Financial Services Employment Law

News, Updates, and Insights for Financial Services Employers

FINRA Reminds Employers That Employees Can Communicate with FINRA and Employers Need to Let Them Know!

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By Kenneth DiGia and Lauri F. Rasnick

FINRA just issued a reminder regarding its views on confidentiality provisions and confidentiality stipulations.

Settlement Agreements

In Regulatory Notice 14-40, FINRA follows up on its prior Notice to Members 04-44, in which it had cautioned firms about the use of certain provisions in settlement agreements that impede, or have the potential to impede, FINRA investigations and the enforcement of FINRA actions.  Specifically, FINRA had addressed settlement agreement provisions which limited, prohibited or discouraged employees from disclosing settlement terms or underlying facts in dispute to FINRA or securities regulators.  FINRA proposed acceptable language to be included in settlement agreements or similar contracts which contain confidentiality obligations.

FINRA now takes its position a step further and proposes revised sample language for employers to include.  The new sample provision is as follows:

Any non-disclosure provision in this agreement does not prohibit or restrict you (or your attorney) from initiating communications directly with, or responding to an inquiry from, or providing testimony before, the SEC, FINRA, any other self-regulatory organization or any other state or federal regulatory authority, regarding this settlement or its underlying facts or circumstances.

The primary difference in the language that FINRA has now suggested as opposed to the prior provision it set forth is with regard to maintaining an employee’s ability to initiate communications directly with the SEC, FINRA or any other self-regulatory organization or any other state or federal regulatory authority.  Indeed, FINRA’s recent notice was meant to remind firms that confidentiality provisions – whether contained in settlement agreements, confidentiality agreements or other contracts – cannot be used to prohibit or restrict individuals from initiating communications.  According to FINRA, confidentiality provisions should expressly authorize such communications.

Confidentiality Stipulations

The Recent Notice also discussed the need for clarity in confidentiality stipulations or orders which may be entered into during arbitration proceedings to protect the confidentiality of proprietary/confidential materials exchanged by the parties or produced by third parties during arbitration. Such confidentiality orders or stipulations generally prohibit the use of materials designated as confidential outside of the arbitration proceeding.  Notice 14-40 warns that such stipulations or orders cannot restrict or prohibit the disclosure of documents to the SEC, FINRA or other self-regulatory organization or any other state or federal regulatory authority.  While the Notice focuses on stipulations and orders entered into during arbitration proceedings, the message would apply equally to stipulations entered into during, for example, court or administrative proceedings.

Regulatory Notice 14-40 is at least the fourth reminder by FINRA (and its predecessor the NASD) that separation agreements entered into must not impede its investigatory functions.  Given these repeated reminders, employers should review their separation agreements to ensure that former employees are told that they remain free to communicate with FINRA (and other related entities) regarding any such terms or their underlying facts and circumstances.  Other employment documents containing confidentiality provisions, such as confidentiality agreements, handbooks, and employment agreements should similarly be reviewed for compliance.  Employers should also ensure that confidentiality agreements used in arbitrations or other proceedings likewise do not restrict the investigatory authority of FINRA (and other related entities).  Failure to do so may result in FINRA disciplinary proceedings on the basis that such conduct is “inconsistent with just and equitable principles of trade.”

EBG’s 33rd Annual Labor and Employment Client Briefing: Recap of Financial Services Workshop

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At the Firm’s 33rd Annual Labor and Employment Client Briefing, Lauri Rasnick and John Fullerton spoke on the financial services industry panel about the impact of increased compliance obligations on the employment relationship and developments in the areas of applicant screening, whistleblower complaints, internal investigations, and diversity and inclusion.

