[ by Howard Haykin ]

UBS AG, facing a proposed employee class-action lawsuit, successfully petitioned the federal court to rule in favor of its request to conduct the case in an arbitration forum.  The decision by U.S. District Judge Barbara Jones in Manhattan is the latest legal skirmish over contract clauses that require arbitration, and it follows last year's landmark U.S. Supreme Court decision. 

Response from Plaintiffs' Lawyers.    Lawyers representing the UBS employees contend that so-called "class-action waivers" in arbitration agreements prevent workers from suing employers because the cost of going it alone is prohibitive.   In the UBS case, the plaintiffs argued the waivers in their contracts conflicted with FINRA's arbitration rules that say class-action claims may not be arbitrated.

Judge Jones, however, found that FINRA rules recognize that parties can enter into agreements beyond the scope of its code and do not affect enforcement of those agreements.  In rejecting the plaintiffs' contention that arbitration agreements were unenforceable, Judge Jones said:  "The court accordingly finds that there is nothing within the FINRA rules which would preclude enforcement of the arbitration agreements between the parties."

Background on the Lawsuit.   The suit, filed in March, names attorneys Eliot Cohen, Philip Ricasata, and Charles Shoemaker as the plaintiffs suing on behalf of a group of current and former financial advisers at UBS.  They accused UBS of violating the federal Fair Labor Standards Act and California state law by not paying their employees overtime. 

Jeffrey Smith, a lawyer for the plaintiffs who is with Haldenstein Adler Freeman & Herz said: "We're disappointed in the result and we're reviewing the opinion."   A spokesperson for UBS said the company was "pleased with today's result."

Contracts that require brokers to waive class-action rights ...  and pursue compensation claims in individual FINRA arbitrations are becoming more common, according to securities arb lawyer Marc Dobin, who represents brokers.  The purpose is to discourage brokers from filing claims, but the strategy could backfire for big brokerages, which could face potentially thousands of individual overtime cases.  "Instead of fighting one war with a unified enemy, they could be fighting 1,500 battles across the country."

Action Taken by Schwab.   Charles Schwab Corp used the Supreme Court ruling to add a new provision to millions of account agreements in October precluding customers from starting or joining class-action lawsuits against the brokerage.  However, FINRA is pursuing a disciplinary case against Schwab, arguing that FINRA rules do not allow arbitrators to hear class action cases.  Its rules also restrict brokerages from limiting investor rights to file court cases in certain situations.

The case is Cohen, et al., v. UBS Financial Services, Inc., et al., U.S. District Court, Southern District of New York, 12-02147.

For further details, go to:  [ Reuters, 12/4/12 ].