Petition for Writ of Certiorari — Baker v. Aubry

89-1947) Supreme Court, U.S

FILED

D

_ JUN 12 1990

_ | s0SEPH F. spannot, ur.

In The CLERK

Supreme Court of the United States

October Term 1989

7%

vy

NANCY JANE BAKER,

Petitioner,

VS.

LLOYD W. AUBRY, JR., CALIFORNIA

STATE LABOR COMMISSIONER,

Respondent.

y%

4

To The @iifornia Court Of Appeal

On Petition For Writ Of Certiorari

For The oe Appellate District

4.

4

PETITION FOR WRIT OF CERTIORARI

&.

vw

McLAUGHLIN AND IRVIN

Henry F. TELFEIAN

Counsel of Record

111 Pine Street #1200

San Francisco, CA 94111

Telephone: (415) 433-6330

Counsel for Petitioner

Nancy Jane Baker

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

332

QUESTIONS PRESENTED

Where Congress has empowered the States to enact

minimum wage and overtime laws, does the Federal Ar-

bitration Act supplant California law and compel the

arbitration of an overtime wage claim?!

1 Other than the parties appearing in the caption, the only

other interested party is Fidelity Brokerage Services, Inc., de-

nominated as a r?al party in interest in the lower court pro-

ceedings.

ii

TABLE OF CONTENTS

Page

RPWEE POO WOME TEED ono To cena caccnccvececs i

OTE SE PUNTERS vines Pile SONS EA de de esees ii

SOE PE MOTRIN OIE occ vis caccecccccsssaed iii

CITATION TO OPINIONS BELOW................. 1

PII 5 div nchvitdbinwes ccchcevenneuesniie 1

STATUTES AND CONSTITUTIONAL PROVISIONS

STINE 5-0. seu, 4640-0 al pdk Kaew beneaRe enmeds 2

wEmemeeree Ge THEE CAGE... oo icc acccicccncecs 3

ia. Ft I ok ni Naas Kade eeneuneaeke ean 3

D. SRP ECAIRAL BEIBTORY © ooo. ccc css cnas 4

REASONS FOR GRANTING THE WRIT ........... 6

DEFERRAL TO ARBITRATION IS INAP-

PROPRIATE WHERE CONGRESS PROVIDED

FOR AN ALTERNATIVE STATE FORUM..... 6

I 0:5. 0.54544 Shae eRe 14

i ny a ay hg EE EET CET ee tere Mile: la

eS, Who as cveeendensns eee pee 13a

iii

TABLE OF AUTHORITIES

Alexander v. Gardner-Denver Co., 415 U.S. 36, 94

S.Ct. 1011 (1974) ee Cas Se ae dake ahaa 7,9,

American Postal Workers Union v. United States

Postal Service, 823 F.2d 466 (11th Cir. 1987)........

Atchison, Topeka & Santa Fe Railway Co. v. Buell, 480

U.S. 557, 107 S.Ct. 1410 (1987) ...............-00e-

Barrentine v. Arkansas-Best Freight System, 450 U.S.

726, 101 S.Ct. 1437 (1I9S1).............256- 7, 8, 9,

California Federal Savings & Loan Assn. v. Guerra,

479 U.S. 272, 107 S.Ct. 683 (1987)...............--

Cook v. Barratt American, Inc., ___ Cal.App.3d ___,

268 Cal Rotr. 629 (1990). ..... 0... ceceeeees th, Ta,

Evans v. Southern Pacific Transportation Co., 213

Cal.App.3d 1378, 262 Cal.Rptr. 416 (1989)...... 12,

Gilmer v. Interstate/Johnson Lane Corp., 895 F.2d =

ee eice Ge sane hienwe esa esses ss 7, 12,

Hall v. Nomura Securities Int’l., 219 Cal.App.3d 43,

Een

Lingle v. Norge Div. of Magic Chef, Inc., 486 U.S.

Bey Oe A, BOTs (EDGE)... 1... ec ccc cece een eeees

McDonald v. City of West Branch, 466 U.S. 284, 104

SM UII cakes snc scccteresesstsacscuens ye

Mitsubishi Mctors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 105 S.Ct. 3346 (1985).. 7, 8, 10,

Nicholson v. CPC Int’l., Inc., 877 F.2d 221 (3d Cir.

Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520 (1987)

ere TT errr eee eee eT ee 6, 9,

Rodriguez de Quijas v. Shearson/American Express,

a. woe, 10P SCL 1917 (1989) ......... 7,

iv

TABLE OF AUTHORITIES - Continued

Page

Shearson/American Express, Inc. v. McMahon, 482

ee eg +) ne 7, 10, 11

Skyline Homes, Inc. v. Dept. of Industrial Relations,

165 Cal.App.3d 239, 211 Cal.Rptr. 792 (1985)....... 6

STATUTES

8 OF Pere ee ee ee ee 6

ge I er eT TTT ee ee re ee eee ee 2

6 8 | Serer re ree rer 1

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i rks cheiey men ch chuke sneesnenecksaheees 9

ee I Sho 445645 Gave ndadN sas Aweeaecerwaaln 6

ee SE ih be es katana Vascereckwas ds 2, 6, 8

ee ee I EL OE Oo sea kc nsscevcewencdauebees 8

| eg | TORT L Tee Eee ee 12

California Government Code § 12940................ 11

California Labor Code

Rhus Re R adh wa Knead Sukh dds cakes Reec cers 6

EE NU a VA SeR GN ab NASON REWER Aas ae baa ee aren 2, 6

RC Uidi sadn AAdekehed os OCNREeTS keREee nn tAREe 6

EET ee ee ee Teer See err ee ee 3, 6

United States Constitution, Art. VI, cl. 2............. 3

— J

Vv

TABLE OF AUTHORITIES - Continued

Page

MISCELLANEOUS

Rules of the United States Supreme Court Rule

rr eer errr rer ere rT ere rr Peter erry rr eer 1

Petitioner Nancy Jane Baker (hereinafter “Baker”) re-

spectfully prays that a writ of certiorari issue to review a

decision of the California Court of Appeal for the First

Appellate District issued on December 22, 1989.

