Supreme Court Decides Employment Case in Favor of Arbitration

Article excerpt

The U.S. Supreme Court in Circuit City Stores v. Adams has ruled that in addition to seamen and railroad workers, only contracts of employment for transportation workers are exempt from the Federal Arbitration Act. The 5-4 majority, which included Justice Anthony M. Kennedy, who wrote the decision, Chief Justice William Rehnquist, and Justices Sandra Day O'Connor, Antonin Scalia, and Clarence Thomas, gave a narrow reading to the exemption in Section 1 of the Act for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

The Court emphasized that there are real benefits to the enforcement of employment arbitration agreements, saying, "We have been clear in rejecting the supposition that the advantages of the arbitration process somehow disappear when transferred to the employment context.... Arbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation, which often involves smaller sums of money than disputes concerning commercial contracts. These litigation costs to parties (and the accompanying burden to the courts) would be compounded by the difficult choice-of-law questions that are often presented in disputes arising from the employment relationship..."

Making the Case

The Circuit City case commenced when St. Clair Adams began an employment discrimination lawsuit in California state court against his employer, Circuit City Stores. The company sued in federal court to stop Adams' suit and compel arbitration under the FAA based on the arbitration clause in the employment application Adams signed. The company obtained the relief it requested. Adams appealed to the 9th Circuit, which ruled that the arbitration clause was not enforceable because the FAA did not apply to contracts of employment. The Supreme Court granted Circuit City's petition for review.

First Adams argued that it was not necessary to even consider Section 1 to find contracts of employment outside the scope of the FAA. He contended that Section 2 (which makes an arbitration clause in "a contract evidencing a transaction involving commerce" enforceable under the FAA), in its use of the word "transaction," indicates that the FAA was intended to apply only to commercial contracts. But the Court said this argument "proves too much. …