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FINRA Cases To Be Heard By One Arbitrator, Without A Hearing, Have Been Expanded

By:  Dena L. Narbaitz

 This is the fourth 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!

The FINRA Code of Arbitration Procedure provides for a simplified arbitration process in both employment and customer disputes if the dollar amount in controversy is below a certain threshold. The SEC recently approved FINRA’s proposal to raise the dollar limit eligible for simplified arbitration procedures from $25,000 to $50,000.  Also, FINRA gained approval to have cases with alleged damages between $50,001 and $100,000, to be heard by one arbitrator – unless the parties mutually agree to three panelists.   

The dollar limits apply exclusive of interest and expenses.  If any pleading increases the amount of the dispute over the threshold, however, the case is elevated.  So, if any part of the claims – whether the initial claim or a counterclaim – cause the threshold to be exceeded, the case steps up to the next panel composition level.  For example, if a former employee files a claim for commissions in the amount of $20,000, the case falls under simplified arbitration.  But if a counterclaim is filed in the amount of $40,000, then the case will be elevated to the point where the parties can agree to have three panelists.

According to FINRA (PDF), the advantages of the simplified arbitration – permitting the parties to have their case resolved on the papers, without a hearing – allows parties to: (1) pay reduced the forum fees; (2) save the time and money on things such as hearing preparation; and (3) circumvent delays and receive an expedited outcome.

FINRA’s points are certainly true, but the decision whether to file a claim that pushes the alleged damages amount “over the top” should also take into account the overall case strategy.  What if the former employee is likely to be a bad witness, thereby making a hearing more beneficial to the employer?  Is the documentation strong enough to stand alone to win the case without a hearing?  A short, expedited decision is not is not necessarily the best option for resolution of the dispute.  In deciding whether the simplified arbitration process is the best option, the employer should weigh all these factors.

This proposal amends Customer Code Rules 12401 and 12800 and Industry Code Rules 13401 and 13800.  Text and more information on the rule (SR-FINRA-2012-012) can be found here.