Morgan Stanley is asking employees to give up their right to sue the firm in class actions for civil rights violations including discrimination based on race, gender or age, according to a former employee’s lawsuit.

The firm sent an e-mail to workers last month saying it’s expanding its employment dispute resolution program, according to the complaint by former Morgan Stanley financial adviser Kathy Frazier. Workers who don’t respond to the message by Friday lose their right to sue or participate in class actions against the company, according to the lawsuit seeking class- action status.

Frazier said she worked as a financial adviser at Morgan Stanley until she was “constructively discharged” in 2013 because she is black. In her lawsuit filed Wednesday in San Francisco federal court, she accused the company of failing to root out discrimination and instead seeking to prevent workers from joining together to challenge unfair practices in court. A company spokesman said the claims lack merit.

“The sad thing is I don’t think that the majority of Morgan Stanley’s financial advisers understand that they may lose this right,” said Suzanne Bish, a partner at Stowell & Friedman Ltd. in Chicago representing Frazier. “This is a big step backward.”

Jim Wiggins, the spokesman for New York-based Morgan Stanley, said in an e-mailed statement that the arbitration program “benefits all parties by offering an impartial, confidential, cost effective and timely mechanism for resolving employment disputes.”

High Costs

Companies have been shifting more employee claims to arbitration for years to reduce the cost of fielding group lawsuits in court, said Mark Neubauer, a lawyer at Carlton Fields Jorden Burt who has defended businesses against class actions. Because of those expenses, employers often settle even when they are in the right, he said.

“The cost of achieving victory is just too high,” he said. “No one’s saying you can’t enforce your rights; the question is what’s the best vehicle for that.”

Arbitration cases often are heard by lawyers or industry veterans in private, rather than in court by a judge or jury. That distinction is especially important for women and minority employees, because “they won’t get a jury of their peers anymore,” Bish said.

Morgan Stanley has more than 16,000 financial advisers. While arbitration is the norm for settling many types of disputes at brokerages, either with employees or clients, curbing class actions for alleged discrimination is different, said Cliff Palefsky, a civil rights lawyer in San Francisco who has argued arbitration cases.

“It strikes directly at the heart of the civil rights laws,” Palefsky said. “It’s for no other reason than to suppress claims. ”

Public View

The privacy of arbitration also means the public may never learn of a case unless court approval is required.

“We would never have heard about Ellen Pao” and her gender- bias claim against former employer Kleiner Perkins Caufield & Byers if it had gone to arbitration, Palefsky said. While that litigation exposed a sexually charged atmosphere at the venture capital firm, a San Francisco jury rejected Pao’s claims in March.

“Morgan Stanley’s e-mail does not inform employees that they will lose their right to pursue claims of discrimination in court, or even mention discrimination or civil rights claims,” according to Frazier’s complaint. “Nor does the e-mail inform employees that they are being forced — without compensation or consideration — to waive and forgo forever their right to join with other employees or participate in any class action, in arbitration or court, challenging Morgan Stanley’s policies and practices. That information can be gleaned only by clicking on a link and then making it to page 19 of the firm’s 22-page ‘CARE Guidebook.”‘

Frazier now works for UBS Group AG, according to her industry employment records. Her complaint against Morgan Stanley seeks class-action status on behalf of black financial advisers who “have been harmed by its company-wide pattern or practice of race discrimination and discriminatory policies and practices.” She is seeking unspecified compensation and “injunctive and legal relief as this court deems just and proper.”

The case is Frazier v. Morgan Stanley & Co. LLC, 15- cv-04512, U.S. District Court, Northern District of California (San Francisco).

Topics Lawsuits