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Circuit City Stores, Inc. V. Adams*

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Circuit City Stores, Inc. V. Adams* RECENT DEVELOPMENTS Circuit City Stores, Inc. v. Adams* I. NTRODUCTION Employers need no longer worry that the arbitration agreements they include in contracts of employment will be subject to attack) In Circuit City v. Adams,2 the Supreme Court definitively stated that the Federal Arbitration Act (FAA)3 covers binding arbitration clauses in employment contracts, even if the clauses require arbitration of statutory claims.4 The FAA 5 was passed in 1925 to legitimize arbitration as a dispute resolution mechanism and to compel parties who have entered into an arbitration agreement, but who attempt to sue, to resolve their disputes through arbitration.6 To ensure continuity in the enforcement of arbitration agreements, the FAA preempts state laws hostile to arbitration.7 Until now, the precise scope of the FAA's coverage of employment contracts was unknown because of the ambiguous language in the statute's section 1 exemption provision. This exemption provision delineates the types of contracts that are not covered by the FAA, causing the arbitration provision within the contract to be unenforceable. Before Circuit City, the debate over FAA coverage of contracts of employment turned on the meaning of the phrase "engaged in commerce" in section 1. Section 1 states, "nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of ' 8 workers engaged in interstate commerce. With the exception of the Ninth Circuit,9 all federal circuit courts of appeals that have interpreted the FAA's section 1 exemption language have held that it exempts only employment contracts of workers actually engaged in the transport *121 S. Ct. 1302 (2001). 1See David G. Savage, Justice in Job Disputes: With MandatoryArbitration Ok'd, the Focus Shifts to Making Sure It'sFair, 87 A.B.A. J., May2001, at 30 (stating that employers are now free to require arbitration of all employment claims). 2 Circuit City Stores, Inc. v. Adams, 121 S. Ct. 1302 (2001). 3Federal Arbitration Act, 9 U.S.C. §§ 1-16 (2000). 4Circuit City, 121 S.Ct. at 1302 59 U.S.C. §§ 1-16. 6 Holland & Hart, High Court Holds Worker to Signed Agreement, 6 Wyo. EMP. LAW LETrER (M. Lee Smith Publishers LLC, Brentwood, Tenn.), June 2001, at 7. 7Circuit City, 121 S. Ct. at 1307. 89 U.S.C. § 1. 9Circuit City Stores, Inc. v. Adams, 194 F.3d 1070 (9th Cir. 1999). OHIO STATE JOURNAL ON DISPUTE RESOLUTION [Vol. 17:1 20011 of goods in interstate commerce.10 With its decision in Circuit City,'1 the Supreme Court has finally interpreted the language in the section 1 exemption provision of the FAA, a task it declined to do in its 1991 decision in Gilmer v. Interstate/Johnson Corp.12 As a result of the Circuit City decision, the FAA covers employment contracts of all workers other than transportation workers. II. FACTS AND PROCEDURAL HISTORY Saint Clair Adams applied for a job with Circuit City Stores, Inc. in October 1995.13 To be considered for employment, Adams was required to sign an agreement to arbitrate all claims or disputes arising out of his employment.' 4 Two years after his employment commenced, Adams filed an employment discrimination suit in California state court.15 In turn, Circuit City filed suit in the United States District Court in the Northern District of California to enjoin Adams' state court action and to compel Adams to arbitrate the claim because of the mandatory arbitration contract he signed as part of his employment application. 16 Circuit City relied on the fact that the FAA's intended purpose is to 17 provide judicial enforcement of a wide range of written arbitration agreements. The United States District Court granted Circuit City's motion for injunctive relief and its motion to compel Adams to arbitrate his employment discrimination claim.' 8 Adams appealed the decision to the Ninth Circuit Court of Appeals, which decided that the FAA does not cover any contracts of employment.' 9 Circuit City appealed the decision to the Supreme Court, which granted certiorari on the issue of whether the FAA's section 1 exemption provision excludes all 20 employment contracts from the FAA's coverage. 10 See Circuit City, 121 S. Ct. at 1306-07 (listing many of the appellate cases that have concluded that employment contracts are not excluded from the coverage of the FAA). I I Id. at 1302. 12 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 n.2 (1991). The Court upheld an arbitration provision in securities regulation literature that required arbitration of an ADEA claim. The Court declined to interpret section 1 of the FAA because the arbitration provision at issue was not in a contract of employment. 13 Circuit City, 121 S. Ct. at 1306. 