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sg

I

CITATION TO OPINIONS BELOW

The decision of the California Court of Appeal is

officially reported at 216 Cal.App.3d 1259 and unofficially

at 265 Cal.Rptr. 381. The court’s decision appears in Ap-

pendix “A”, infra. (App. 1a-12a.) The decision of the

California Supreme Court denying Baker’s petition for

review appears in Appendix “B”, infra. (App. 13a.)

,

vv

II

JURISDICTION

The decision of the Court of Appeal was issued on

December 22, 1989. Baker’s petition for review to the

California Supreme Court was denied on March 15, 1990.

This petition for writ of certiorari was filed within ninety

days of that date as provided for under 28 U.S.C.

§ 2101(c) and Rule 13(1) of the Rules of the United States

Supreme Court. This Court's jurisdiction is invoked un-

der 28 U.S.C. § 1257(a).

~~

-

Ill

STATUTES AND CONSTITUTIONAL

PROVISIONS INVOLVED

Section 2 of the Federal Arbitration Act (9 U.S.C. § 2)

provides as follows: |

A written provision in any maritime transaction

or a contract evidencing a transaction involving

commerce to settle by arbitration a controversy

thereafter arising out of such contract or trans-

action, or the refusal to perform the whole or

any part thereof, or an agreement in writing to

submit to arbitration an existing controversy |

arising out of such a contract, transaction, or |

refusal, shall be valid, irrevocable, and enforce-

able, save upon such grounds as exist at law or

in equity for the revocation of any contract.

Section 18(a) of the Fair Labor Standards Act (29

U.S.C. § 218(a)) provides in relevant part as follows:

No provision of this chapter or of any order

thereunder shall excuse non-compliance with

any Federal or State law or municipal ordinance

establishing a minimum wage higher than the

minimum wage established under this chapter

or a maximum workweek lower than the maxi-

mum workweek established under this chap- |

Fr...

Section 98(a) of the California Labor Code provides

in relevant part as follows:

The Labor Commissioner shall have the authori-

ty to investigate employee complaints. The La-

bor Commissioner may provide for a hearing in

any action to recover wages, penalties, and

other demands for compensation properly be-

fore the division or the Labor Commissioner

including orders of the Industrial Welfare

————————————r

Commission, and shall determine all matters

arising under his or her jurisdiction. . . . Within

thirty days of filing of the complaint, the Labor

Commissioner shall notify the parties as to

whether a hearing will be held or whether ac-

tion will be taken in accordance with section

98.3, or whether no further action will be taken

on the complaint. If the determination is made

by the Labor Commissioner to hold a hearing,

the hearing shall be held within ninety days of

the date of that determination. .. .

Section 229 of the California Labor Code provides as

follows:

Actions to enforce the provisions of this article

for the cotlection of due and unpaid wages

claimed by an individual may be maintained

without regard to.the existence of any private

agreement to arbitrate. This section shall not

apply to claims involving any dispute concern-

ing the interpretation or application of any col-

lective bargaining agreement containing such an

arbitration agreement.

The only constitutional provision implicated is the

Supremacy Clause (Art. VI, cl. 2).

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IV

STATEMENT OF THE CASE

A. THE FACTS

Baker was employed as a registered securities repre-

sentative by Fidelity Brokerage Services, Inc. (hereinafter

“Fidelity”) from March 1986 to March 1987 and was paid

a weekly salary for her services. (App. 2a.) As a condition

of her employment, Baker executed a Uniform Applica-

tion for Securities Industry Registration or Transfer, com-

monly known as Form U-4. (App. 2a.) The form is in use

throughout the securities industry and contains the fol-

lowing arbitration provision:

I agree to arbitrate any dispute, claim or contro-

versy that may arise between me and my firm,

or a customer, or any other person, that is re-

quired to be arbitrated under the rules, constitu-

tions, or bylaws of the organizations with which

I register, as indicated in item 10 as may be

amended from time to time.

(App. 2a.)

After resigning her employment with Fidelity, Baker

filed a claim with the California Labor Commissioner

asserting that she had worked in excess of eight hours

per day but had not received overtime pay. (App. 2a.) A

hearing was held before the Labor Commissioner on Jan-

uary 27, 1988. At the hearing, Fidelity objected to the

Labor Commissioner’s jurisdiction on the ground that the

U-4 agreement executed by Baker required her to arbi-

trate her overtime claim. After Baker presented evidence

in support of her overtime claim, the hearing was con-

cluded. However, on August 23, 1988, the Labor Commis-

sioner dismissed Baker’s claim “[flor want of statutory

jurisdiction...” (App. 1a.)

B. PROCEDURAL HISTORY

On October 19, 1988, Baker petitioned the Alameda

County Superior Court for a writ of mandate directing

the Labor Commissioner to assume jurisdiction of Baker’s

claim for unpaid overtime wages. Baker asserted that the

Federal Arbitration Act did not require her to arbitrate

her statutory claim for overtime wages. Joint Appendix

in Lieu of Clerk’s Transcript 15-19, 255-257; App. 3a.)

