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Pre-employment mandatory arbitration agreements, which are common in the securities brokerage industry, cause sexual discrimination and harassment complaints to be handled far differently in the securities industry from most other fields.
However, the agreements-which are part of the employment application that all those seeking to become licensed to buy and sell securities must sign-are under scrutiny on many fronts.
The self-regulating securities industry is investigating mandatory arbitration agreements, and a recent court decision barred an employer from enforcing mandatory arbitration in a sexual harassment case.
Also, identical proposals in both houses of Congress would outlaw binding arbitration as a condition of employment.
Furthermore, the National Academy of Arbitrators last month condemned pre-employment mandatory arbitration agreements.
Although several high-profile securities brokerages have been hit with sexual discrimination lawsuits recently, including Smith Barney Inc. and Merrill Lynch Pierce Fenner & Smith Inc., there is no evidence that securities brokerages are more apt to be sued for sexual discrimination or harassment than companies in other industries.
"The publicity is not an indication of a trend" of increasing sexual discrimination or harassment lawsuits against securities brokerages, said Joseph P. Monteleone, senior vp and claims counsel for Reliance National Insurance Co. in New York. Reliance writes employment practices liability insurance.
According to the Equal Employment Opportunity Commission in Washington, 73 sexual harassment complaints were filed with the agency last year against companies in the securities industry out of a total of 15,342 sexual harassment complaints against companies in all fields.
That rate is virtually identical to the rate five years earlier, when 31 sexual harassment complaints were filed against securities firms out of 6,883 complaints against companies in all fields.
However, the securities industry "in general is one of those that has a reputation for a hostile work environment to women, so workers there may be more attuned to the possibility of bringing suit," pointed out Julianna Ryan, a partner with Wilson, Elser, Moskowitz, Edelman & Dicker in New York, which represents employers. "There are certain industries . . . that have that type of reputation, whether it's deserved or not deserved."
Few employment discrimination or harassment cases are brought into arbitration, according to the National Assn. of Securities Dealers, the self-regulatory organization that licenses people to buy and sell securities and oversees the securities industry with the federal Securities and Exchange Commission.
For example, out of 5,631 arbitration cases NASD panels heard last year, only 109 were employment discrimination cases. In 1995, there were 65 employment discrimination cases out of a total of 6,058 cases heard by NASD arbitration panels.
Nonetheless, Mary Stowell, a partner with Leng Stowell Friedman & Vernon in Chicago, said that "this is the worst industry we've seen with respect to its treatment of women."
Ms. Stowell, who is representing plaintiffs in the sexual harassment lawsuits against both Smith Barney and Merrill Lynch, blamed mandatory arbitration agreements for most of the problem.
Securities brokerages can get away with more sexual harassment "because they're not going to get dragged to court, because they're not going to get punitive damages," she stated.
And, requiring people to bring sexual harassment charges to an arbitration panel staffed by industry representatives has a chilling effect on the complaints, she contended. "Mostly women don't bring the claims that they normally would bring because they know the deck is stacked" against them, she said.
Defense attorney Ms. Ryan claimed plaintiffs attorneys, who often operate on a contingency fee basis, are less likely to accept a case that will be heard by an industry-staffed arbitration panel than a case going to court.
Furthermore, the hearing itself is not as fair as a court trial because the arbitrators are not trained in civil rights law, Ms. Stowell added.
Ms. Stowell is seeking class certification for the plaintiffs suing Smith Barney and Merrill Lynch because class-action lawsuits are exempt from binding arbitration agreements. Ms. Stowell also is suing the NASD and the New York Stock Exchange, claiming mandatory arbitration agreements are unconstitutional.
Defense attorney John M. Murphy, a partner with Baker & McKenzie in Chicago, agrees that arbitration has serious drawbacks.
"I just don't trust arbitrators as much as I do judges who see these cases day in and day out," he said.
Mr. Murphy, who recently won an employment discrimination case before what he called a "good" arbitration panel in California, said that at times, arbitrators "confuse their role and try to mediate in a sense.
"The arbitrators seem to let a lot of evidence in that wouldn't be let in in court," he said. And, "they're willing to make compromise decisions-split the baby."
In his recent case, Mr. Murphy said, the arbitration panel required the defendant to pay forum fees-the costs of arbitration-of $13,000 even though the defendant won, because the panel thought the plaintiff could not afford the cost.
Even the securities industry itself is scrutinizing mandatory arbitration agreements and the arbitration process in general.
The NASD is looking at the mandatory arbitration clause of the employment agreement "because as a policy matter, the issue has created a range of criticism from many sour-ces," stated Linda Fienberg, executive vp of dispute resolution at NASD Regulation Inc., a subsidiary of the NASD in Washington.
"This is an issue we are taking very seriously," she said. NASD Regulation recently began gathering information about the mandatory arbitration process and expects to recommend within two months to its board and the NASD board whether to change or eliminate the arbitration clause of the employment agreement.
Although "arbitration is more efficient and much less costly for all parties" than a trial, "that is unrelated to whether" arbitration should be mandatory, she said.
If the two NASD boards do recommend changes to the mandatory arbitration agreement, then the SEC also would have to approve the changes.
In addition to the issue of mandatory arbitration, NASD Regulation is looking at how the whole arbitration process works, including how arbitrators are selected and trained and how the costs of arbitration are distributed among participants. "There is no issue we have not put on the table" for discussion, Ms. Fienberg stated.
The Securities Industry Assn., an industry lobbying group that wants to maintain mandatory arbitration, wrote in April to the president of NASD Regulation, saying that based on an analysis of data from the NASD, the NYSE and the U.S. District Court for the Southern District of New York, "employees prevail more frequently before arbitration panels than before juries."
The Washington-based SIA also noted that "the more informal arbitration procedures favor employees, who generally have more limited resources than do their employers." Other advantages to mandatory arbitration include a quicker resolution of cases and the near impossibility of a case being dismissed before it is heard, according to the SIA.
Although numerous courts have upheld mandatory arbitration agreements, the 9th U.S. Circuit Court of Appeals last month upheld a district court's ruling that Prudential Insurance Co. of America could not force an employee's sexual harassment claims to be arbitrated. The case, Prudential Insurance Co. of America vs. Rachel Renteria, cited a 1994 decision by the same circuit, Prudential Insurance Co. of America vs. Lai, that barred the company from forcing an employee's sexual harassment claims to be arbitrated.
The issue of mandatory arbitration also is under scrutiny in Congress.
Sen. Russ Feingold, D-Wis., and Rep. Ed Markey, D-Mass., earlier this year introduced identical legislation in both houses that would bar employers from requiring workers to agree to binding arbitration as a condition of employment.
No action has been taken on the proposed legislation yet.