Circuit City Stores, Inc. v. Adams
532 U.S. 105 (2001)
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Rule of Law:
Section 1 of the Federal Arbitration Act, which excludes from the Act's coverage 'contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,' is a narrow exemption limited to transportation workers only.
Facts:
- Saint Clair Adams applied for a position as a sales counselor at Circuit City Stores, Inc., a national retailer.
- As a condition of employment, Adams signed an application containing a provision that required him to settle all future employment-related disputes exclusively through final and binding arbitration.
- The arbitration provision explicitly covered claims under federal, state, and local statutory law, including discrimination and tort claims.
- Circuit City hired Adams.
- Approximately two years later, Adams, a California resident, wished to file an employment discrimination lawsuit against Circuit City based on California state law.
Procedural Posture:
- Saint Clair Adams filed an employment discrimination suit against Circuit City in California state court.
- Circuit City filed suit in the U.S. District Court for the Northern District of California, seeking to compel arbitration and enjoin the state court action.
- The U.S. District Court (trial court) granted Circuit City's motion, ordering the claims to be arbitrated.
- Adams, as appellant, appealed the District Court's decision to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit Court of Appeals reversed the District Court's order, holding that Section 1 of the FAA excludes all employment contracts from the Act's coverage.
- Circuit City, as petitioner, was granted a writ of certiorari by the U.S. Supreme Court to resolve a circuit split on the issue.
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Issue:
Does Section 1 of the Federal Arbitration Act exempt all contracts of employment from the Act's coverage?
Opinions:
Majority - Justice Kennedy
No. Section 1 of the Federal Arbitration Act (FAA) exempts only the employment contracts of transportation workers, not all employment contracts. The text of § 1 lists specific categories—'seamen' and 'railroad employees'—followed by a general residual phrase, 'any other class of workers engaged in foreign or interstate commerce.' Applying the statutory canon of ejusdem generis, the general phrase must be interpreted as being limited to the same class of workers as those specifically enumerated, which are transportation workers. This narrow reading is consistent with the FAA's overarching purpose to overcome judicial hostility to arbitration. Furthermore, the phrase 'engaged in commerce' is a term of art with a more limited scope than the phrase 'involving commerce' found in the FAA's general coverage provision in § 2, indicating Congress did not intend the exemption to be as broad as its Commerce Clause power. It was rational for Congress to exempt transportation workers, as it had already created specific federal dispute-resolution schemes for them.
Dissenting - Justice Stevens
Yes. The FAA was never intended to apply to any employment contracts. The legislative history clearly shows that the Act was designed to enforce commercial arbitration agreements, not labor agreements. The § 1 exemption was added specifically to allay the fears of organized labor that the Act might be misapplied to contracts of employment. The majority's narrow interpretation ignores this history and the significant disparity in bargaining power between individual employees and large employers, which was the very concern that prompted the exemption. The Court's decision essentially rewrites the statute to reflect its own strong policy preference for arbitration, contravening the original intent of the enacting Congress.
Dissenting - Justice Souter
Yes. The Court's interpretation is inconsistent and creates an incoherent reading of the statute. In Allied-Bruce Terminix Cos. v. Dobson, the Court gave the coverage provision of § 2 ('involving commerce') an expansive, elastic reading to reflect the modern understanding of the Commerce Clause. To be consistent, the exemption in § 1 ('engaged in... commerce') should receive a similarly evolutionary reading, thereby exempting all employment contracts that fall within Congress's modern commerce power. The canon of ejusdem generis should not apply because Congress likely listed seamen and railroad workers out of an abundance of caution (ex abundanti cautela) to avoid interfering with existing specific legislation, not to limit the scope of the general exemption that followed.
Analysis:
This decision dramatically expanded the application of the Federal Arbitration Act to the employment context by severely narrowing the scope of the § 1 exemption. It solidified the enforceability of mandatory, pre-dispute arbitration agreements for the vast majority of non-unionized American workers who are not directly engaged in the transportation of goods. As a result, many statutory claims, including those for discrimination, harassment, and wage violations, are now frequently channeled into private arbitration rather than public courts. The ruling has had a profound impact on employment law, favoring employers' ability to control the forum for dispute resolution and significantly limiting employees' access to jury trials.
