Published December 04, 2012
NEW YORK – A U.S. judge has sided with a UBS AG request for arbitration in a proposed class-action lawsuit seeking overtime pay brought by three former financial advisers at a brokerage unit of the bank.
The ruling by U.S. District Judge Barbara Jones in Manhattan marks the latest legal skirmish over contract clauses that require arbitration. The court battles follow a landmark U.S. Supreme Court decision handed down last year.
Arbitration provides companies a way to resolve disputes with employees and customers privately outside the courts.
Plaintiffs' lawyers contend that so-called "class-action waivers" in arbitration agreements prevent workers from suing employers because of the cost of going it alone.
In the UBS case, the plaintiffs argued the waivers in their contracts conflicted with Financial Industry Regulatory Authority's arbitration rules that say class-action claims may not be arbitrated.
Jones found that FINRA rules recognize that parties can enter into agreements beyond the scope of its code and do not affect enforcement of those agreements.
"The court accordingly finds that there is nothing within the FINRA rules which would preclude enforcement of the arbitration agreements between the parties," Jones said.
Jones also rejected the plaintiffs' contention that the arbitration agreements were unenforceable.
The lawsuit, filed in March, names Eliot Cohen, Philip Ricasata and Charles Shoemaker as the plaintiffs suing on behalf of a group of current and former financial advisers at UBS. They accused UBS of violating the federal Fair Labor Standards Act and California state law by not paying them overtime.
Jeffrey Smith, a lawyer for the plaintiffs at law firm Wolf Haldenstein Adler Freeman & Herz said: "We're disappointed in the result and we're reviewing the opinion."
Megan Stinson, a spokeswoman for UBS, said the company was "pleased with today's result."
Contracts that require brokers to waive class-action rights and pursue compensation claims in individual FINRA arbitrations are becoming more common, said Marc Dobin, a securities arbitration lawyer in Jupiter, Florida, who represents brokers.
The purpose is to discourage brokers from filing claims, but the strategy could backfire for big brokerages, which could face potentially thousands of individual overtime cases.
"Instead of fighting one war with a unified enemy, they could be fighting 1,500 battles across the country," Dobin said.
In April 2011, the Supreme Court enforced contract provisions between two consumers suing a unit of AT&T and the company that required arbitration, and waived their ability to bring a class action.
While the AT&T case was about consumer rights, companies have since sought to apply it to employment cases such as the one facing UBS.
Apart from employment, Charles Schwab Corp also used the Supreme Court ruling to add a new provision to millions of account agreements in October precluding customers from starting or joining class-action lawsuits against the brokerage.
FINRA is pursuing a disciplinary case against Schwab, arguing that FINRA rules do not allow arbitrators to hear class action cases. Its rules also restrict brokerages from limiting investor rights to file court cases in certain situations.
The case is Cohen, et al., v. UBS Financial Services, Inc., et al., U.S. District Court, Southern District of New York, 12-02147.
(Reporting By Nate Raymond and Suzanne Barlyn.; Editing by Martha Graybow and Andre Grenon)