On June 29, 2015, Lloyd v. J.P. Morgan Chase & Co., the US Court of Appeals for the Second Circuit affirmed the district court's denial of the defendant's motion to compel arbitration, finding that the arbitration clause in the parties' employment contract incorporated Financial Industry Regulatory Authority (FINRA) rules prohibiting arbitration of putative class action or collective action cases (No. 13-3963-CV, (2d Cir. June 29, 2015)).

The plaintiffs were a group of former financial advisors employed in New York and New Jersey by Chase Investment Securities Corp., a subsidiary of FINRA-registered J.P. Morgan Chase & Co. (Chase). Certain employees of Chase, including the plaintiffs, were required to execute Form U4 under which they agreed to arbitrate any disputes with Chase that are required to be arbitrated by FINRA rules. Plaintiffs also executed an employment agreement (Chase Agreement), which contained a similar arbitration clause with language requiring arbitration for several categories of claims and controversies "required to be arbitrated by the FINRA rules."

Chase classified these employees as overtime-exempt and did not pay them for time worked in excess of forty hours a week. Plaintiffs sued Chase, alleging the overtime pay practices violated the New York Labor Law, New Jersey State Wage and Hour Law, and the Fair Labor Standards Act (FLSA). Chase moved to compel arbitration based on the Chase Agreement's arbitration clause.

The district court denied the motion to compel arbitration, holding that the language in the arbitration clause applied to all claims and controversies arising under the Chase Agreement. Since FINRA rules preclude arbitration of class and collective actions such as those put forth by the plaintiffs, these claims fell outside the scope of the arbitration clause. Chase appealed.

The Second Circuit affirmed the lower court's decision and denied Chase's motion to compel arbitration for substantially the same reasons as the district court. The court analyzed the Chase Agreement using standard rules of contract interpretation, and found that the phrase "required to be arbitrated by the FINRA rules" applied to all claims and controversies under the Chase Agreement rather than just claims arising out of the plaintiffs' employment. Because class and collective action claims, such as those put forth by the plaintiffs, are precluded from arbitration under the FINRA rules, the arbitration clause did not encompass them.

Though the court endorsed the presumption of arbitrability in interpreting a valid arbitration agreement, the court stated that the presumption is not a bias in favor of arbitration but rather a tool to resolve genuine ambiguity in discerning the parties' intentions. The court rejected Chase's twin arguments that:

Practitioners in the Second Circuit should be aware of these significant limitations to the presumption of arbitrability when drafting and litigating arbitration clauses in contracts.