The Arbitration of Employment Disputes in the Securities Industry: A Study of FINRA Awards, 1986-2008

By Lipsky, David B.; Seeber, Ronald L. et al. | Dispute Resolution Journal, February-April 2010 | Go to article overview

The Arbitration of Employment Disputes in the Securities Industry: A Study of FINRA Awards, 1986-2008


Lipsky, David B., Seeber, Ronald L., Lamare, J. Ryan, Dispute Resolution Journal


The arbitration of employment disputes has been the subject of intense interest in recent years. On the one hand, proponents of the process maintain that arbitration provides a faster and cheaper means of resolving employment disputes than litigation. On the other hand, despite numerous supportive decisions on arbitration by the U.S. Supreme Court,1 opponents argue that arbitration is not an adequate substitute for a judicial forum because it does not provide a level playing field. They maintain that employers experienced in arbitration enjoy an advantage in arbitration over inexperienced employees (the socalled "repeat player effect").2 They also express concerns that mandatory arbitration "undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators' decisions." They contend that voluntary arbitration is more advantageous to employees. In addition, they say that employees have a better chance of winning in post-dispute voluntary arbitration than they do under mandatory arbitration, and that "arbitrators enjoy near complete freedom to ignore the law and even their own rules because they know that their rulings will not be seriously examined by a court applying current law."3

Several of these criticisms of mandatory and consumer arbitration are stated in the findings section of a bill that Congress is currently considering, called the Arbitration Fairness Act (AFA).4 This bill would amend the Federal Arbitration Act (FAA) to ban the use of mandatory pre-dispute arbitration agreements in employment, consumer, franchise, and civil rights disputes.5

However, the issues raised by the AFA "findings" have yet to be fully examined using systematic, comprehensive empirical data. Only within the last decade or so have researchers begun to do serious statistical analyses of critical issues in arbitration. In the August-October 2009 issue of this journal, our Cornell colleague, Alexander Colvin, explained that the research gap is due in part to "the dearth of publicly available data on which to conduct empirical research that would help evaluate the arguments of both sides of the employment arbitration debate."6 He noted that what little research exists "is based on data made available to individual researchers by arbitration service providers," such as the American Arbitration Association (AAA) and the Financial Industry Regulatory Authority (FINRA), which administers employment and consumer arbitration for the securities industry. After reviewing some of the principal empirical studies of employment arbitration and discussing his own research, Colvin ultimately concluded that the picture is still not complete. "[W]e are still trying to answer basic questions about the general characteristics of [the employment arbitration] dispute resolution system," he wrote.7

This article reports on the results of our recent study of 3,200 arbitration awards issued in employment cases administered under the auspices of FINRA, its predecessor the National Association of Securities Dealers (NASD), and the New York Stock Exchange (NYSE).8 It responds to Colvin's call for more empirical research while providing some data on the debate over the fairness of mandatory employment arbitration agreements in the securities industry.

After disclosing the limitations of our study and presenting our findings with regard to the FINRA cases, we consider how these findings bear on the debate about mandatory arbitration, specifically whether or not our findings show a repeat player effect in the FINRA employment cases, or show that employees fared better under FINRA's voluntary arbitration than under mandatory arbitration, or that FINRA employment arbitration does not protect employee civil rights.

Importance of Securities Cases

Although an analysis of the securities customer- broker cases would clearly be valuable (since there are so many more of them9), our professional interest in employment relations led us to focus only on the employment awards. …

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