Here are a few takeaways from that session:

  • Eleven states have enacted legislation prohibiting the use of consumer credit reports in making employment decisions.  There has been a dramatic increase in state and local “ban the box” legislation prohibiting inquiry into criminal history on employment applications, as 13 states and over 70 cities and counties now have “ban the box” laws.  Most of these statutes, however, provide important exceptions for certain types of financial services industry employers, and / or recognize that financial services employers may have certain criminal background screening obligations imposed by federal law or FINRA
  • The pace of monetary awards by SEC under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) whistleblower program has increased in 2014; the most recent of which, and the largest to date, was an award of over $30 million to a single whistleblower.  As this incentive program receives increasing attention and publicity, it creates tremendous tension for employers seeking to encourage employees to report any alleged compliance issues or violations internally before reporting them to the SEC, without impeding employees from reporting to the SEC if they so choose.
  • In light of the diversity and inclusion assessment standards proposed in October 2013 by the Federal Reserve Board, CFPB, FDIC, NCUA, OCC, and SEC, pursuant to Section 342 of Dodd-Frank, it is important that financial services industry employers promote diversity and inclusion in the workplace.  There is increasing pressure on employers who do not otherwise have an obligation to do so (as the result, for example, of being a federal contractor) to create concrete diversity and inclusion policies, use metrics to track diversity in their workforces, and incorporate diversity considerations into strategic plans for hiring, retention, and promotion.
  • Complaints from employees or third parties have the potential to lead to costly, protracted litigation.  Accordingly, it is critical that internal investigations are handled properly.  Employers conducting internal investigations should: appropriately define the objectives of the investigation at the outset; select the right investigator (considering the investigator’s relationship to the complainant, relationship to decision-makers, ability to assert privilege against disclosure of information obtained, etc.); control communications among witnesses that could taint the investigation or give rise to more complaints; keep an accurate and complete factual record; and prepare a comprehensive investigative report that takes into account the applicable legal considerations.

For more on the client briefing generally, we welcome you to review the following articles for a summary of the remarks given by guest speakers M. Solicitor Smith, Solicitor of Labor of the U.S. Department of Labor, and Victoria Lipnic, Commissioner of the U.S. Equal Employment Opportunity Commission: 3 Top Labor and Employment Enforcement Priorities – Corporate Counsel; DOL’s Smith Says Proposed OT Rule is Still Months Away – Law360; and Don’t Expect Wellness Program Guidance: EEOC Commish – Law360.

 

Epstein Becker Green’s Wage and Hour App Is Now Available for iOS, Android, and BlackBerry

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Wage & Hour Guide App for Employersby Michael Kun

We’re very pleased to announce that a brand-new version of our free, first-of-its-kind app, the Wage & Hour Guide for Employers, is now available for Apple, Android, and BlackBerry devices. The new app takes advantage of a software-as-a-service programming platform developed by Panvista Mobile.

Our newest version of the app is not only available to users of a variety of devices, but it offers simpler, faster, and more useful ways for employers to locate wage and hour information at the touch of a fingertip.  As new issues are constantly emerging in this area, we’re pleased to provide updated information and critical tools to help employers address wage and hour laws and regulations, such as recent minimum wage increases.

Key features of the updated app include:

  • The Android version is now available for the first time on the Google Play store – also it is also available for BlackBerry devices
  • Updated iPhone and iPad versions are now available on the App Store
  • New summaries of wage and hour laws and regulations are included, including recent minimum wage increases in California, Connecticut, Georgia, Illinois, Maryland, Massachusetts, New Jersey, New York, Texas, Virginia, and the District of Columbia
  • Direct feeds of EBG’s Wage & Hour Defense Blog
  • Easy sharing of content via email and social media
  • Access to EBG’s @ebglaw Twitter feed
  • Rich media library of publications from EBG’s Wage and Hour practice
  • Expanded directory of EBG’s Wage and Hour attorneys

Existing iOS users should visit the App Store to download the new iPhone and iPad versions; the previous edition of the app is retired.

Take 5 Newsletter: Five Documents That Financial Services Employers Should Revisit Now

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My colleague Lauri F. Rasnick put together “Five Documents That Financial Services Employers Should Revisit Nowin this month’s Take 5 newsletter.  Below is an excerpt:

With summer here, including its long days and blazing heat, many thoughts may turn to beaches, sunshine, and lazy afternoons. The summer may also be a good time for employers—especially those in the financial services sector—to take stock of some of their more important employment documents. In light of recent developments, this month’s Take 5 discusses five employment documents worth checking:

  1. Separation Agreements
  2. Promissory Notes
  3. Non-Solicitation Agreements
  4. Arbitration Agreements
  5. Reasonable Accommodation Policies

Read the full newsletter here.

