[ by Howard Haykin ] FINRA has adopted amendments to FINRA Rule 13204 of the Industry Code for Arbitrations that preclude collective action claims by employees of FINRA member firms under the Fair Labor Standards Act (FLSA), the Age Discrimination in Employment Act (ADEA) or the Equal Pay Act of 1963 (EPA) from being arbitrated under the Industry Code.  The amendments go into effect 7/9/12 for any claims that are part of a certified or putative collective action under one of those federal acts. Background and Discussion. The Customer Code for Arbitrations and the Industry Code prohibit a claim that is part of a class action from being arbitrated in FINRA’s Dispute Resolution forum.  Specifically, the class action rules provide that any claim that's based upon the same facts and law, and involves the same defendants as in a court certified class action or a putative class action, shall not be arbitrated, unless the party bringing the claim files with FINRA one of the following:

• copy of a notice filed with the court in which the class action is pending that the party will not participate in the class action or in any recovery that may result from the class action, or has withdrawn from the class according to any conditions set by the court; or
• notice that the party will not participate in the class action or in any recovery that may result from the class action.

Interpretive Letter. In 1999, FINRA issued an interpretive letter stating that its class action rules should include collective action claims brought under the FLSA and, thus, considered these claims ineligible for arbitration in its forum.  Despite that interpretation, a district court decision found that an FLSA collective action is not a class action for purposes of Rule 13204 of the Industry Code and compelled arbitration of the claim in FINRA’s dispute resolution forum.  FINRA, therefore, is amending Rule 13204 of the Industry Code to preclude expressly collective actions from being arbitrated in its dispute resolution forum. As amended, Rule 13204(b)(1) ... now provides that collective action claims under the FLSA, the ADEA or the EPA may not be arbitrated under the Code. Second, Rule 13204(b)(2) states ... that any claim that involves similarly-situated plaintiffs against the same defendants, such as a court-certified collective action or a putative collective action, or that is ordered by a court for collective action at a forum not sponsored by an SRO, shall not be arbitrated under the Code, if the party bringing the claim has opted-in to the collective action. Thus, under the rule, if an associated person opts in to a collective action, that person would be precluded from arbitrating the same claims in FINRA’s arbitration forum. Third, Rule 13204(b)(3) provides that ... the director will refer to a panel any dispute as to whether a claim is part of a collective action, unless a party asks the court or other forum hearing the collective action to resolve the dispute within 10 days of receiving notice that the director has decided to refer the dispute to a panel. The rule gives arbitrators the authority to decide disputes about whether a claim is part of a collective action, unless a court or other forum resolves the dispute. Finally, Rule 13204(b)(4) prohibits ... a member firm or associated person from enforcing an agreement to arbitrate in this forum against a member of a certified or putative collective action with respect to any claim that is the subject of the certified or putative collective action until either the collective certification is denied or the group is decertified. This rule clarifies that the existence of a certified or putative collective action nullifies any pre-dispute arbitration agreements with respect to claims involving that collective action. If, however, a court denies a plaintiff’s request to certify a collective action or the court decertifies the collective action, the pre-dispute arbitration agreement would be enforceable. FINRA Staff Contacts: Direct questions to:   Kenneth Andrichik, SVP, Chief Counsel, Director of Mediation and Strategy - Dispute Resolution at (212) 858-3915 or  ken.andrichik@finra.org; or, Mignon McLemore, Asst. Chief Counsel - Dispute Resolution at (202) 728-8151 or mignon.mclemore@finra.org. For further details, go to:  [FINRA RegNote12-28, June 2012].