The Court vastly expands the reach of the FAA beyond the commercial context to include almost all contracts of employment.

Comments Off on The Court vastly expands the reach of the FAA beyond the commercial context to include almost all contracts of employment.

Circuit City Stores, Inc. v. Adams, 523 U.S. 105 (2001)
 

Relevant Facts: A man filled out a job application to work at a big-box electronics retailer, and was hired. The fine print at the bottom of the company’s job application contained a forced arbitration clause. Two years later, the employee pursued a discrimination claim under state law. Citing the FAA, the company invoked the forced arbitration clause to move the claim out of court.

 

Question Before The Court: Whether the reach of the FAA extends beyond commercial contracts to include most contracts of employment.

 

The Opinion: §1 of the FAA excludes from the Act’s coverage “contracts of employment of seamen, railroad employees, or any class of workers engaged in foreign or interstate commerce.” Applying a general rule of statutory construction, the Court held that, rather than exclude employment contracts from the FAA, “the better interpretation is to construe the statute . . . to confine the exemption to transportation workers.” To hold that the clause exempted all workers from the FAA, in the Court’s opinion, would be to render the specific reference to seamen and railroad workers superfluous. As a result, according to the Court, most non-transportation employment contracts containing an arbitration clause are subject to the FAA.

 

The Court rejected the argument that applying the FAA to most employment contracts would infringe on the traditional role played by states to regulate the employment relationship, including the passage of “state employment laws which restrict or limit the ability of employees and employers to enter into arbitration agreements.” Instead, the Court re-iterated its position in Southland that “Congress intended the FAA to apply in state courts and to preempt state antiarbitration laws to the contrary. . . The Court should not chip away at Southland by indirection, especially by adoption of the variable interpretation theory advanced by the respondents in the instant case [which argued for interpreting the statute in light of the extent of the legislature’s commerce clause power at the time of the law’s passage].”

 

With this case, the Court opened the floodgates on forced arbitration clauses in employment contracts. It is worth noting that the employer in this case raised the argument that the job application did not actually constitute an employment contract in its petition for certiorari, but the Court declined to rule on that point. The opinion in this case, then, is implicitly premised on the fact that the arbitration clause in the job application constituted a valid and enforceable contract.

 

After this ruling, with extremely limited exception, employers became free to require pre-dispute arbitration agreements—forced arbitration clauses—as a condition of employment, and they have done so with rapidity. Through job applications, employee handbooks, and other adhesive employment documents, over 60 million workers are now bound by forced arbitration clauses.

© 2016 Employees Rights Advocacy. All Rights Reserved.