Comments on GAO Employment Arbitration Report

Dingell and Markey Comments on GAO Report Urge Changes in Employment Arbitration 

Mandatory Arbitration Criticized; Arbitrator Qualifications and Ratings Questioned

In a letter to SEC Chairman William H. Donaldson and to the two SRO arbitration forums, Congressmen John D. Dingell (D-MI) and Edward J. Markey (D-MA) offer their perspectives on the September 23, 2003 GAO Report on employment disputes in securities arbitration. The Dingell-Markey team have been gadflies of securities arbitration throughout the past decade and have periodically tasked the U.S. General Accounting Office to survey SRO arbitration and report on its status, progress, and deficiencies.

In this letter, which is dated September 23, the Congressmen acknowledge the significant improvements the SROs have made in raising the fairness quotient of their programs, but they also point out that GAO “determined that additional improvements could be made.” They then offer seven specific comments based upon the GAO’s findings.

Their chief comment, however, sweeps aside those findings and the analytical approach of the GAO’s Report and simply states the ideological conclusion that arbitration as a “condition of employment” is bad policy. NYSE has ended the practice of honoring pre-dispute arbitration agreements in employment discrimination disputes, while NASD “has continued to arbitrate disputes based on agreements employees must sign as a condition of employment.”

The Congressmen disagree with the NASD approach and “urge that immediate action be taken to end the NASD practice of arbitrating disputes based on such agreements.” Regarding evaluations of arbitrators and the GAO’s finding that “57% of arbitrators with a[n adequacy] rating had not received any evaluations … and some arbitrators without evaluations were also rated excellent,” the Congressmen exclaim: “This is unacceptable and we urge all parties to redouble their efforts to address serious shortcomings in the operation and effectiveness of the rating systems.”

The two legislators also support the GAO’s more controversial recommendation that “SEC direct the two SROs to verify basic background information of all new applicants for their arbitrators rosters…. We agree with these recommendations as well and urge their implementation.”

Finally, the 5-page letter concludes that the Congressmen “stand ready to support” the SROs’ efforts to strengthen their processes, but they also admonish: “we also continue to believe that the public interest would best be served if arbitration were used to resolve employment disputes only if both parties agreed to use arbitration after the dispute had arisen.” (SAC Ed: We can expect further calls for investigation of the arbitration process from these two legislators, as their basic objection is to the process, not its fairness. This is all to the good, as the periodic GAO examinations of the SRO arbitration process commissioned by Congressmen Markey and Dingell have added to the public record a wealth of reliable data about arbitration outcomes and a library of information of immeasurable value about arcane, internal arbitration procedures and policies, about differences in the way SRO staff act and react at the NASD and NYSE, about the attitudes and philosophies of the forums and their willingness to change. Such inside date and “color” are simply unavailable without that agency’s salutary, relatively objective and always publicly available examination reports.) (SAC Ref. No. 03-38-02)


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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.