Originally from Dispute Resolution Journal

SECURITIES EMPLOYMENT

Employment Agreement May Supercede Form U-4

The New York Court of Appeals ruled on Feb. 10, 2005, that an internal company employment ADR program referenced in an employment agreement may supercede a previously signed Uniform Application for Securities Industry Registration or Transfer Form U-4 between a registered securities industry representative and a securities industry self-regulatory organization (SRO).

The plaintiffs signed U-4 Forms when they were hired by Credit Suisse. Subsequently, Credit Suisse announced an Employment Dispute Resolution Program (EDRP) in the company’s employee handbook. The plaintiffs later signed employment agreements with Credit Suisse that expressly incorporated the EDRP by reference. The EDRP stated that it was the only means of resolving employment-related claims and set forth a three-stage process, ending with arbitration before specified ADR providers. Under the EDRP, the first party to seek arbitration determined the provider. However, the EDRP expressly carved out registered representatives who are subject to “a legal requirement that [they] arbitrate Employment-Related Claims pursuant to particular rules or in a particular forum ... to the exclusion of other forums and rules.”

Following their dismissals, the plaintiffs sought to arbitrate before the New York Stock Exchange, arguing that they were registered representatives who were not subject to the EDRP program. Credit Suisse insisted on arbitration before JAMS, one of the EDRP providers, and sought to stay the NYSE arbitration in a New York court. The court granted this motion, directed the parties to arbitration before JAMS, and denied the plaintiffs’ cross-motion to compel arbitration before the NYSE. The New York Appellate Division reversed and directed the parties back to NYSE arbitration, holding that (1) the EDRP carve-out clearly applied to the plaintiffs’ and (2) employment agreements cannot supersede a previously executed Form U-4 agreement.

Upon review, New York Court of Appeals agreed only with the Appellate Division’s first ruling. It held that arbitration provisions in an employment agreement between a broker-dealer and an employee may supersede an earlier signed Form U-4 arbitration requirement. Applying established principles of contract law, the court found that the plaintiffs’ employment agreements were valid, enforceable modifications of the earlier F-4 arbitration agreements. By implication, the court said, the EDRP modified the arbitration requirement in the Form U-4.