Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware
Headline: NYSE arbitration rule does not block California wage claims; Court upheld state law letting former brokers sue for unpaid profit-sharing instead of being forced into arbitration.
Holding: The Court held that New York Stock Exchange arbitration rules and an employee’s pledge to follow them do not preempt California laws protecting wage claims, so the former broker could pursue court remedies instead of compulsory arbitration.
- Allows California workers to sue for unpaid wages despite exchange arbitration clauses.
- Limits reach of stock-exchange arbitration rules over state wage protections.
- Preserves state authority to protect wage earners against forfeiture clauses.
Summary
Background
David Ware, a registered broker who worked for Merrill Lynch in San Francisco from 1958 to 1969, left for a competitor and then sued. Merrill Lynch had a nationwide Profit-Sharing Plan with a forfeiture rule that a committee could cancel benefits if an employee went to a competing firm. Ware had signed an Exchange form promising to abide by New York Stock Exchange rules, including an arbitration pledge mirroring NYSE Rule 347(b). He sued in California state court seeking payment and argued the forfeiture clause violated California law, relying mainly on §229 of the California Labor Code and §16600 of the Business and Professions Code.
Reasoning
The Court considered whether federal securities law and NYSE self-regulation preempted California’s statutes. It examined the Exchange’s delegated authority under the Securities Exchange Act and the Silver v. NYSE framework for when exchange rules displace other law. The Court concluded that the arbitration rule and the employee’s pledge were not sufficiently tied to the Act’s core purposes of investor protection and fair dealing to override California law. Section 6(c) does not make the laws of the exchange’s home State automatically exclusive. California’s §229 protecting wage claims was a valid state policy that did not interfere with federal securities regulation, so the state court’s refusal to compel arbitration stood.
Real world impact
The decision lets California wage laws block compulsory arbitration of certain employment wage claims even when an employee agreed to NYSE arbitration. It preserves state protections for wage earners and limits the automatic reach of exchange arbitration rules across state lines.
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