In early April, brokers at Salomon Smith Barney got a wire telling them that a new "employee handbook" was available on the firm's intranet, replacing the interim handbook that went out a little more than a year earlier. This time, "we didn't get a hard copy," says an SSB broker.
But once again, buried amid rules on vacation time, sick leave and smoking is a two-and-a-half page appendix that spells out the firm's employment arbitration policy.
While Merrill Lynch's and PaineWebber have freed their employees to pursue discrimination and sexual harassment complaints in court, SSB's employees won't have that choice.
"This policy makes arbitration the required, and exclusive, forum for the resolution of all disputes," the new handbook says. This includes every type of employment claim.
But where SSB's interim policy stipulated NYSE arbitration, the new handbook mandates NASDR forums. That's because the NASDR will still hear discrimination claims under predispute agreements to arbitrate, unlike the NYSE, which has since changed its rules.
The new handbook stipulates that "arbitrator(s) shall not have the authority to award punitive or exemplary damages except where provided for by applicable statute" and that "arbitrators can't make arbitrary or capricious" awards.
What's arbitrary or capricious? SSB's press office refused a request for an interview, stating only that: "We have worked diligently to develop a fair and lawful arbitration policy for our employees. It is our intent to comply with the rules and regulations of any forums."
But Cliff Palefsky, a San Francisco attorney who chairs the National Employment Lawyers Association's securities arbitration committee, says, "Smith Barney has done an end run around the NASD's rule-making process after the NASD decided and assured Congress that punitive damages would not be restricted in employment cases."
Palefsky's comments are contained in a May 26 letter to George Friedman, director of the NASDR's office of dispute resolution. He urges the NASDR to refuse to administer SSB cases brought under the terms in the handbook.
The NASDR declined to make Friedman available for an interview.
Under the current NASD arbitration code, arbitrators are free to award any type of damages.
Meanwhile, the NASDR filed with the SEC on May 7 proposed amendments to its arbitration rules that would permit arbitrators to "award any relief that would be available in court under the law."
The words "in court" are key, according to Jonathan Kord Lagemann, a New York securities attorney. The precedent for awarding punitive or exemplary damages (which are essentially the same) is established through case law, he says. "There are statutes that limit punitive damages, but no statutes that say you can get them," Lagemann says.
"I dare say that the arbitrators, when faced with that [prohibition on punitive and exemplary damages], would totally disregard it, as they should," adds David Robbins, a New York securities attorney.
Lagemann notes that both the NYSE and the NASDR have long had rules that prohibit firms from writing customer agreements that would limit the customer's ability to bring a claim or win any award. But the SROs have never had a parallel rule for registered personnel, he says.
The NYSE refused to comment on the legality of limiting awards.