The Superior Court refused to issue @ writ.

(App. 1a.) Baker then filed an appeal with the California

Court of Appeal asserting, inter alia, that her right to

overtime pay, a statutory right, is nonwaivable and not

subject to arbitration and that, therefore, the California

Labor Commissioner had jurisdiction to adjudicate her

claim. (App. 6a.) On December 22, 1989, the Court of

Appeal affirmed the Superior Court’s decision, conclud-

ing that there was no difference between a statutory wage

claim and a contractual wage claim. The court held:

Baker’s claim for overtime pay, even if based on

a statutory right, is subject to arbitration. The

broad language of the arbitration agreement

here and the strong federal policy favoring arbi-

tration of such agreements mandate the arbitra-

bility of her claim. . . . Like the U-4 arbitration

provision in Perry [v. Thomas, 482 U.S. 483

(1987)], the arbitration agreement here is gov-

erned by the Federal Arbitration Act and the

policies behind it.

(App. 8a-9a.)

Baker then petitioned the California Supreme Court

for review. By order dated March 15, 1990, the California

Supreme Court denied the petition. (App. 13a.)

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REASONS FOR GRANTING THE WRIT

DEFERRAL TO ARBITRATION IS INAPPROPRIATE

WHERE CONGRESS PROVIDED FOR AN

ALTERNATIVE STATE FORUM.

Pursuant to the power granted the States by Con-

gress in the Fair Labor Standards Act (29 U.S.C. § 218(a)),

California requires the payment of overtime compensa-

tion for hours worked in excess of eight hours in a day.

Skyline Homes, Inc. v. Dept. of Industrial Relations, 165

Cal.App.3d 239, 211 Cal.Rptr. 792 (1985).2 An employee

who fails to receive such compensation may either pursue

a direct action in the California courts or file a complaint

with the office of the California Labor Commissioner.

California Labor Code §§ 96, 98(a), 218. California law

specifically prowides that “[a]ctions to enforce the provi-

sions of this article for the collection of due and unpaid

wages claimed by an individual may be maintained with-

out regard to the existence of any private agreement to

arbitrate.” California Labor Code § 229.

Notwithstanding the clear authority granted to the

Labor Commissioner to adjudicate overtime claims, the

Court of Appeal concluded that since Baker had executed

an agreement to arbitrate, the Federal Arbitration Act (9

U.S.C. §§ 1, et seq.) preempted California law and re-

quired arbitration of her wage claim. The Court of Appeal

believed that this result was commanded by this Court’s

decisions in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520.

2 In contrast, the Fair Labor Standards Act only requires

overtime compensation for hours worked in excess of forty in a

week. 29 U.S.C. § 207.

(1987) and Shearson/American Express, Inc. v. McMahon,

482 U.S. 220, 107 S.Ct. 2332 (1987).

Those two cases, along with Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346

(1985) and Rodriguez de Quijas v. Shearson/American Ex-

press, Inc., US. __, 109 S.Ct. 1917 (1989), have re-

sulted in widespread confusion as to the extent to which

the Federal Arbitration Act preempts a whole host of

employee rights created by Congress and the States. E.g.,

Gilmer v. Interstate/Johnson Lane Corp., 895 F.2d 195 (4th

Cir. 1990) (federal age discrimination claim must be arbi-

trated). This confusion has arisen because of the apparent

conflict between this Court’s recent decisions favoring

arbitration and the Court’s previous holdings that the

availability of arbitration does not foreclose an employ-

ee’s right to pursue judicial relief to vindicate statutory

wage and discrimination claims. Barrentine v. Arkansas-

Best Freight System, 450 U.S. 728, 101 S.Ct. 1437 (1981);

Alexander v. Gardner-Denver Cc., 415 U.S. 36, 94 S.Ct. 1011

(1974); and McDonald v. City of West Branch, 466 U.S. 284,

104 S.Ct. 1799 (1984).

In Barrentine, this Court held that an arbitration

award, rendered under a collective bargaining agreement,

did not preclude employees from pursuing an indepen-

dent judicial action to vindicate a federal wage claim.

Finding that an arbitrator “has no general authority to

invoke public laws that conflict with the bargain between

the parties”, this Court concluded that wage claims aris-

ing under the Fair Labor Standards Act “are best pro-

tected in a judicial rather than arbitral forum...” 450

U.S. at 744-745. Similarly, Gardner-Denver held that an

arbitration award, also rendered pursuant to a collective

bargaining agreement, did not preclude a judicial action

for discrimination under Title VII of the Civil Rights Act

of 1964 (42 U.S.C. §§ 2000e, et seq.).

Notwithstanding the obvious applicability of these

cases to Baker’s wage claim, the Court of Appeal distin-

guished Barrentine on the ground that it dealt with the

reconciliation of two federal statutes and thus did not

involve the preemption of a state statute. (App. 11a.)

Here, the Court of Appeal reasoned, the issue is the

preemptive reach of the Federal Arbitration Act. This

facile distinction misses the point. ,

Preemption turns on Congress’s intent, and where

that intent is not expressly stated (such as with the Feder-

al Arbitration Act), a court must divine it from other

sources. Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth,

Inc., supra, 473 U.S. at 627-628. In Barrentine, this Court

concluded that Congress did not intend federal wage

claims to be subject to arbitration. This holding neces-

sarily extends to a claim brought under state law because

the same expression of Congressional intent (the Fair

Labor Standards Act) specifically empowers the States to

act. (29 U.S.C. § 218(a).) California has done so and has

provided that statutory wage claims brought under state

law are not subject to arbitration. Thus, it should follow

from Barrentine that Baker has a right to pursue her wage

claim in the forum provided by the State of California -

the Labor Commissioner’s office. .

