Council of Institutional Investors

AFL-CIO Asks SEC to Bar Pre-Dispute Mandatory Arbitration Clauses
Thursday, August 28, 2014
by: Rosemary Lally

Section: CII Governance Alert

The AFL-CIO sent a letter last month to the SEC asking the commission to use its authority under the Dodd-Frank Act to bar pre-dispute mandatory arbitration agreements. These forced arbitration clauses, which are found in investment-adviser contracts and corporate bylaws, generally require shareholders to waive their rights to participate in class actions and mandate that legal disputes go through private arbitration.

“The AFL-CIO urges the SEC to formalize its longstanding policy that mandatory pre-dispute provisions requiring arbitration of investor disputes in the bylaws and governing documents of publicly traded corporations are harmful to capital markets, contrary to public policy and could be subject to enforcement action,” the AFL-CIO wrote.  

CII policies specify: “Companies should not attempt to restrict the venue for shareowner claims by adopting charter or bylaw provisions that seek to establish an exclusive forum. Nor should companies attempt to bar shareowners from the courts through the introduction of forced arbitration clauses.”  
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