While brokerage industry rules traditionally exempt statutory employment discrimination claims from otherwise required arbitration, a recent decision by a New York district court holds that brokerage firms may require their employees to bring all claims—including statutory ones—through internal arbitration programs. Lockette v. Stanley, No. 18-cv-876, 2018 U.S. Dist. LEXIS 171156 (S.D.N.Y. Oct. 3, 2018).  

In Lockette v. Stanley, former employee John Lockette (“Lockette”) sued Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) in federal court asserting statutory claims of racial discrimination and retaliation. During Lockette’s employment, an internal employee dispute resolution program called “CARE” (Convenient Access to Resolutions for Employees) was in place at Morgan Stanley. Prior to May 2015, the CARE program provided that current or former employees with statutory claims had the option either to arbitrate those claims or to litigate them in court. In May 2015, however, Morgan Stanley announced an expansion of CARE that mandated the arbitration of all claims, statutory and otherwise, unless the employee opted out of the program. Notice of the expansion, which included instructions for opting out, was e-mailed to employees’ work e-mail accounts. The notice advised that, unless an employee opted out, his or her continued employment at Morgan Stanley would constitute agreement to the program’s expansion. 

When Morgan Stanley moved to compel Lockette’s claims to arbitration under the expanded CARE program, Lockette resisted, arguing that there was no valid arbitration agreement because he neither saw nor received the CARE expansion e-mail, and because the e-mail was misleading and otherwise constituted inadequate notice. He also argued that any agreement to the expansion was void for lack of consideration, and that he had opted out by virtue of a class-action lawsuit in which he had previously participated.  

The New York federal court rejected all of these arguments, noting that “at issue is whether the parties entered into a validly formed and enforceable arbitration agreement.” 2018 U.S. Dist. LEXIS at *1. The court explained that New York law presumes receipt of an e-mail by a party when it has been delivered to his or her e-mail address “in accordance with regular office procedures,” and that Lockette’s “mere denial of receipt” of the e-mail in question was not sufficient to rebut that presumption. Id. at *9-11. It also determined that the e-mail was “not misleading” and “adequately set forth the essential terms of [Morgan Stanley’s] expansion of the CARE program.” Id. at *13-14. As to the remaining arguments, the court ruled that Lockette’s continued employment was sufficient consideration to enforce the CARE agreement, and that the alleged opt-out from the prior class action suit was ineffective because it did not occur prior to the applicable deadline and because Lockette was not part of the class. 

The financial industry has long favored the arbitration of claims, which is often more efficient and cost-effective than litigating in court. The Lockette decision reflects this view, and signals support of firms’ expansion of the scope of arbitrable claims between them and their employees.  


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