Indeed, it is nonsensical to assert that a federal wage

claim is not subject to arbitration while a state claim is;

for in many instances, the claim would be identical. For

example, under both federal and California law, an em-

ployee is entitled to overtime compensation for hours

worked in excess of forty in a week. An employee could

assert such an entitlement under either federal or state

law, and yet, under the Court of Appeal’s analysis, would

be required to arbitrate her state claim while free to

litigate her federal claim. Obviously, Congress never in-

tended such a dichotomy.*

The Court of Appeal justifies this bizarre result based

on Perry v. Thomas, supra. In Perry, this Court held that

the Federal Arbitration Act preempted California Labor

Code Section 229 and required a securities employee,

who had executed a U-4 agreement, to arbitrate his claim

for an unpaid sales commission. However, Perry has

nothing to do with a statutory wage claim. The employ-

ee’s right to a commission was based on his contractual

agreement with his employer, and not on statute. Califor-

nia law does not require the payment of commissions. If

the employee had been permitted to pursue his claim in a

3 Neither Barrentine nor Gardner-Denver addressed the is-

sue of Congress’ intent under the Federal Arbitration Act since

both cases involved arbitration which, in theory, was “com-

pelled” pursuant to Section 301 of the Labor-Management Re-

lations Act (29 U.S.C. § 185). Nonetheless, since both cases

discuss Congress’ intent under the Fair Labor Standards Act

and Title VII, they have direct applicability to any analysis of

the preemptive reach of the Federal Arbitration Act vis-a-vis

these two statutes. Moreover, the federal courts have disagreed

as to whether the Federal Arbitration Act applies to collective

bargaining agreements. See generally American Postal Workers

Union v. United States Postal Service, 823 F.2d 466 (11th Cir.

1987).

10

judicial forum, he would not have relied on any Califor-

nia statute to vindicate his right to the unpaid commis-

sion. In stark contrast, the contractual agreement between

Baker and Fidelity is irrelevant to Baker’s overtime claim.

To adjudicate her statutory claim no contractual inter-

pretation is necessary, and thus, the federal interest un-

derlying Perry - enforcing the parties’ agreed-upon

method of resolving contractual disputes — is lacking. Cf.

Lingle v. Norge Div. of Magic Chef, Inc., 486 U.S. 399, 108

S.Ct. 1877 (1988) (state law claim not preempted where

adjudication of the claim is not dependent upon an inter-

pretation of the collective bargaining agreement).

Perry only holds that California cannot provide a

judicial forum to resolve a contractual claim where an

agreement to arbitrate exists. Nothing in Perry requires

the arbitration of a statutory wage claim, and Perry is

entirely consistent with Barrentine.4 Simply stated, Perry

does not address Congress’ intent vis-a-vis statutory

wage claims.

The relevant inquiry is whether Congress intended a

wage claim brought under state law, which it specifically

sanctioned, to be subject to arbitration. This Court's deci-

sions holding that statutory claims arising under the fed-

eral antitrust laws, RICO, and the Securities and

Exchange Act are subject to arbitration have little bearing

4 Until Mitsubishi, McMahon, and Rodriguez de Quijas, the

distinction between arbitrating statutory and contractual

claims seemed clear. Contractual claims had to be arbitrated

while statutory claims did not. See Mitsubishi Motors Corp. v.

Soler Chrysler-Plymouth, Inc., supra, 473 U.S. at 646-647, 105

S.Ct. at 3364 (Justice Stevens dissenting in part).

11

on this analysis. See Mitsubishi, supra; McMahon, supra;

and Rodriguez de Quijas, supra. Merely because certain

statutory claims are subject to arbitration does not lead to

the inevitable conclusion that all statutory claims are

rubject to arbitration. Quite to the contrary, Barrentine,

Gardner-Denver, and McDonald exclude from arbitration

claims arising under statutes establishing minimal em-

ployee protections.

Neither Congress nor California ever intended that

an employee would be required to arbitrate a claim for

overtime wages. California has provided an economic

and efficient forum for the resolution of such claims, and

employees should not be deprived of that forum absent a

much more direct expression of Congressional intent.

Surely, if Congress intended to prohibit the States from

establishing their own forums to vindicate their mini-

mum wage and overtime laws it would not have been

silent on this point while simultaneously granting the

States the power to legislate in this area.

The Court of Appeal’s decision has far reaching con-

sequences not only for statutory wage claims but for

most, if not all, state laws establishing minimum employ-

ee protections. If the Court of Appeal’s analysis is correct,

the protections granted employees by state law will soon

disappear. Already, other California courts of appeal have

concluded, based on the same analysis present in this

case, that age and sex discrimination claims brought un-

der the California Fair Employment and Housing Act

(California Government Code § 12940) must be arbitrated

where a contractual agreement to arbitrate exists. Cook v.

Barratt American, Inc., __ Cal.App.3d __, 268 Cal.Rptr.

12

629 (1990) (” .. . we conclude federal law requires arbitra-

tion of this state-law-grounded claim of employment dis-

crimination based on sex under the privately negotiated

arbitration agreement here in question.”); and Hall v.

