of Amendments to Part I, Section 1, and Part II, Sections 8 And 9 of the Code of Arbitration Procedure

(Note: New language is underlined; deletions are in brackets.)

Part I. Administrative Provisions

Matters Eligible for Submission

Sec. 1. This Code of Arbitration Procedure is prescribed and adopted pursuant to Article VII, Section 1(a)(3) of the By-Laws of the National Association of Securities Dealers, Inc., (the Association) for the arbitration of any dispute, claim or controversy arising out of or in connection with the business of any member of the Association, or arising out of the employment or termination of employment of associated person(s) with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company:

(1) between or among members;

(2) between or among members and associated persons;

[2](3) between or among members or associated persons and public customers, or others; and

[3](4) between or among members, registered clearing agencies with which the Association has entered into an agreement to utilize the Association's arbitration facilities and procedures, and participants, pledgees or other persons using the facilities or a registered clearing agency, as these terms are defined under the rules of such a registered clearing agency.

* * * * *

Part II. Industry and Clearing Controversies

Required Submission

Sec. 8.

(a) Any dispute, claim or controversy eligible for submission under Part I of this Code between or among members and/or associated persons, and/or certain others, arising in connection with the business of such member(s) or in connection with the activities of such associated persons(s), or arising out of the employment or termination of employment of such associated person(s) by and with such member, shall be arbitrated under this Code, at the instance of:

(1) a member against another member;

(2) a member against a person associated with a member or a person associated with a member against a member; and,

(3) a person associated with a member against a person associated with a member.

* * * * *

Composition of Panels

Sec. 9.

(a) In disputes subject to arbitration that arise out of the employment or termination of employment of an associated person, and that relate exclusively to disputes involving employment contracts, promissory notes or receipt of commissions the panel of arbitrators shall be appointed as provided by Sections 9(b)(i), (b)(ii) or 10 of the Code, whichever is applicable. In all other disputes arising out of the employment or termination of employment of an associated person, the panel of arbitrators shall be appointed as provided by Sections 13 or 19 of the Code, whichever is applicable.

[(a)] (b)(i) Except as otherwise provided in Section 9(a) or 10 of the Code, in all arbitration matters between or among members and/or persons associated with members, and where the amount in controversy does not exceed $30,000, the Director of Arbitration shall appoint a single arbitrator to decide the matter in controversy. The arbitrator chosen shall be from the securities industry. Upon the request of a party in its initial filing or the arbitrator, the Director of Arbitration shall appoint a panel of three (3) arbitrators, all of whom shall be from the securities industry.

[(b)] (ii) Except as otherwise provided in Section 9(a), in [In] all arbitration matters between or among members and/or persons associated with members and where the amount in controversy exceeds $30,000, a panel shall consist of three arbitrators, all of whom shall be from the securities industry.