The Financial Industry Regulatory Authority has filed rule changes that would end forced arbitration of sexual assault and sexual harassment complaints as of June 1.
The Finra rule changes were required by the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, which was signed into law by President Joe Biden in March. It gives employees the right to take their claim to court.
The law amends the Federal Arbitration Act (FAA) by allowing employees who were previously subject to mandatory arbitration agreements to pursue their claims of sexual assault or harassment in court, Bonnie J. Thomas, an attorney with the law firm Steptoe & Johnson, PLLC, said in a recent blog.
The law and Finra’s rule changes invalidate predispute arbitration agreements and class waivers regarding sexual assault or sexual harassment claims that arise after March 3. The act also states that the determination of whether the law applies must be made by a court rather than an arbitrator, Thomas said.
“Notably, the act does not per se invalidate arbitration agreements of such claims, but rather gives the claimant the option of pursuing claims of sexual harassment or sexual assault in court, as opposed to in arbitration, if they so choose,” the attorney said.
Finra authorized the rule changes at their March Board of Governors meeting March 9 and said in minutes that it had “approved the submission to the Securities and Exchange Commission of proposed amendments to align Finra rules with the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.”
“The Act prohibits mandatory arbitration of sexual assault and sexual harassment claims by permitting persons alleging conduct constituting a sexual assault dispute or sexual harassment dispute to elect not to enforce predispute arbitration agreements in cases that relate to those disputes. However, the act does not prohibit parties from agreeing to arbitrate such claims after a dispute has arisen,” Finra said in its proposed rule.
Finra is also seeking to incorporate changes into the written statement a member firm must provide to an associated person regarding predispute arbitration clauses in Form U4.
Firms would be required to disclose to a party alleging a sexual assault or sexual harassment that they are not required to arbitrate the case even if they previously signed an arbitration clause, Finra said.