Nomura Securities Int’l., 219 Cal.App.3d 43, 268 Cal.Rptr.

45 (1990).

Federal laws guaranteeing employee rights have also

been placed in serious jeopardy. In Gilmer v. Interstate/

Johnson Lane Corp., supra, the Fourth Circuit Court of

Appeal recently held, also based on this analysis, that a

claim for age discrimination brought under the Federal

Age Discrimination in Employment Act (ADEA) was pre-

empted by the Federal Arbitration Act.5 But see Nicholson

v. CPC Int’l., Inc., 877 F.2d 221 (3d Cir. 1989) (holding that

an ADEA claim is not subject to arbitration).

In fact, this Court is presently confronted with the

analogous question. In Evans v. Southern Pacific Transpor-

tation Co., 213 Cal.App.3d 1378, 262 Cal.Rptr. 416 (1989)

(petition for certiorari filed February 14, 1990, case no.

89-1396), a California court of appeal held that the Rail-

way Labor Act (45 U.S.C. §§ 151, et seq.) did not preclude

California from exercising jurisdiction over discrimina-

_ tion claims despite the broad arbitration provisions con-

tained in that Act. Thus, under the decisions issued in

Cook, supra, and Hall, supra, an employee who executes a

private agreement to arbitrate must arbitrate state law

discrimination claims while under Evans an employee.

subject to the Railway Labor Act need not. Though Evans

5 In a telephone communication between counsel, it was

indicated that a petition for a writ of certiorari will be filed in

that case with this Court.

13

arises under the Railway Labor Act rather than the Feder-

al Arbitration Act, the issue is the same, to what extent

did Congress intend to provide an independent judicial

forum for such claims when it enacted Title VII and

expressly empowered the States to pass their own anti-

discrimination laws. See generally California Federal Sav-

ings & Loan Assn. v. Guerra, 479 U.S. 272, 107 S.Ct. 683

(1987). The same question is also presented with respect

to statutory wage claims since the Fair Labor Standards

Act, like Title VII, contemplates state legislation.

If the judicial forums established for the adjudication

of statutory wage and discrimination claims can be cir-

cumvented by private arbitration agreements, there is no

reason why numerous other state law protections are also

not subject to arbitration. State laws intimately regulate

the relationship between an employer and an employee.

All such laws (e.g., workers’ compensation, rest and

lunch periods, occupational safety provisions, to name a

few) are now in jeopardy because of the indiscriminate

extension of this Court’s decisions to such statutory

claims. This Court must clearly establish the parameters

which limit the Federal Arbitration Act and preserve to

employees their state law forums to vindicate their state

law rights. Cf. Atchison, Topeka & Santa Fe Railway Co. v.

Buell, 480 U.S. 557, 107 S.Ct. 1410 (1987) (holding that the

Railway Labor Act arbitration provision does not deprive

a railroad employee of a right to bring a FELA claim).

Quite simply, state and federal courts have mis-

construed the extent to which statutory protections can

be subsumed through arbitration. The federal courts are

split with respect to this issue (see and compare Gilmer v.

Interstate/Johnson Lane Corp., supra, with Nicholson v. CPC

14

Int'l., Inc., supra), as are the California courts (as evi-

denced by the decisions issued in the instant case and

Cook v. Barratt American, inc., supra, in comparison with

Evans v. Southern Pacific Transportation Co., supra). Until

now, the public interest in insuring the payment of mini-

mum wage and overtime compensation as well as the

enforcement of anti-discrimination laws seemingly placed

beyond question the right to adjudicate such claims in a

public forum. Accordingly, certiorari should be granted

in order to clarify the extent to which arbitration agree-

ments deprive employees of the forums guaranteed un-

der state and federal law.

ee

aA

VI

CONCLUSION

For the aforesaid reasons, this petition for writ of

certiorari should be granted.

Respectfully submitted,

Henry F. TELFEIAN

McLAUGHLIN AND IRVIN

111 Pine Street, Suite 1200

San Francisco, CA 94111

Telephone: (415) 433-6330

Attorneys for Petitioner

Nancy Jane Baker

la

APPENDIX A

[No. A045093. First Dist., Div. Three Dec. 22, 1989.]

NANCY JANE BAKER, Plaintiff and Appellant, v.

LLOYD W. AUBRY, JR., as Labor Commissioner, etc.,

Defendant and Respondent;

FIDELITY BROKERAGE SERVICES, INC., Real Party in

Interest.

OPINION

MERRILL, J. — Appellant Nancy Jane Baker filed a com-

plaint with respondent State of California Labor Commis-

sioner (hereinafter Commissioner), seeking overtime pay

from her former employer, respondent Fidelity Brokerage

Services, Inc. (hereinafter Fidelity). At the hearing on

Baker’s complaint, Fidelity challenged the Commis- |

sioner’s jurisdiction by asserting that the matter was

subject to arbitration. After taking the jurisdictional ob-

jection under submission, the Commissioner dismissed

Baker’s complaint “[flor want of statutory jurisdiction.”

By her petition for writ of mandate, Baker sought to

compel the Commissioner to assume jurisdiction over

and adjudicate her complaint. An alternative writ of man-

date issued. Following hearing, the superior court denied

Baker’s petition. She appeals.

I.

(1) Preliminarily we note that on review of the trial

court’s ruling on a writ of mandate, an appellate court is

ordinarily limited to an inquiry respecting whether sub-

stantial evidence supports the judgment. However, this

limitation is inapplicable to questions of law where the

facts are undisputed. In such instances the appellate court

2a

is not bound by the trial court’s determination but may

make its own determination. (Evans v. Unemployment Ins.

