Contemporary Business and Online Commerce Law 7th Edition by Henry R Cheeseman

Exercise 1

U.S. SUPREME COURT Arbitration

Circuit City Stores, Inc. v. Adams

532 U.S. 105,121 S.Ct. 1302,149 L.Ed.2d 234, Web 2001 U.S. Lexis 2459 (2001) Supreme Court of the United States

“Congress enacted the Federal Arbitration Act (FAA) in 1925. The FAA was a response to hostility of American courts to the enforcement of arbitration agreements.”

—Justice Kennedy

Facts

Saint Clair Adams was hired as a sales counselor by Circuit City Stores, Inc., a national retailer of consumer electronics. Adams signed an employment contract that included the following arbitration clause:

I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out of or 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, the Americans with Disabilities Act, the law of contract and the law of tort.

Two years later, Adams filed an employment discrimination lawsuit against Circuit City in court. Circuit City sought to enjoin the court proceeding and to compel arbitration, pursuant to the FAA. The U.S. District Court granted Circuit City’s request. The U.S. Court of Appeals reversed, holding that employment contracts are not subject to arbitration. Circuit City appealed to the U.S. Supreme Court.

Issue

Are employment contracts subject to arbitration if a valid arbitration agreement has been entered into between the parties?

Language of the U.S. Supreme Court

Congress enacted the Federal Arbitration Act (FAA) in 1925. The FAA was a response to hostility of American courts to the enforcement of arbitration agreements. To give effect to this purpose, the FAA compels judicial enforcement of a wide range of written arbitration agreements. The FAA’s coverage provision, Section 2, provides that “a written provision in any 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, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. ”

Decision

The U.S. Supreme Court held that employment contracts, including the one in this case between Circuit City and Adams, are subject to arbitration if a valid arbitration agreement has been executed. The Supreme Court reversed the decision of the Court of Appeals and remanded the case for further proceedings.

Case Questions

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Critical Legal Thinking What is arbitration? What does the Federal Arbitration Act provide?

Ethics Is it ethical for employers to include arbitration clauses in employment contracts? Or should employers face judicial litigation? Explain.

Contemporary Business Who do you think benefits most from arbitration clauses in employment contracts: employers or employees? Why?