Mr. Chairman, Senator Sarbanes, members of the Committee, Good Morning. I would like to
thank you for holding this hearing this morning, so that we might have the opportunity to more
fully examine the arbitration system of the securities industry and its inherent inequities.
Since the early 90s, employers across the country have sought to circumvent our nation's civil
rights laws by forcing employees to sign away their fundamental rights to a court hearing. As a
condition of hiring or promotion, a growing number of employers are requiring workers to agree
to submit any future claims of job discrimination to binding arbitration panels. Employees who
sign these mandatory arbitration contracts give up their right to due process, trial by jury, the
appeals process, full discovery, and other court provided rights. In essence, mandatory
arbitration contracts reduce civil rights protections to the status of the company car: a perk which
can be denied at will.
And while this practice has become increasingly popular among employers in the fields such as
information technology, health care, and engineering, no industry has employed mandatory
arbitration contracts to the same extent as the securities industry. The securities industry is the
only industry which requires employers to sign away their civil rights as a condition of licensing.
Anyone wishing to work as a Registered Representative for any securities firm in the United
States must agree to submit future claims of job discrimination and sexual harassment to industry
sponsored arbitration panels. This licensing agreement is a take-it-or-leave-it offer; potential
employees can either agree to mandatory arbitration or seek another profession.
Mandatory arbitration of civil rights is wrong even if the arbitration process were a balanced one,
but too often it has a semblance of impartiality. The securities industry, in particular, has
transformed a potentially impartial and independent judicial environment into one where
neutrality and independence are virtually non-existent. Rather than providing its employees with
a quick, inexpensive and fair alternative dispute resolution forum, Wall Street has established a
system which is slow, costly, and often appears biased.
In 1994, I commissioned the General Accounting Office to carefully study Wall Street's
arbitration system. The GAO found that an astonishing 89 percent of securities arbitrators are
white men over the age of 60 with little or no expertise in the area of employment law. At best
such a setting has the appearance of unfairness; at worst, it is a tainted forum in which an
employee can never be guaranteed a truly fair hearing. Like forcing employees to buy goods at
the company store, the price of such so-called justice is just too high.
I am pleased that the securities industry has finally begun to take steps to eliminate its inequitable
mandatory arbitration requirement from its licensing agreement, and I applaud the Securities and
Exchange Commission's recent decision to approve the National Association of Securities
Dealers' proposed rule change to eliminate the mandatory arbitration clause from its licensing
agreement. I am also pleased to hear that the Board of the New York Stock Exchange is
expected to vote on a proposal to eliminate its own mandatory arbitration requirement at their
next board meeting in September. I encourage the NYSE Board to act quickly to approve this
Despite the positive steps taken by the NASD to eliminate its mandatory arbitration requirement,
I have concerns about the much delayed implementation date of the NASD rule change.
Although the NASD board voted to eliminate the mandatory arbitration requirement from its
licensing agreement last August, the rule change approved by the SEC does not take effect until
the beginning of 1999. I do not understand the rationale for requiring Wall Street employees to
wait eighteen months after the NASD voted to eliminate this requirement to fully exercise their
constitutional and civil rights. This delay may merely encourage securities firms to use the
interim period to impose individual mandatory arbitration contracts on their employees. Such
action would eliminate any real benefit securities employees would have received as a result of
the NASD rule change. Wall Street employees firms have waited long enough to receive their
right to a day in court; they should not have to wait one more day to fully exercise their
Constitutional and civil rights.
The proposed waiting period is particularly questionable in light of a recent decision by the Ninth
U.S. Circuit Court of Appeals regarding mandatory arbitration in the securities industry. In the
case of Duffield v. Robertson, Stephens & Company, the court specifically examined the
legality of the securities industry's licensing agreement, the Form U-4, and found that it was in
violation of the Civil Rights Act of 1991. In its decisive ruling, the court stated that the "Form
U-4 compels precisely what Congress intended to prohibit in the 1991 Act: mandatory
arbitration requirements under which prospective employees agree as a condition of employment
to surrender their rights to litigate future Title VII claims in a judicial forum and accept
arbitration instead." If the mandatory arbitration requirement of the Form U-4 is of doubtful
legality, why aren't we eliminating it immediately?
Although the NASD will no longer require its Registered Representatives to use the NASD
arbitration forum, some individual securities firms will continue to use this forum to resolve
employment disputes with employees who have signed company contracts with mandatory
arbitration requirements. I am deeply concerned about the fairness of this system, and in
particular, about a recent NASD proposal to place limitations on punitive damages that can be
assessed in employment arbitration cases. I believe this proposal, which would limit the sole
recourse employees have to punish wrongful behavior by securities firms, is inconsistent with
every Supreme Court decision affirming the legitimacy of using arbitration for statutory claims.
The United States Supreme Court has repeatedly stated that arbitration is an acceptable forum for
litigation because plaintiffs are entitled to the same rights and protections in arbitration as they
receive in court. The industry can't have it both ways; placing caps on punitive damages while
claiming to afford equal protection.
As the securities industry begins to take action to eliminate its mandatory arbitration requirement
and reform its arbitration system, we must ensure that Wall Street employees are provided with
the same access to the courts afforded to other Americans who are subject to discrimination on
the basis of race, age, sex or disability. Workers on Wall Street must have a fair, equitable and
voluntary forum in which to resolve Title VII claims.
I understand that today's hearing is an oversight hearing on arbitration in the securities industry
and is not focused on any particular legislation, but I have joined with Senator Feingold (D-WI)
and Representative Connie Morella (R-MD) to introduce the Civil Rights Procedures
Protection Act. Our legislation, which would make mandatory arbitration contracts
unenforceable, would provide relief to those employees in every industry, including the securities
industry, who are required by their employer to sign mandatory arbitration contracts and would
guarantee that no-one could be forced to choose between their civil rights and their job.
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