Appeals Bd. (1985) 39 Cal.3d 398, 407 [216 Cal.Rptr. 782,

703 P.2d 122].) The following undisputed facts were be-

fore the trial court.

Baker was employed by Fidelity from March 1986 to

March 1987. In connection with her employment, Baker

executed a “Uniform Application for Securities Industry

Registration or Transfer,” commonly known as the “U-4,”

The following provision is contained within the U-4, “I

agree to arbitrate any dispute, claim or controversy that

may arise between me and my firm, or a customer, or any

other person, that is required to be arbitrated under the

rules, constitutions, or by-laws of the organizations with

which I register, as indicated in item 10 as may be

amended from time to time.” Item 10 of the U-4 indicated

that Baker was to be registered with the New York Stock

Exchange (NYSE) and the National Association of Securi-

ties Dealers (NASD). Rule 347 of the NYSE provides:

“Any controversy between a registered representative

and any member or member organization arising out of

the employment or termination of employment of such

registered representative by and with such member or

member organization shall be settled by arbitration, at

the instance of any such party, in accordance with the

arbitration procedure prescribed elsewhere in these

rules.” During her employment with Fidelity, Baker was,

in fact, registered with the NYSE as a general securities

representative.

The basis of Baker’s claim was that she worked in

excess of eight hours per day and did not receive over-

time pay.

3a

At the hearing on Baker’s petition for writ of man-

date, the superior court found the existence of a valid

agreement to arbitrate between Baker and her employer.

In addition, the court rejected Baker’s argument that her

overtime pay claim was based on statutory rights and

therefore not subject to arbitration.

II

(2a) Baker’s first argument on appeal is that the U-4

does not encompass a valid agreement to arbitrate. She

submits that the purported incorporation by reference of

the NYSE rules was not sufficiently clear and unequivocal

so as to form a binding arbitration agreement. Baker

relies exclusively on Chan v. Drexel Burnham Lambert, Inc.

(1986) 178 Cal.App.3d 632 [223 Cal.Rptr. 838] for her

position.

The Chan court analyzed whether the U-4 document

signed by the employee there constituted a valid arbitra-

tion agreement. Drexel argued that the following provi-

sion in the U-4 form adequately incorporated NYSE rule

347 by reference: “ ‘I agree to abide by the Statute(s),

Constitution(s), Rule(s) and By-Laws as any of the forego-

ing are amended from time to time ofthe agency jurisdic-

tion or organization with or to which I am filing or

submitting this application; ...’” (Chan v. Drexel Burn-

ham Lambert, Inc., supra, 178 Cal.App.3d at p. 636.) The

appellate court held no valid arbitration agreement was

entered into by the parties as there was no clear and

unequivocal reference to the incorporated document.

4a

(3) It is well settled that disputes between a member

of a national stock exchange and its employee are gov-

erned by the Federal Arbitration Act, 9 United States

Code section 1 et seq., where there is a binding arbitra-

tion agreement. (Id., at p. 638, and cases there cited; see

also Thomas v. Perry (1988) 200 Cal.App.3d 510, 515 [246

Cal.Rptr. 156].) In such instances, questions concerning

the construction and scope of the arbitration clause are

determined by federal law. (Chan v. Drexel Burnham Lam-

bert, Inc., supra, 178 Cal.App.3d at pp. 639-640.) However,

the “existence of a valid agreement to arbitrate involves

general contract principles, and state law governs dispo-

sition of that question. [Citations.]” (Jd. at p. 640.) Thus,

the Chan court concluded California contract law princi-

ples must be applied in determining whether rule 347

was an enforceable provision of the contract.

(4) Under California law, parties may validly incor-

porate by reference into their contract the terms of anoth-

er document. The reference to the incorporated document

must be “’... “... clear and unequivocal, the reference

must be called to the attention of the other party and he must

consent thereto, and the terms of the incorporated document

must be known or easily available to the contracting parties.” ’

[Citations.]” Chan v. Drexel Burnham Lambert, Inc., supra, at

p. 641.)

The Chan court held that the U-4 form at issue there

failed to incorporate NYSE rule 347 by reference. The

court found the reference to the rule to be amorphous,’

failing to guide the reader to the incorporated document.

(Id., at p. 643.). The court reasoned: “The language in

paragraph 2C of the U-4 application set forth only that

Chan agreed to abide ‘by the Statute(s), Constitution(s),

5a

Rules and Bylaws’ and any amendments of the three

organizations to which Chan’s application was to be sub-

mitted. Arbitration is nowhere mentioned in paragraph 2C.

One of the organizations to which Chan submitted the

application was the NYSE, which promulgated Rule 347,

the rule requiring arbitration. However, even assuming

paragraph 2C referred specifically to the NYSE, the read-

er would thereafter be required to seek out Rule 347

thereof to locate the arbitration clause.” (Jd., at p. 643,

italics added.)

Chan distinguished the opinion in King v. Larsen Real-

ty, Inc., (1981) 121 Cal.App.3d 349 [175 Cal.Rptr. 226],

which found arbitration provisions in the bylaws of a real

estate board had been incorporated by reference into the

parties’ membership agreement. In King, the contract pro-

vided that the member agreed to abide by the constitu-

tion, bylaws, rules and regulations of the local real estate

board and those of the state association. The bylaws of

the local board required members to arbitrate disputes as

set forth in the state associations’ arbitration manual. The

court found that the parties agreed to abide by the by-

laws, and that the bylaw provision providing for arbitra-

tion properly incorporated by reference the separate

arbitration manual. (King v. Larsen Realty, Inc. supra, 121

Cal.App.3d at pp. 353-357.) The distinguishing factor in

King, found lacking in Chan, was the fact that the incorpo-

rated document was readily available to the appellants.

