Arbitration Binding

Section 1 ofthe Federal Arbitration Act (FAA) excludes from the Act?s coverage ?contracts of em-ployment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.? All but one ofthe Courts ofAppeals which have addressed the issue interpret this provision as exempting contracts of employment of transportation workers, but not other employment contracts, from the FAA?s coverage. A different interpretation has been adopted by
the Court ofAppeals for the Ninth Circuit, which construes the exemption so that all contracts of employment are beyond the FAA?s reach, whether or not the worker is engaged in transportation.

It applied that rule to the instant case. We now decide that the better interpretation is to construe the statute, as most of the Courts ofAppeals have done, to confine the exemption to transportation workers. In October 1995, respondent Saint Clair Adams applied for a job at petitioner Circuit City Stores, Inc., a national retailer of consumer electronics. Adams signed an employment application which included the following provision:?I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out ofor relating to my application or candidacy for employment, employment and/or cessation of employment with Circuit City, exclusively by final and binding arbitration before a neutral Arbitrator. By way of example only, such claims include claims under federal, state, and local statutory or common law, such as the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans with Disabilities Act, the law ofcontract and the law oftort.?Adams was hired as a sales counselor in Circuit City?s store in Santa Rosa, California.

Two years later, Adams filed an employment discrimination lawsuit against Circuit City in state court, asserting claims under California?s Fair Employment and Housing Act, and other claims based on general tort theories under California law. Circuit City filed suit in the United States District Court for the Northern District of California, seeking to enjoin the state-court action and to compel arbitration of respondent?s claims pursuant to the FAA. The District Court entered the requested order. Respondent, the court concluded, was obligated by the arbitration agreement to submit his claims against the employer to binding arbitration. An appeal followed.

While respondent?s appeal was pending in the Court of Appeals for the Ninth Circuit, the court ruled on the key issue in an unrelated case. The court held the FAA does not apply to contracts of employment. In the instant case, following the rule announced in Craft, the Court of Appeals held the arbitration agreement between Adams and Circuit City was contained in a ?contract ofemployment,? and so was not subject to the FAA. Circuit City petitioned this Court, not-

ing that the Ninth Circuit?s conclusion that all employment contracts are excluded from the FAA conflicts with every other Court ofAppeals to have addressed the question. We granted certiorari to resolve the issue. Congress enacted the FAA in 1925. As the Court has explained, the FAA was a response to hostility ofAmerican courts to the enforcement of arbitration agreements, a judicial disposition
inherited from then-longstanding English practice. To give effect to this purpose, the FAA compels judicial enforcement of a wide range of written arbitration agreements. The FAA?s coverage provision, ? 2, provides that?[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 transaction, 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
enforceable, save upon such grounds as exist at law or in equity for the revocation of
any contract.?
In sum, the text of the FAA forecloses the construction of ? 1 followed by the Court of Appeals in the case under review, a construction which would exclude all employment contracts from the FAA.
When the FAA was adopted, moreover, grievance procedures existed for railroad employees under federal law, and the passage of a more comprehensive statute providing for the mediation and arbitration ofrailroad labor disputes was imminent, see Railway Labor Act of1926. It is reasonable to assume that Congress excluded ?seamen? and ?railroad employees? from the FAA for the simple reason that it did not wish to unsettle established or developing statutory dispute resolution schemes covering specific workers.
As for the residual exclusion of?any other class of workers engaged in foreign or interstate commerce,? Congress? demonstrated concern with transportation workers and their necessary role in the free flow of goods explains the linkage to the two specific, enumerated types of workers identified in the preceding portion ofthe sentence. It would be rational for Congress to ensure that workers in general would be covered by the provisions of the FAA, while reserving for it self more
specific legislation for those engaged in transportation. Indeed, such legislation was soon to follow,with the amendment of the Railway Labor Act in 1936 to include air carriers and their employees.
By requiring arbitration agreements in most employment contracts to be covered by the FAA, the statute in effect pre-empts those state employment laws which restrict or limit the ability of employees and employers to enter into arbitration agreements. It is argued that States should be permitted, pursuant to their traditional role in regulating employment relationships, to
prohibit employees like respondent from contracting away their right to pursue state-law discrimination claims in court.

Furthermore, for parties to employment contracts not involving the specific exempted categories set forth in ? 1, it is true here, that there are real benefits to the enforcement of arbitration provisions. 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, and the necessity of bifurcation of proceedings in those cases where state law precludes arbitration of certain types of employment claims but not others. The considerable complexity and uncertainty that the construction of ? 1urged by respondent would introduce into the enforceability of arbitration agreements in employment contracts would call into doubt the efficacy of alternative dispute resolution procedures adopted by many of the Nation?s employers, in the process undermining the FAA?s proarbitration purposes and ?breeding litigation from a statute that seeks to avoid it.? The Court has been quite specific in holding that arbitration agreements can be enforced under the FAA with out contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law; ?by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.?

For the foregoing reasons, the judgment of the Court of Appeals for the Ninth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.

Judgment for Circuit City.

The U.S. Supreme Court stated that employees? claims based on federal statutes may be subject to mandatory arbitration.

*******Case Questions

1. Are you in favor of the Court?s decision?

2. Are the statutory rights of employees adequately protected through arbitration?

3. Was there any merit to the reasoning of the Ninth Circuit Court?

4. What about an employee?s right to a jury trial?
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