Benefits Litigation Update: Hobby Lobby, Amara, Tibble, and More

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Epstein Becker Green and The ERISA Industry Committee (ERIC) have released a new issue of the Benefits Litigation Update.

Featured articles include:

Recent Supreme Court Decisions Revise Rules for Stock Drop Cases
By: Debra Davis, The ERISA Industry Committee

Hobby Lobby and the Questions Left Unanswered
By: John Houston Pope

Post-Amara Landscape Continues to Evolve
By: Scott J. Macey, The ERISA Industry Committee

Supreme Court to Decide Whether A Failed Class Action May Extend
Deadline to Bring Follow-on Claims By Individual Plaintiffs
By: John Houston Pope and Debra Davis

Supreme Court Indicates That It Will Review “Tibble
By: Kenneth J. Kelly

Challenges Could Threaten Individual Subsidies and Employer
Mandate Penalties in States with Federal Exchanges
By: Adam C. Solander

Read more about the Update here or download the full issue in PDF format.

Stuart Gerson on the Supreme Court’s Harris and Hobby Lobby Decisions

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Our colleague Stuart Gerson of Epstein Becker Green has a new post on the Supreme Court’s recent decisions: “Divided Supreme Court Issues Decisions on Harris and Hobby Lobby.”

Following is an excerpt:

As expected, the last day of the Supreme Court’s term proved to be an incendiary one with the recent spirit of Court unanimity broken by two 5-4 decisions in highly-controversial cases. The media and various interest groups already are reporting the results and, as often is the case in cause-oriented litigation, they are not entirely accurate in their analyses of either opinion.

In Harris v. Quinn, the conservative majority of the Court, in an opinion written by Justice Alito, held that an Illinois regulatory program that required quasi-public health care workers to pay fees to a labor union to cover the costs of wage bargaining violated the First Amendment. The union entered into collective-bargaining agreements with the State that contained an agency-fee provision, which requires all bargaining unit members who do not wish to join the union to pay the union a fee for the cost of certain activities, including those tied to the collective-bargaining process. …

An even more controversial decision is the long-awaited holding in Burwell v. Hobby Lobby Stores, Inc. Headlines already are blasting out the breaking news that “Justices Say For-Profits Can Avoid ACA Contraception Mandate.” Well, not exactly. …

Both sides of the discussion are hailing Hobby Lobby as a landmark in the long standing public debate over abortion rights. It is not EBG’s role to enter that debate or here to render legal advice, but we respectfully suggest that the decision’s reach is already being overstated by both sides. In the first place, the decision does not allow very many employers to opt out of birth control coverage – only closely-held for-profit companies that have a good-faith ideological core, as clearly was the case for Hobby Lobby. That renders such companies functionally the same as non-profits that are exempted from the mandate by the government. Publicly-held companies are not affected by the decision (though some are likely to argue that Citizens United might require such an extension. Nor are privately-held companies that can’t demonstrate an ingrained belief system.

Read the full post here.

California Supreme Court Opens the Door to Class Action Waivers, Shuts Door to Waiver of Representative Actions

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By Marisa S. Ratinoff and Amy B. Messigian

One of the main battlegrounds between employers and employees relates to the ability of employers to preclude class actions by way of arbitration agreements containing class action waivers. In California, the seminal case of Gentry v. Superior Court (“Gentry”) has had the practical effect of invalidating class action waivers in employment arbitration agreements since 2007. Gentry held that an employment class action waiver was unenforceable as a matter of California public policy if the class action waiver would “undermine the vindication of the employees’ unwaivable statutory rights” under the Labor Code. Thus, California financial services employers and national financial services employers with a business presence in California have found it extremely difficult, if not impossible, to enforce class action waivers in their employment arbitration agreements over the past seven years and have seen scores of California wage and hour cases proceed in court under the harsh hand of Gentry.

The landscape changed drastically in 2010 when the United States Supreme Court issued its decision in AT&T Mobility, LLC v. Concepcion (“Concepcion”). There, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state laws or policies that deem arbitration agreements unconscionable and unenforceable on the basis that they preclude class actions. While the Concepcion case related to a consumer arbitration agreement, many have questioned whether its impact extended to employment arbitration agreements, such as the ones invalidated on public policy grounds under Gentry.

