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Add another item to Wall Street’s legal woes. A surprising development in a high-profile lawsuit signals that the federal government is willing to get more involved in gender discrimination cases between Wall Street firms and their employees. The first casualty: a confidentiality agreement that exists at every firm. The clash stems from a confrontation between the Equal Employment Opportunity Commission and Morgan Stanley. The EEOC has obtained court permission to circumvent Morgan Stanley’s confidentiality agreements, which had been considered legally binding, with former employees who have already settled with the firm. The EEOC also won permission to get around Morgan Stanley’s internal code of conduct. Both the confidentiality agreements and the code of conduct require employees to inform the firm if they are contacted about any investigation into Morgan Stanley. The firm and its rivals thus have no assurance that, when they settle with employees, they still won’t face an EEOC investigation and lawsuit. Michelle Caiola, the EEOC trial attorney handling the case, said, “It’s designed to send a message to Wall Street.” According to Barry Hartstein, head of the American Bar Association’s equal employment opportunity committee and a partner with Vedder, Price, Kaufman & Kammholz in Chicago, the EEOC’s involvement is largely symbolic. Hartstein said the agency’s attempt to overturn the confidentiality clauses is being used to put not just Morgan Stanley, but also other Wall Street firms on guard. “This [clause] doesn’t prevent the employee from speaking,” Hartstein noted. “It only puts the employer on notice. The EEOC simply wants to avoid the subpoena.” The clause prevents any employee who has settled with Morgan Stanley from testifying against the firm unless required to do so by a subpoena. Even after Morgan Stanley employees receive a subpoena, they must meet with Carol Bernheim, a principal at the firm, allowing Morgan Stanley to “take whatever action it may deem necessary or appropriate to prevent such assistance or testimony.” Avoiding the subpoena allows the EEOC to reduce the number of logistical hurdles. “I wouldn’t be surprised if the EEOC made this assertion in other types of litigation,” Hartstein said. In fact, the EEOC has long held that it will not tolerate any barrier to its investigations. The court decision is part of a gender-discrimination case involving Allison Schieffelin, a Morgan Stanley convertible sales executive who alleged that she didn’t receive the promotions or raises of less-experienced male colleagues. Morgan Stanley denies the allegations, and the case is going to trial. The EEOC is suing on Schieffelin’s behalf. The decision by U.S. Magistrate Judge Ronald L. Ellis on Sept. 20 came as the EEOC and Morgan Stanley were setting ground rules for the upcoming trial. Ellis said that while investigating Schieffelin’s claims, the EEOC can ignore confidentiality agreements between Morgan Stanley and former employees who have already settled. Under the agreements, the EEOC would have to subpoena every former employee that it believes could help its case and give Morgan Stanley two days to respond. Now the EEOC may approach those employees directly. The judge also set aside Morgan Stanley’s code of conduct, which requires current employees to consult with the firm’s law or compliance departments before cooperating with any investigation of the firm or else face termination. “With regard to the code of conduct, we have never meant the code to preclude employees from communicating with any government body regarding individual rights, including workplace rights,” said Morgan Stanley spokeswoman Judy Hitchen. The EEOC argued that the confidentiality clause and code of conduct create a “chilling effect” by making it difficult to talk to current and former Morgan Stanley employees. “The EEOC is charged with investigating pattern and practice claims and, in order to do so, needs access to the relevant employees,” Ellis wrote in his analysis of the arguments. The decision poses several threats to Wall Street firms. First, given the popularity of confidentiality agreements, firms now have no assurance that past settlements will remain settled, said Gavin Appleby, the Atlanta-based head of the labor and employment practice at Powell Goldstein Frazer & Murphy. “It’s a surprising ruling,” said Appleby, who does legal work for some Morgan Stanley rivals. “It puts Morgan Stanley and other companies at a bit of a disadvantage, in that these are separation agreements we all use to try to limit the ramifications of any settlement we get into. This allows the EEOC to go behind that, and it would be difficult for us to stop.” Hartstein added, “The whole notion of attempting to resolve a claim with a charging party is to resolve all matters between them.” Second, the EEOC as a federal agency already has wide latitude during such a probe, said Appleby and Caiola. “The EEOC’s work is seen as being in the public good,” Caiola said, which means that there are “some rights you can’t contract away.” Despite all this, Hartstein believes such clauses will remain popular. “I’m not necessarily convinced that this [decision] means that employers are going to fold their tent and say, ‘We’re not going to include this provision,’” he said. Copyright �2002 TDD, LLC. All rights reserved.

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