(Id. at p. 357; Chan v. Drexel Burnham Lambert, Inc. supra,

at p. 641.)

(2b) The U-4 form at issue in the instant case is

markedly different from the form at issue in Chan. The

most significant distinction is that the U-4 form signed by

6a

Baker clearly indicated her agreement to arbitrate. The

basic arbitration provision was contained in the U-4 itself

and not in a secondary document. In Chan the U-4 form

contained no language notifying the applicant of an arbi-

tration provision. The applicant there was forced to

search the body of rules to find the arbitration provision.

Additionally, the U-4 form here described generally

the nature of the disputes to be arbitrated. Reference to

rule 347 was required only for the scope of the arbitration

clause. The form in Chan contained no such provision.

A valid arbitration agreement exists in the instant

case. Baker agreed to arbitrate disputes as required by the

bylaws, rules and constitutions of the organizations with

which she registered in item 10 of the U-4. Baker herself

indicated her registration with the NYSE in item 10 of the

form. The rules of the NYSE were readily available to her

as Baker had been registered with that organization for

most of the four-year period prior to her execution of the

U-4 here. The U-4 form signed by Baker reveals a binding

arbitration agreement.

Ill

(Sa) Baker next asserts that even if a valid arbitra-

tion agreement exists, such agreement would not govern

her claim to overtime pay. She submits that her right to

overtime pay is statutory in nature, as opposed to con-

tractual, and therefore may not be waived by any agree-

ment to arbitrate. We find no merit in this contention.

(6) Arbitration agreements which are a part of con-

tracts evidencing interstate commerce are governed by

7a

section 2 of the Federal Arbitration Act.! “ ‘Section 2 is a

congressional declaration of a liberal federal policy favor-

ing arbitration agreements, notwithstanding any state

substantive or procedural policies to the contrary. The

effect of the section is to create a body of federal substan-

tive law of arbitrability, applicable to any arbitration

agreement within the coverage of the Act.’” (Perry v.

Thomas (1986) 482 U.S. 483, 489 [96 L.Ed.2d 426, 435, 107

S.Ct. 2520], quoting Moses H. Cone Hospital v. Mercury

Constr. Corp. (1983) 460 U.S. 1, 24 [74 L.Ed.2d 765, 785, 103

S.Ct. 927].) By enacting section 2, “’ .. . Congress declar-

ed a national policy favoring arbitration and withdrew

the power of the states to require a judicial forum for the

resolution of claims which the contracting parties agreed

to resolve by arbitration.’” (Perry v. Thomas, supra, 482

U.S. at p. 489 [96 L.Ed.2d at p.435], quoting Southland

Corp. v. Keating (1984) 465 U.S. 1, 10 [79 L.Ed.2d 1, 12, 104

S.Ct. 852].) The act reflects “Congress’ intent to provide

for the enforcement of arbitration agreements within the

full reach of the Commerce Clause.” (Perry v. Thomas,

supra, 482 U.S. at p. 490 [96 L.Ed.2d at p. 436].) The duty

to enforce arbitration agreements under the Federal Arbi-

tration Act is not diminished when a party to the arbitra-

tion agreement raises a claim based on statutory rights.

1 Section 2 of 9 United States Code provides in pertinent

part: “A written provision in . . . a contract evidencing a

transaction involving commerce to settle by arbitration a con-

troversy thereafter arising out of such contract or transaction,

or the refusal to perform the whole or any part there-

of, .. . shall be valid, irrevocable, and enforceable, save upon

such grounds as exist at law or in equity for the revocation of

any contract.”

8a

(See Shearson/American Express Inc. v. McMahon (1987) 482

U.S. 220, 226-227 [96 L.Ed.2d 185, 193-194, 107 S.Ct. 2332]

[concerning arbitrability of claims under Securities Ex-

change Act of 1934 and the Racketeer Influenced and

Corrupt Organizations Act (RICO)].)

Perry concerned the arbitrability of a dispute over

commissions from the sale of securities. As in the instant

case, the former employee of a securities broker had

executed a U-4 form in connection with his employment.

The arbitration provision of the U-4 in Perry contained

exactly the same language as the arbitration provision

here. The former employee challenged the arbitrability of

the dispute on the ground that section 229 of the Labor

Code authorized the maintenance of his action notwith-

standing an agreement to arbitrate. (Perry v. Thomas, su-

pra, 482 U.S. at pp. 484-486 [96 L.Ed.2d at pp. 432-433].)

The United States Supreme Court held that, under

the Supremacy Clause (U.S. Const., art. VI, cl. 2), section

2 of the Federal Arbitration Act preempts a California

statute providing for the maintenance of wage collection

actions “without regard to the existence of any private

agreement to arbitrate.” (See Lab. Code, § 229.) The high

court reasoned that the federal and state statutes were in

direct conflict; accordingly, the state statute must give

way. (Perry v. Thomas, supra, 482 U.S. at pp. 490-491 [96

L.Ed.2d at pp. 435-436].)

(5b) Baker’s claim for overtime pay, even if based’

on a statutory right, is subject to arbitration. The broad

language of the arbitration agreement here and the strong

federal policy favoring arbitration of such agreements

mandate the arbitrability of her claim. The U-4 arbitration

ee ee ee Oa Oe eee

9a

provision set forth the parties’ agreement to arbitrate any

dispute or claim between Baker and Fidelity, as set forth

in the rules of the organization with which she registered.