Iskanian v. CLS Transportation Los Angeles, LLC is the first case to test this issue before the California Supreme Court. The decision takes one step forward and one step back. First, the Court held that Gentry has been abrogated by Concepcion. As such, courts may not refuse to enforce an employment arbitration agreement simply because it contains a class action waiver. The Court further rejected the argument that a class action waiver is unlawful under the National Labor Relations Act.

However, the Court also found that an employee’s right to bring a representative action under Private Attorney General Act (“PAGA”) is nonwaivable. Under PAGA, an employee may bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. Of the civil penalties recovered, 75 percent goes to the State of California and the remaining 25 percent go to the “aggrieved employees.” The Court held that “an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.” The Court also found that “the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude [California’s] Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf.” The Court explained that PAGA waivers do not frustrate the FAA’s objectives because the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the State, which is being brought in a representative capacity by the employee. Because the State derives the majority of the benefit of the claim and any judgment is binding on the government, it is the “real party in interest,” making a PAGA claim more akin to a law enforcement action than a private dispute. Because of this, it is within California’s police powers to enact PAGA and prevent the waiver of representative PAGA claims.

The practical effect is that even if a class action waiver is enforceable, any purported waiver of a representative PAGA action will be unenforceable. As a result, a complaint filed in court that includes a PAGA cause of action will arguably remain with the court unless the claims are bifurcated. As for Iskanian and his former employer, the Court left these questions to the parties to resolve. While it is possible that Iskanian will be appealed to the United States Supreme Court for guidance, at least for the foreseeable future employers should expect plaintiffs’ counsel to include PAGA causes of action in order to frustrate employer efforts to move wage and hour claims to arbitration.

Going forward, financial services employers may want to consider adopting agreements with their California employees that expressly permit representative PAGA claims to be brought in arbitration while waiving all other class claims to the extent allowed by law. Alternatively, employers may revise their agreements to allow for bifurcation of claims or expressly exclude PAGA claims from the scope of the agreement. In either case, employers should use this opportunity to review the terms of their arbitration agreements and put new agreements in place with California employees, if necessary.

Glass-Ceiling Risk in the Financial Services Sector

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Guest Post By Charles Diamond and Lynnann Whitbeck, Alvarez & Marsal

A substantial amount of litigation is being brought against companies, both public and private, because of “glass-ceilings” allegedly found within firms. More recently, the financial services industry has been a target of glass ceiling allegations and a number of other discriminatory employer practices against legally protected groups.  Nationally, the U.S. Equal Employment Opportunity Commission (“EEOC”) has implemented a Strategic Enforcement Plan through 2016 to reduce and deter discriminatory practices in the workplace.  The plan specifically identifies the smashing of glass ceilings in the financial industry which will provide a highly public example to financial firms and other industries of a zero tolerance policy.  This article addresses the exposure to litigation risk and what precautionary steps should be taken.

Continue reading here.

Fourth Circuit Rules That Dodd-Frank’s Ban on Predispute Arbitration Agreements Does Not Invalidate Entire Arbitration Agreement

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By John F. Fullerton III and Jason Kaufman

In its recent decision in Santoro v. Accenture Federal Services, LLC [pdf], the Fourth Circuit Court of Appeals has joined the Fifth Circuit [pdf] in narrowly interpreting the prohibition against predispute arbitration agreements in the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) — and employers can breathe a further sigh of relief.

Dodd-Frank amended the Sarbanes-Oxley Act (“SOX”) to, among other things, prohibit agreements requiring predispute arbitration of SOX claims (see 18 U.S.C. § 1514A(e)(2)).  The language Congress used, however, is quite broad, and when the statute was first enacted, caused concern among employers that the prohibition meant that the entire arbitration agreement could be invalidated with respect to all types of claims if SOX claims were not expressly carved out:

“No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”

Compounding the concern, courts in some jurisdictions have extended the reach of this ban, holding that it applies retroactively to agreements made even before Dodd-Frank was enacted, when they would not have had an express carve-out for SOX claims. Indeed, for the most part, court decisions prior to Dodd-Frank had held that SOX whistleblower retaliation claims could be compelled to arbitration.

