DOL Defends Fiduciary Rule, Drops Anti-Arbitration Condition

By Carmen Castro-Pagan

The DOL is urging a federal appeals court to uphold its fiduciary rule with one big exception—the agency says it will no longer defend the rule’s anti-arbitration condition that’s intended to prohibit investors from pursuing class litigation against financial advisers ( Chamber of Commerce v. U.S. Dep’t of Labor , 5th Cir., No. 17-10238, brief for appellees 7/3/17 ).

The Labor Department in a brief filed July 3 asked the U.S. Court of Appeals for the Fifth Circuit to uphold the agency’s interpretation of the Employee Retirement Income Security Act’s definition of an investment-advice fiduciary. The department also rebuffed the industry groups’ challenge to the rule’s best-interest-contract exemption, which allows financial advisers to use certain compensation arrangements that might otherwise be forbidden as long as they put their clients’ best interest first.

The DOL’s response brief in the case was filed just days after the department requested more comments on the rule.

Under the rule in its current state, financial advisers won’t enjoy the benefits of the best-interest-contract exemption if they include in their contracts an arbitration agreement that prevents investors from participating in class action litigation. The DOL decided not to defend this position anymore.

In light of the position adopted by the acting solicitor general in NLRB v. Murphy Oil USA Inc.—a case pending before the U.S. Supreme Court—the department said it would no longer defend the exemption’s condition restricting class litigation waivers as it applies to arbitration agreements.

In Murphy Oil, the government argued that it is contrary to federal law for the National Labor Relations Board to adopt a policy prohibiting employers from inducing waivers of class adjudication of substantive rights under the Fair Labor Standards Act.

The industry groups challenging the fiduciary rule are incorrect that fiduciaries are coerced to comply with the anti-arbitration condition, the agency said. Nevertheless, the condition is a “discriminatory obstacle to arbitration” that can’t be harmonized with the Federal Arbitration Act and its interpretative cases, the agency said.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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