Since the 1991 Supreme Court case, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, the Supreme Court has steadily broadened the use of the arbitration in the employment context. In Gilmer, the Supreme Court confirmed that the Federal Arbitration Act (“FAA”) permitted mandatory arbitration of civil rights claims in the workplace.
The high point for use of arbitration clauses in the workplace came in the 2001 Supreme Court ruling involving sexual harassment, Circuit City Stores Inc. v. Adams. In Circuit City, the Supreme Court limited an exclusion clause in the FAA so that the FAA applies to most employees. In Circuit City, the district court and the Ninth Court of Appeals found that the FAA did not apply because to the employment lawsuit because of a broad reading of an exclusion clause in the FAA. Pursuant to this clause, the FAA does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce.” These courts held that any employee in interstate commerce could be covered by this exclusion clause.
Then, on appeal, in a 5-4 opinion, the Supreme Court narrowly interpreted this clause. The Supreme Court decided that this exemption was limited solely “to transportation workers” and all other workers could be forced to take their claims to arbitration. This Supreme Court decision changed the views of employers unsure if arbitration was appropriate in their workplace. Accordingly, use of arbitration clauses in the employment context have surged.
Now, because of concern about due process and a potential bias towards employers in arbitration, some state legislatures and courts, as well as other organizations have sought to slow the widespread use of employment arbitration. In addition, there is concern that because of the privacy surrounding arbitration, employees and authorities cannot learn about serial harassers. However, because of the of Circuit City case, any state law cannot invalidate arbitrate agreement altogether. To get around this, California’s law makes it illegal for an employer to revoke a job offer or retaliate against an employee who chooses not to sign a compulsory arbitration agreement. However, once an employee freely chooses to sign the arbitration agreement, it will probably be enforced. Until the Federal Government passes and enacts a law such as the Forced Arbitration Injustice Repeal (FAIR) Act passed by the United States House of Representatives, the Circuit City holding is the rule of the land and California’s approach may be the only way to limit the use of compulsory employment arbitration.