In a July 31 oversight hearing before the Senate Banking, Housing and Urban Affairs Committee, the industry took some lumps over using its mandatory system of arbitration for employment claims.
Sen. Russell Feingold, D-Wis., and Rep. Edward Markey, D-Mass., both criticized current practice when they testified to the committee.
I dont like forced predispute arbitration, Feingold said. He recommended offering the option of going to court.
The NASD is saying [the system] is wonderful. Fine. If it is, give [employees] a choice, Markey said.
Committee Chairman Sen. Alfonse DAmato, R-N.Y., (the only committee member present) questioned why employment disputes were forced into the industrys arbitration system.
It doesnt seem fair to have someone sign away the same rights that every other American has, DAmato said.
When Securities Industry Association general counsel Stuart Kaswell objected to the idea that employees must chose between their rights and a job, DAmato interrupted him.
Can anybody get hired without signing this document? DAmato asked, holding up a U-4 form.
They wont get hired under the current situation, yes, Kaswell answered.
When someone says, I waive my right to go to court as a condition of employment, I dont think its voluntary, DAmato said.
DAmato quizzed Kaswell and NASDR Executive Vice President Linda Fienberg about following accepted legal protocols for employment disputes. Shouldnt that [protocol] be something you operate by? the senator asked.
We are supportive of it. Its difficult to react specifically, Kaswell replied.
Were looking at [using a due-process protocol] right now, but were holding off on any recommendation to the [NASD] board, Fienberg noted.
DAmato rebuked Fienberg for hedging on the protocol issue. The SEC is not going to quarrel with you in adopting all of the protocol. I can assure you of that. Isnt that right [SEC] Commissioner [Isaac] Hunt?
Thats right, replied Hunt, who also testified to the committee.
As previously reported in RR, the American Bar Associations due-process protocol requires a neutral third party to administer arbitration forums. The industrys current system would not comply with the ABA guidelines.
DAmato summed up his feelings by telling the industry representatives: What you do makes sense for business transactions but in terms of employment, I think youve got a different matter.
As an oversight hearing, the committee did not debate a particular bill, and is not expected to take further action beyond highlighting the issue of mandatory arbitration. Feingold and Markey have introduced bills that would prohibit any industry from using predispute arbitration agreements as a condition of employment, but those bills have failed to produce widespread support.