The SEC approved FINRA's request to align its rules with statutes that invalidate predispute arbitration agreements for whistleblower disputes.  The changes become effective 5/21/12. FINRA Rule 13201 of the Code of Arbitration Procedure for Industry Disputes, as amended, will provide that a dispute arising under a whistleblower statute that prohibits the use of predispute arbitration agreements is not required to be arbitrated under the Industry Code. Parties nonetheless may choose to arbitrate such a dispute - buy only if they have agreed to arbitrate it after the dispute arose.  This rule change aligns the Industry Code with statutes that invalidate predispute arbitration agreements for whistleblower disputes.  The rule change also makes a conforming change to FINRA Rule 2263, Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4. Going Effective. The amendments to Rule 13201 take effect on 5/21 for all whistleblower disputes arising under a statute that prohibits the use of predispute arbitration agreements, regardless of when the predispute arbitration agreement was executed.  Pending matters at FINRA are not impacted by the change.  The  revision to FINRA Rule 2263 also is effective on 5/21. Background & Discussion. The Dodd-Frank Reform Act amended Sarb-Ox Act of 2002 (SOX) by adding a new paragraph (e) to 18 U.S.C. § 1514A3 to provide that:

• Waiver of Rights and Remedies. The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.
• Predispute Arbitration Agreements. No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.

Prior to Dodd-Frank, FINRA required parties to arbitrate SOX whistleblower claims under the Industry Code.  While the main impetus for the rule change is the need to update FINRA staff’s stated position on SOX whistleblower claims, FINRA made the rule text broad enough to cover any statutes that prohibit predispute arbitration agreements for whistleblower claims. FINRA Staff Contacts. Direct questions to:  Richard Berry, SVP and Director of Case Admin. and Regional Office Services, Dispute Resolution - (212) 858-4307; and Margo Hassan, Assistant Chief Counsel, Dispute Resolution - (212) 858-4481. For further details, go to:  [FINRA RegNote 12-21, April 2012].