The AFL-CIO, the umbrella federation for U.S. unions, recently published a statement declaring that investors must retain their legal right to hold corporations accountable in court. The statement calls out the predatory corporate practice of forced arbitration used against investors:
“The ability of America’s workers to invest with confidence is threatened by the increasing use of pre-dispute, forced arbitration clauses in investment-advisor contracts and corporate bylaws. These clauses prevent Americans from exercising their constitutional right to bring their claims before a jury, and instead force all shareholder disputes into private arbitrations. These private arbitrations are controlled by the very same corporations against which the claims are being brought. These forced arbitration clauses also typically require shareholders to waive their rights to participate in any collective or class action, thereby rendering investors who lost smaller amounts of money powerless to join together with other investors to enforce their rights.”
The AFL-CIO also criticizes the recent trend by corporations to add forum-selection and fee-shifting provisions in their corporate by-laws that further restrict investors’ legal remedies. Finally, the statement calls for the Securities and Exchange Commission (SEC) to formalize its policy protecting shareholders from forced arbitration in corporate bylaws and also urges the SEC to write a rule to eliminate forced arbitration from investor contracts with brokerage firms and investment advisers as it is authorized to do under Section 921 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.