The NYSE rule 347 requires arbitration of any employ-

ment-related controversy between a registered represen-

tative and a member of the exchange. Like the U-4

arbitration provision in Perry, the arbitration agreement

here is governed by the Federal Arbitration Act and the

policies behind it.

Baker states that her right to overtime pay is not based

on any contractual right but has been conferred upon her

by the Legislature. (See Lab. Code, § 510; Aubry v. Goldhor

(1988) 201 Cal.App.3d 399, 404 [247 Cal.Rptr. 205].) There-

fore, she argues, her overtime pay claim is independent

of any employment-related claim and may not be waived

by an agreement to arbitrate. We disagree. Construction

of the valid arbitration agreement presented here is gov-

erned by section 2 of the Federal Arbitration Act which

favors strongly the enforcement of such agreements. The

Federal Arbitration Act preempts our state law in this

area.

Baker’s reliance on Barrentine v. Arkansas-Best Freight

System (1981) 450 U.S. 728 [67 L.Ed.2d 641, 101 S.Ct.

1437], for the proposition that wage claims based on a

statutory right are not subject to arbitration, is misplaced.

The Barrentine court held that rights which devolve upon

employees as individual workers, and not as members of

a union, are independent of the collective bargaining

process and are not waivable by an agreement to arbi-

trate. The statutorily based rights at issue in Barrentine

arose from the Fair Labor Standards Act (FLSA) (29

U.S.C. § 201). “While courts should defer to an arbitral

10a

decision where the employee’s claim is based on rights

arising out of the collective-bargaining agreement, differ-

ent considerations apply where the employee’s claim is

based on rights arising out of a statute designed to pro-

vide minimum substantive guarantees to individual

workers.” (Barrentine v. Arkansas-Best Freight System, su-

pra, 450 U.S. at p. 737 [67 L.Ed.2d at p. 651].) The court

noted the tension between the national labor policy favor-

ing collective bargaining, as reflected in the National

Labor Relations Act of 1935 (the Taft-Hartley Act) (29

U.S.C. § 151 et seq.) and the national labor policy guaran-

teeing specific substantive rights to individual employ-

ees, the FLSA. While strong national labor policy

supports collectively bargained dispute resolution pro-

cedures for disputes arising out of the collective bargain-

ing process, FLSA rights have consistently been held to

. be nonwaivable because of the importance of the rights

guaranteed. (Id. at p. 740 [67 L.Ed.2d at pp. 653-654].)

The Barrentine court reasoned that a FLSA claim to

minimum wage or overtime could be lost if submission to

arbitration precluded an independent FLSA suit. First,

the court considered the possibility that a union may

reasonably and in good faith decide not to pursue vigor-

ously a member’s FLSA claim in the arbitration process.

Second, even if the union pursued strongly the wage

claim, the employee’s statutory rights may still suffer at

the hands of an arbitrator unfamiliar with the complex

nature of a FLSA claim. (Jd. at pp. 742-743 [67 L.Ed.2d at

p. 655].) Additionally, the Barrentine court emphasized

that an arbitrator may be powerless to grant an aggrieved

employee the full range of relief which is authorized by

lla

the FLSA inasmuch as the arbitrator is limited by the

terms of the collective bargaining agreement.

Barrentine is readily distinguishable from the instant

case. In the first instance, Barrentine did not involve the

preemption of a state statute by a conflicting federal

statute. The conflict in Barrentine concerned the compet-

ing interests under two federal statutes.

Moreover, the court’s rationale for determining the

nonarbitrability of FLSA claims is not present in the case

here. As collective bargaining does not come into play in

the instant case, there is no concern about a union’s less

than vigorous pursuit of Baker’s claim in the arbitration

process. She would have complete control over the pre-

sentation and advocacy of her overtime claim in arbitra-

tion. Second, any potential complexity in an overtime pay

claim, standing alone, does not suffice to counter the

strong policies behind the Federal Arbitration Act favor-

ing arbitration of this dispute. (See Mitsubishi Motors v.

Soler Chrysler-Plymouth (1985) 473 US. 614, 633 [87

L.Ed.2d 444, 459, 105 S.Ct. 3346].) Finally, unlike the FLSA

claim at issue in Barrentine, under the broad language of

rule 347, as read into the U-4 form here, an arbitrator is

empowered to grant Baker the relief requested, if war-

ranted.

Resolution of Baker’s overtime pay claim by arbitra-

tion does not deprive her of her substantive rights. It only

changes the forum in which they will be resolved. (See

Mitsubishi Motors v. Soler Chrysler-Plymouth, supra, 473

U.S. at p. 628 [87 L.Ed.2d at p. 456].)

12a

The judgment is affirmed.

White, PJ., and Barry-Deal, J., concurred.

13a

APPENDIX B

ORDER DENYING REVIEW

AFTER JUDGMENT BY THE COURT OF APPEAL

First Appellate District, Division Three,

No. A045093 S013994

IN THE SUPREME COURT OF THE

STATE OF CALIFORNIA

IN BANK

Filed MAR 15 1990

NANCY JANE BAKER, Petitioner

V.

CALIFORNIA STATE LABOR COMMISSIONER,

Respondent

FIDELITY BROKERAGE SERVICES INCORPORATED,

Real Party In Interest

Petition for review DENIED.

LUCAS

Chief Justice