In a closely watched case, the United States Court of Appeals for the First Circuit found that federal law does not prohibit an individual from agreeing in writing to arbitrate employment disputes that arise later. In Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc. et al., the Court upheld the alternate dispute resolution (ADR) provisions Ms. Rosenberg had agreed to when she executed the Uniform Application for Security Industry Registration or Transfer. The "U-4," as it is referred to in the securities industry, provided for arbitration rather than litigation of certain claims.

When Ms. Rosenberg sued for sexual harassment, gender and age discrimination, Merrill Lynch sought to compel arbitration under the U-4. The District Court denied the company's motion and stated that the Civil Rights Act of 1991 clearly indicated Congress' view that mandatory arbitration agreements had no place under Title VII, the statute that authorizes sexual harassment and gender lawsuits. The lower Court also found that the securities industry's arbitration panels have a structural bias against plaintiffs. The First Circuit emphatically rejected the lower court's rebuff of the U-4 system. The Appeals Court found that Congress, in the Civil Rights Act of 1991 did not reject mandatory arbitration per se and, in fact, expressed a preference for arbitration. Secondly, the court rejected the structural bias finding of the District Court.

While the Court of Appeals rejected the District Court's findings as to the securities industry's system of arbitration of employment disputes, the Court of Appeals agreed that Ms. Rosenberg could continue her lawsuit because (i) Merrill Lynch's U-4 agreement required arbitration of disputes only as set forth in the New York Stock Exchange (NYSE) rules; (ii) the NYSE rules in effect at the time Ms. Rosenberg executed her U-4 did not explicitly state that employment disputes had to be arbitrated; and (iii) Ms. Rosenberg had never been given a copy of the rules. The Court of Appeals felt it would be unfair under these circumstances to require her to arbitrate her claims.

The information provided herein is for general guidance on matters of interest only. While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of this information without first consulting an Epstein Becker & Green professional. If you have any questions regarding this case or the arbitration clause in your collective bargaining agreement, please feel free to contact us by telephone or e-mail as set forth below.

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