Good morning, and thank you for the opportunity to submit testimony on behalf of the National Organization for Women (NOW), the largest group of feminist activists in the United States. Since NOW is dedicated to ending discrimination of all kinds, we have a keen interest in ending the mandatory arbitration of employment discrimination disputes in the securities industry.
Today you likely will hear a lot of detailed discussion about the merits vel non of mandatory arbitration, what is required by justice versus what is currently allowed by law. I believe that the arguments about the flaws in the current securities industry system are well-known and, in any case, can be better presented by others. I want to concentrate on the direction and the consequences of the debate for the industry and the nation.
ARBITRATION OVERHAUL IS LONG OVERDUE
Thanks to mandatory arbitration, the securities industry is still a field dominated by white men. Women and people of color are forced to work in offices where managers have little fear of -- or respect for -- civil rights laws because they know they are essentially immune. When employees sign the Form U-4, they sign away their rights. As a result, the securities industry is able to bypass the very system established to protect the most basic of rights: the civil courts. Without the deterrent effect of the courts, discrimination has been allowed to fester -- on Wall Street and throughout the industry -- denying women and people of color access to the most lucrative positions in the field.
After listening to the stories of women who have suffered great injustices in the securities industry, NOW's leaders and members have reached a clear conclusion: Mandatory arbitration effectively guts the civil rights laws and allows the securities industry to lag behind other professional fields in hiring, working conditions and promotion of women and people of color.
The human cost of this unjust system has been high. The industry-sponsored system of mandatory arbitration has created a hostile work environment for women and people of color. The list of complaints is endless. Once recent case in which NOW was involved serves as an all too typical example.
The "Boom Boom Room" -- a fraternity house style retreat for male brokers, housed in the basement of a Smith Barney branch office in Garden City, N.Y., complete with a toilet hanging from the ceiling and an oversized trash can used to serve Bloody Marys -- was, perhaps, the most notorious abuse in that firm, but not the most egregious. We need only read the 94 page complaint in the class-action suit against Smith Barney to get a snapshot of the living-hell women were forced to endure. The complaints include pregnancy discrimination, dead-end career tracks for women and, of course, sexual harassment.
Roberta Thomann was a senior sales assistant when she went on an eight-week maternity leave. Thomann reports that only days before her scheduled return to work, she was notified that she would be demoted. According to Thomann, male employees who took medical leaves of absence were not demoted.
Judith Mione, a forty-year veteran in the securities industry who has successfully completed the Series 7 (Registered Representative), Series 63 (Uniform State Securities), and Series 8 (Branch Office Manager) licensing examinations, complains that she was repeatedly denied the opportunity to advance into managerial positions at Smith Barney -- even though men with less qualifications and experience were hired to fill such positions. Despite repeated applications and interviews, Ms. Mione said she was forced to take a position as a sales assistant. During one interview, Ms. Mione reports she was told that the ideal candidate would be "some guy with brass balls" -- clearly not Ms. Mione.
Lydia Klein, a vice president in Smith Barney's main office in New York City, allegedly was subjected to sexual harassment. According to the complaint she filed, male employees in her office sent her a calzone in the shape of a penis with ricotta cheese spurting out of one end. On another occasion, she received chocolate candy in the shape of a penis. She also complained that a male supervisor used to look at her breasts and comment, "ooh, I love them." A male trader also stared at her breasts and would ask, "How they hanging?" Ms. Klein stated that men in the office often referred to women using euphemisms for female genitalia too grotesque and too offensive to repeat.
All of the 23 named plaintiffs in the Smith Barney case chose the risky course of pursuing a costly class-action suit over industry sponsored mandatory arbitration. They chose litigation even though the odds of class certification were low, and despite the likelihood that their class would exclude lower-level staff who are predominantly women. Why? Perhaps it is because the majority of arbitrators are white men over the age of 60, many of whom have been employed in the management ranks of securities firms. Maybe they prefer litigation because arbitration is binding with no appeals process. Some of the women may seek justice in the civil courts because arbitration panel members are not required to be trained or experienced in employment discrimination law. Under industry rules, arbitrators are not even required to uphold the law.
Clearly, mandatory arbitration is bad for employees, and it can also cost corporations money. Since the only way women and people of color can have their day in court is to form a class and sue, companies -- like Smith Barney -- face expensive class-action suits in federal court. The plaintiffs in the Smith Barney case never would have initiated a class-action if they could have had access to the courts. Ultimately, even billion-dollar Wall Street companies will benefit when arbitration is an option -- not a mandate.
The National Association of Securities Dealers (NASD) and the Securities Exchange Commission (SEC) have come to realize that mandatory arbitration is a bad business practice.
Both have opted to remove the requirement that industry employees sign away their civil rights in exchange for a job. The New York Stock Exchange (NYSE) is expected to follow suit at its next board meeting. While the change in industry requirements represents a tremendous step forward, it by no means signals an end to mandatory arbitration.
CONGRESSIONAL ACTION IS NECESSARY
Despite the anticipated changes in the Form U-4, most women and people of color employed in the securities industry still will not have access to the courts. The NASD's and SEC's rules changes will not make mandatory arbitration on Wall Street go away. Securities firms -- like Smith Barney -- have internal personnel policies that require the arbitration of employment discrimination complaints. While we applaud the action taken by the NASD and SEC, it will prove to be little more than a hollow gesture to the women and people of color in the industry who still are locked out of court and deprived the right to argue their cases in front an impartial judge and a jury of peers.
Congress must take immediate action to insure that securities industry employees are entitled to the full benefits of the nation's equal employment opportunity laws. It is in the best interest of the employees, the firms and the nation to pass legislation.
Your failure to act would send a dangerous signal to employers in the securities industry and others. Since 1991, when Congress for the first time gave women and people of color a right to trial by jury and damages in employment discrimination cases under Title VII of the 1964 Civil Rights Act, a growing number of employers are motivated to stay out of court. Increasingly, we see other employers looking with envy at the securities industry's system of mandatory arbitration. Numerous companies as different as JCPenneys and Hooters now are trying to impose this unfair system on their employees as they ask, not unreasonably, why it should apply only to the securities firms.
Senators, it is incumbent upon you to reaffirm your commitment to the civil rights laws of this country. It is imperative that you safeguard the rights of all employees. I urge you to right the wrongs suffered by so many women and people of color by ending mandatory arbitration -- first in the securities industry -- and ultimately in every industry throughout the country.
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