The very well respected Judge Posner, of the 7th Circuit Court of Appeals and who mediated the US Government v Microsoft case, is about to rule on the validity of the banking industry’s employer arbitration clause within the employment agreement. And the interesting piece here is that it appears the appeals court panel is about to force the banks outside of arbitration by suggesting the arbitration clause within the employee contract is actually not an obligation.
Such a ruling has the potential to overthrow the banking industry’s many decade old hold over its employee and customer disputes. That is, if the ruling goes as it looks it will, thousands of employee and customer disputes may be pushed outside of arbitration and in front of public juries. This creates an extraordinary amount of risk on the banking industry. You see the arbitration clause the banking and many other industries force upon their customers and employees are meant to protect the them against litigation as these arbitration hearings are incredibly one sided in favor of the corporations (refer to the NY Times expose on these corrupt arbitration courts). However, in front of a jury, the banks face a tremendous amount of reputational and settlement award risk.
While the claimants have been very open to settling these suits prior to, and thus vacating, a ruling by Judge Posner, Jefferies has decided to roll the dice on behalf of the entire banking industry. The problem is that shareholders will eat the cost of Jefferies’ hubris and not only Leucadia shareholders but shareholders across the banking sector. Jefferies has decided to roll the dice on what could become a ground shaking case for the banking industry and perhaps many other industries like healthcare who have relied upon these kangaroo arbitration courts to prevent even the most justified suits against them.