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Arbitration Lesson #6 - History part 4
July 13, 2006 by Ross Runkel at LawMemo

What has the US Supreme Court said about applying the Federal Arbitration Act (FAA) to individual arbitration agreements between employers and employees?

The Supreme Court decided its first employer-employee FAA case In 1991 - Gilmer v. Interstate/Johnson Lane Corp, 500 U.S. 20 (1991). Robert Gilmer was employed in the securities industry, and his registration with the New York Stock Exchange provided that he would arbitrate any claim between himself and his employer. When Gilmer sued his former employer claiming a violation of the Age Discrimination in Employment Act (ADEA), the employer responded by asking the court to compel arbitration of the ADEA claim.

The Supreme Court held that Gilmer must arbitrate his ADEA claim.

After Gilmer, lower courts quickly began enforcing arbitration agreements in a wide variety of employment cases involving federal and state statutory claims and claims under state common law.

Gilmer did not decide one big question: Whether the FAA applies when the agreement to arbitrate is contained in a contract between an employer and employee. The Gilmer Court didn't need to decide that issue because Gilmer's arbitration agreement was contained in his NYSE registration rather than in an employment contract.

The FAA has a clause that excludes from its coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1.

The legal issue was whether the FAA's exclusion clause excluded all employment contracts, or only those involving transportation workers.

In 2001 the Supreme Court decided Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), holding that the FAA applies to contracts signed by most employees, and excludes from its coverage only the employment contracts of seamen, railroad employees, and other transportation workers. The Court split 5 to 4, interpreting this exclusion narrowly.

As a legal matter, the Gilmer and Circuit City decisions simply take a long-standing federal statute and apply it in the employment context. Although opponents of arbitration have a number of good arguments, the policy judgment was made by Congress in 1925: written agreements to arbitrate must be enforced by the courts. The practical results of the Supreme Court's decisions are more profound. Arbitration opponents have lost the major legal battles. The remaining legal issues are matters of detail, albeit important detail. The publicity given to the Supreme Court's decisions, together with the prestige that goes with that Court's imprimatur, have created a higher level of interest in arbitration as an alternative to litigation.

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