A pair of decisions issued by the Second Circuit at the end of June, 2015 reached opposite conclusions on compelling arbitration of class and collective action claims by Financial Industry Regulatory Authority (FINRA) firm employees whose employment contracts contain an arbitration agreement.

Each case involved employment arbitration agreements that referred to class and collective actions, but the similarity ends there. The difference in outcomes rests entirely on the specific language of each arbitration agreement, and the court's careful analysis in these cases provides helpful guidance for drafters of an arbitration clause that purports to waive class and collective actions.

In Lloyd, Chase sought to compel individual arbitration of the class and collective claims based on the arbitration agreement in each employee's contract, which stated in relevant part that "[a]ny claim or controversy concerning [the employee] arising out of or in connection with … [the employee's] employment … required to be arbitrated by the FINRA Rules shall be resolved by individual (not class or collective) arbitration in accordance with the" FINRA Code of Arbitration.

The court refused to compel arbitration, holding that the plaintiffs' class claims were outside the scope of the arbitration agreement. Grammatically parsing the language, the court held that the terms "claim and controversy" were modified by each of the three clauses that followed, so that:

The court also noted that the agreement's prohibition on "class or collective action" only prevented the employees from asserting such claims in a FINRA arbitration (which prohibits such arbitration claims anyway under Rule 13204), and did not waive an employee's right to assert such claims in court.

In contrast, the arbitration agreement at issue in Cohen contained an express waiver of the employee's right "to commence, be a party to or an actual or putative class member of any class or collective action arising out of or relating to [the employee's] employment with UBS", and the employees agreed to arbitrate on an individual basis any claims arising under the FLSA or any other federal, state or local employment laws. The Cohen court distinguished Lloyd by noting that:

(, at *5, n.4.)

A securities industry trade group, the Securities Industry and Financial Markets Association (SIFMA), filed an amicus brief in support of the district court's decision. SIFMA argued that affirming the decision would:

SIFMA further argued that all of these effects would "inure to the benefit of all industry participants" and that the "ability to use and enforce class action waivers in employment arbitration agreements is necessary to prevent abusive and manipulative litigation tactics from being used to oust [FINRA] of its proper jurisdiction." (Brief of the Securities Industry and Financial Markets Ass'n as Amicus Curiae in Support of Defendants-Appellees and Affirmance, at 10-11, Cohen v. UBS Financial Services, Inc., No. 14-0781 (2d Cir. Oct. 1, 2014).)

However, the court's decisions in Lloyd and Cohen ultimately had little to do with the federal policy favoring arbitration, predictability in contracts or the prompt and efficient resolution of employment disputes. The cases hinged on the language of the arbitration clauses, and drafters of employment arbitration agreements purporting to contain class or collective action waivers should heed the teaching of these two cases:

(For a more detailed discussion of current issues in FINRA arbitration, see Article, The Uncertain State of FINRA Arbitration.)

Practical Law has several resources to assist counsel in drafting employment arbitration agreements with class arbitration waivers, including:

Practice Note: Overview

Standard Documents

Standard Clauses

Checklist

For a model clause expressly prohibiting class arbitration or the consolidation of claims, with explanatory notes and drafting tips, see Standard Clause, Class Arbitration Waiver (US).