In this case, Santoro had entered into an employment contract with Accenture Federal Services that contained an arbitration clause requiring all disputes arising out his employment with Accenture to be brought in arbitration.  After he was terminated and replaced by a younger employee, Santoro filed a complaint against Accenture in the Eastern District of Virginia, alleging claims under the Age Discrimination in Employment Act, Family and Medical Leave Act, and Employee Retirement Income Security Act – but, significantly, no whistleblower retaliation claims under Dodd-Frank or SOX.

Accenture moved to compel arbitration pursuant to the employment contract, but Santoro argued in opposition that the entire arbitration agreement was invalid under Dodd-Frank.  He argued that in the post-Dodd-Frank era, all predispute arbitration agreements lacking a Dodd-Frank carve-out are invalid, even for plaintiffs who are not pursuing any whistleblower claims.  In other words, because the contract did not specifically exempt Dodd-Frank claims from arbitration, and thus could allegedly be interpreted as requiring arbitration of such claims, the entire arbitration agreement was invalid.  The District Court rejected this argument and Santoro appealed.

Noting first that it was undisputed that the employment contract contained an arbitration agreement and that Santoro’s claims fell within the agreement’s scope, the Court determined that, based on the statutory language and the context surrounding its enactment, Dodd-Frank’s statutory prohibitions against predispute arbitration agreements apply only to the extent such agreements waive or limit judicial resolution of whistleblower retaliation claims:

“Under Dodd-Frank, Congress has protected the right to bring a whistleblower cause of action in a judicial forum, nothing more. . . .  Nothing in Dodd-Frank even refers to arbitration apart from this limited reference in [18 U.S.C. § 1514A(e) and 7 U.S.C. § 26(n)] that are otherwise concerned solely with the creation of a cause of action for whistleblowing employees.”

Accordingly, the Court held that Dodd-Frank did not invalidate Santoro’s arbitration agreement because Accenture was not seeking to compel him to arbitrate any whistleblower claims; and, more generally, when there are no whistleblower causes of action at issue in a litigation, Dodd-Frank does not invalidate an enforceable arbitration agreement.  While this is a positive outcome for employers, particularly with respect to their older agreements, employers should continue to review their arbitration provisions and agreements going to forward to ensure that they do not require arbitration of whistleblower retaliation claims arising under Section 806 of SOX.

Penalties Rise for ADA Noncompliance

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By Andrea R. Calem

Noncompliance with the Americans with Disabilities Act just became costlier. Pursuant to an inflation-adjustment formula, on March 28, 2014 the Department of Justice (“DOJ”) issued a final rule raising the civil monetary penalties assessed or enforced by the Civil Rights Division, including those assessed under Title III of the ADA (“Title III”).

Title III prohibits public accommodations from discriminating against disabled individuals with respect to access to goods, services, programs and facilities, and (with limited exceptions) requires public accommodations to make reasonable accommodations so that disabled individuals may equally access these goods and opportunities. Accommodations may include modification of physical space in order to remove physical barriers, the provision of auxiliary aids for communication (such as sign language interpreters, closed captioning, written materials in Braille), and a wide variety of other, context-specific adjustments to the way business is conducted or services are offered.

With the upward adjustment, the maximum civil penalty for a first violation of Title III rises from $55,000 to $75,000, and the maximum civil penalty for a second violation rises from $110,000 to $150,000. The new maximums apply to violations that occur on or after April 28, 2014. The last time these penalties were adjusted for inflation was in 1999.

These penalties can be consequential for small businesses or those with thin profit margins, and can accrue to significant levels for businesses of all sizes if the DOJ finds evidence of repeated violations of Title III. The DOJ’s current ADA enforcement environment is an aggressive one, consistent with the aggressive positions recently taken by many other federal agencies which protect workers’ and civil rights, such as the National Labor Relations Board, the Equal Employment Opportunity Commission, and the Office of Federal Contract Compliance and Programs. Industries with goods and services that tend to be accessed online, such as the financial services industry, will want to take particular note of the DOJ’s recent emphasis on accessible websites.

The increased penalties are one more reminder that the costs associated with ADA compliance should not be postponed until enforcement – in the form of a civil lawsuit or the DOJ – is knocking at your (hopefully accessible) door.