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Employer Can't Force Arbitration When It Does Not Meet Arbitration Requirements
Description An Appeals court upheld the right of dismissed employees to sue their employer in court and refuse arbitration. The employer required the employees to belong to an organization that mandates arbitration of employment disputes, but the employer did not belong to the organization so it could not enforce its rules.
Topic Alternate Dispute Resolution
Key Words Employment Contract; Mandatory Arbitration; NASD; Membership
C A S E   S U M M A R Y
Facts When Paul Revere merged with another company, managers who were fired sued for breach of contract. Each manager had, as a condition of employment, been required to register with the National Association of Securities Dealers (NASD) and promised to abide by NASD rules. Those rules required mandatory arbitration of employment disputes. The managers appealed to the courts, contending that the arbitration requirement was not valid. The district court held that arbitration was not mandated and that the law suits could proceed in court. Paul Revere appealed.
Decision Affirmed. The managers had properly registered with the NASD and so normally would be obligated to comply with its rules regarding arbitration of disputes. However, the employer was not a member of the NASD; therefore the employer was not bound by its rules. Since the employer was not a member of the NASD, it lacked standing to compel arbitration under the rules of the NASD. While the presumption is normally in favor of arbitration, that does not apply in this situation, where only one party was expected to comply with the rules of arbitration and the other did not make itself subject to those rules.
Citation The Paul Revere Variable Annuity Insurance Co. v. Kirschhofer, 226 F.3d 15 (1st Cir., 2000)

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