14 Id. 15 Id. 16 Id. 17 Id. at 1307. 18 Circuit City Stores, Inc. v. Adams, No. C98-0365 CAL, 1998 U.S. Dist. LEXIS 6215, at *2 (N.D. Cal. May 1, 1998). 19 Circuit City Stores, Inc. v. Adams, 194 F.3d 1070, 1071 (9th Cir. 1999). 20 Circuit City, 121 S. Ct. at 1306-07. CIRCUIT CITY STORES, INC. V. ADAMS III. THE COURT'S HOLDING AND REASONING The Supreme Court-held that the FAA's section 1 exemption provision expressly exempts from FAA coverage only seamen, railroad employees, or workers "actually engaged in the movement of goods in interstate commerce."21 Thus the Court reversed the Ninth Circuit's determination that all employment contracts are exempt from FAA coverage. The Court reached its holding by comparing the exemption language in section 1 with the coverage language in section 2, by relying on the ejusdem generis canon of statutory construction, and by acknowledging and deferring to precedent. A. Statutory Language Comparisonof Section I and Section 2 The Court compared the language of section. 1 and section 2 to support its holding. Section 2 of the FAA states that "a written provision in... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract... shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract."2 2 The Court rejected Adams' argument that the section 1 exemption applies to all contracts of employment, because such reasoning would make the exemption language in section 1 superfluous.2 3 The Court reasoned that if all contracts of employment were exempt from the coverage of the FAA, then there would be no need for the special exemption provision in section 1.24 B. Ejusdem Generis and Statutory Construction To further support its holding, the Court relied on the ejusdem generis canon of statutory construction.25 This doctrine provides that general words that follow specific words should be construed to apply to objects similar to those in the preceding specific words.26 Therefore, the general phrase "any other class of workers engaged in interstate commerce" specifically refers only to seamen and railroad or transportation workers, so the entire clause means that only contracts 21 Id. at 1307 (quoting Cole v. Bums Int'l Sec. Servs., 105 F.3d 1465, 1471 (D.C. Cir. 1997)). 22 Federal Arbitration Act, 9 U.S.C. § 2 (1994). 23 CircuitCity, 121 S. CL at 1308. 24 Id 25 Id 26 Id.at 1308-09. OHIO STATE JOURNAL ON DISPUTE RESOLUTION [Vol. 17:1 20011 of workers engaged in actual transport of goods in interstate commerce are exempt from FAA coverage. C. The Court'sReliance on Precedent In devising its holding, the Court was conscious that acceptance of Adams' interpretation of the FAA would be inconsistent with Gilmer v. Interstate/Johnson Lane Corp.,27 in which the Court enforced an arbitration provision in securities regulation literature based on the section 2 coverage language. The Court also wanted to maintain a holding consistent with Allied-Bruce Terminix Cos. v. Dobson,28 in which it broadly interpreted the meaning of the section 2 coverage provision. IV. THE IMPACT OF THE COURT'S HOLDING What is noteworthy about the Circuit City decision is that the Supreme Court finally expressly upheld a contract providing for the use of mandatory arbitration for resolving statutory employment discrimination claims.29 The decision acts almost as an express authorization for employers to include mandatory binding arbitration provisions in their employment contracts. In reality, the holding in Circuit City may be less than controversial for many reasons. The decision does not alter the law as lower courts have interpreted it since the Gilmer decision in 1991.30 In addition, the decision does not address many key issues surrounding arbitration of statutory claims. Finally, while the decision could benefit employers and harm employees, as many commentators have suggested, there may not be any real practical effect from the decision. Perhaps the greatest result from the decision may be found if congressional response stems from it. 27 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The Court held that the section 2 coverage provision of the FAA required the arbitration of an age discrimination claim. 28 Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265 (1995). The Court decided that the section 2 words "involving commerce" represented Congress' intent to exercise it commerce power in full. Id. at 277. 29 Circuit City, 121 S.Ct. at 1313. 30 Practitioners Dispute Viability of Arbitration Clauses After Randolph, Adams, 4 CONSUMER FIN. SERVS. L. REP. (LRP Publications, Alexandria, Va.), Apr. 30, 2001, LEXIS, Nexis Library, Combined Legal Newsletters File [hereinafter CONSUMER FIN.]; see also supra note 12 and accompanying text [hereinafter CONSUMER FINANCIAL].
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