Originally from Employment Arbitration - 2nd Edition

The Employment Contract Exclusion (FAA §1)

Thomas E. Carbonneau

On March 21, 2001, the U.S. Supreme Court issued its landmark ruling in Circuit City Stores, Inc. v. Adams. The Court held that the so-called employment contract exclusion in Section One of the Federal Arbitration Act (FAA) applies only to the employment contracts of workers directly involved in the interstate transport of good and services. Employers, therefore, could require all other employees to submit employment-related disputes to arbitration. The Court reversed the Ninth Circuit holding that the language in FAA §1 exempted all employment contracts from the FAA’s scope of application.

The Court began its analysis by citing the gravamen of the FAA. It stated that the FAA was enacted by Congress to eliminate the “hostility of American courts to the enforcement of arbitration agreements” and thereby to compel “judicial enforcement of a wide range of written arbitration agreements.” Section 2 of the FAA, the Court further declared, provided for the enforceability of any “written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafters arising out of such contract or transaction.” In Allied-Bruce, the Court interpreted Section 2 as “implementing Congress’ intent to exercise its commerce power to the full.” Section 1, therefore, only exempted “‘contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce’” from the FAA’s scope of application.