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FINRA Rule 13803: Compelling Arbitration Claims to be Filed in Court

By:  John F. Fullerton III

This is the second in our series of posts on practice and procedure in employment-related arbitrations before FINRA.  Check back often for future posts, subscribe to The Bellwether, or follow @bellwetherblog on Twitter so you don’t miss any!

As a general rule, it is more common to read about employers who have been sued in court by a former employee attempting to compel the claims into arbitration than an employer trying to compel arbitration claims to be filed in court.  Yet, under the occasionally overlooked FINRA Rule 13803, employers who are FINRA members have the ability in appropriate circumstances to compel an arbitration claim filed with the agency to be consolidated with a pending court proceeding.

Tucked away toward the end of the FINRA Code of Arbitration Procedure for Industry Disputes is Rule 13803 (pdf), entitled “Coordination of Statutory Employment Discrimination Claims Filed in Court and in Arbitration.”   The rule reflects the common-sense principle that respondents should not be forced to litigate claims arising from common facts in two different fora when a single forum is available in which all claims can be heard.  This principle applies not only because of the added burden and expense to all parties, but because of the possibility of conflicting rulings and double recovery for the claimant.

The rule provides:

If a current or former associated person files a statutory discrimination claim in court against a member or its associated persons, and asserts related claims in arbitration at FINRA against some or all of the same parties, a respondent who is named in both proceedings may, upon motion, compel the claimant to bring the related arbitration claims in the same court proceeding in which the statutory discrimination claim is pending, to the full extent to which the court will accept jurisdiction over the related claims.

The rules elsewhere broadly define “related claim” asany claim that arises out of the employment or termination of employment of an associated person.”  Thus, Rule 13803 gives broad latitude to employers to compel claims filed with FINRA to be brought in court instead, where employers tend to fare better on breach of contract and statutory wage claims than they do in arbitration, where arbitrators sometimes makes decisions based on considerations other than a strict application of the law.  The only caveat for employers is that if they do require a FINRA claimant to file the claims in court instead, then the employer must also be willing to assert any related claims it has against the claimant in court as well.

The Rule was originally adopted by the NASD, FINRA’s predecessor, effective January 1, 2000, as the direct result of the NASD’s previous elimination of the requirement for registered persons to arbitrate claims of statutory employment discrimination.  By its terms, a  motion under Rule 13803 can be filed by any “respondent who is named in both proceedings,” regardless of the specific type of employment claim at issue, or even whether the respondent is a FINRA member or associated person or otherwise not an appropriate party to the arbitration. 

Employers who decide to exercise this option must be sure to provide advance written notice to the claimant or opposing counsel before the time to file an Answer has expired, and must file a copy of such notification with FINRA’s Director of Arbitration.  If the respondent files an answer without having exercised this option, it will have waived its right to compel the claimant to assert the related claims in court.

Similarly, if an employer has filed a statement of claim with FINRA against a former employee, and the employee then files a discrimination claim in court against the employer, the employer has the option under the Rule to pursue its FINRA claims in court instead if it so chooses, provided it gives notice to the employee and Director of its intent to do so before it files an answer to the complaint in court.  Once the arbitration hearing has started, however, the employer cannot exercise this option.

Under Rule 13803, the employer can also compel claims to court when related claims are asserted in an amended statement of claim. Other provisions of Rule 13803 address situations in which there are multiple respondents and not all of them wish to have the claims heard in court, and where the employee certifies that he or she tried, unsuccessfully, to discuss with the employer consolidating the claims in court before the statement of claim was filed with FINRA, which entitles the claimant to a refund of the filing fees if the employer later exercises its rights under Rule 13803.