Originally from Dispute Resolution Journal

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SECURITIES AND EXCHANGE — EMPLOYMENT CONTRACT — ARBITRATION DENIED — CALIFORNIA LABOR CODE §229

Where an employee of a brokerage firm signed an application for approval by the Stock Exchange which contained an arbitration agreement, he was not required to arbitrate his claims for profit sharing rights because of the Labor Code prohibition of arbitration for the collection of unpaid wages. The employee, who had been hired as a representative for a national brokerage firm, brought a class action seeking to recover profit sharing rights which the employer contended were forfeited as a result of the employees' resignation and employment by a competitor. The lower court denied a petition to order arbitration and the employer appealed, basing the appeal upon Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 97 Cal. Rptr. 811 (1st Dist. 1971) in which the Court of Appeals had ordered arbitration under identical facts. The court in this case recognized the validity of Frame, so far as the existence of the agreement to arbitrate and its non-adhesiveness and validity, despite the strong state policy against such forfeiture provisions, but refused to enforce the clause because it found the profit sharing arrangement to be essentially a form of wages. Under Labor Code §229 "actions . . . for the collection of due and unpaid wages . . . may be maintained without regard to the existence of any private agreement to arbitrate." Thus, while strong state policy favors arbitration ". . . the intent of the statute is to provide in the first instance a judicial forum where there exists a dispute as to wages." The argument had not been raised in Frame and thus the court concluded that the forfeiture provision was illegal and arbitration was barred by the policy of the Labor Code.

Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc.; 100 Cal. Rptr. 791 (Ct. App. 1st Dist. 1972).