Agreements to arbitrate workplace disputes are enforceable even if the employer required the worker to sign the agreement in order to be hired, the court said. Ruling 5-4 for Richmond, Va.-based Circuit City Stores, the justices said a gay former employee cannot sue over alleged harassment at work.
Arbitration has increasingly been used to resolve a wide variety of disputes including employment discrimination claims. Supporters of arbitration say it is less complicated and less expensive than a lawsuit.
But employees' advocates say the process can be tilted toward employers and that workers forfeit certain rights. Appeals often are limited, damages can be capped, and fact-finding can be restricted.
A number of federal appeals courts had ruled that employers could require arbitration of workplace disputes. But a San Francisco-based appeals court disagreed in 1999 and refused to enforce Circuit City's arbitration agreement.
When Saint Clair Adams went to work for the electronics retailer in Santa Rosa in 1995, he was required to sign a document agreeing to arbitrate "any and all claims, disputes or controversies" related to his employment with Circuit City.
In 1997, Adams sued Circuit City in California state court, saying he resigned after being repeatedly harassed at work because he is gay.
Circuit City asked a federal judge to rule that the 1925 Federal Arbitration Act required Adams to go to arbitration instead. The law makes commercial arbitration agreements enforceable in federal court.
However, the law contains an exception that was at the center of Wednesday's case. The arbitration law does not apply to employment contracts for "seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."
Circuit City contended that the exception from the arbitration-enforcement law was limited to workers actually involved in moving goods from one state to another.
But Adams' lawyers argued that the 9th U.S. Circuit Court of Appeals was correct in ruling that the exception swept much more broadly. The appeals court said the arbitration-enforcement law did not apply to employment or labor contracts at all.
The Supreme Court majority said the 9th Circuit interpretation is unworkable and would spawn more lawsuits instead of limiting them.
The phrase "engaged in commerce" should be read plainly and narrowly, Justice Anthony M. Kennedy wrote for himself, Chief Justie William H. Rehnquist and Justices Antonin Scalia, Clarence Thomas, and Sandra Day O'Connor.
Otherwise, the exception for certain classes of workers is meaningless, and the task of figuring out who is covered and who is not would be too complex, he wrote. A broad exception would "call into doubt the efficacy of alternative dispute resolution procedures adopted by many of the nation's employers, and in the process undermine" the Federal Arbitration Act, he wrote.
Justice John Paul Stevens wrote a dissenting opinion in which he accused the majority of "playing ostrich" to the legislative and historical context of the arbitration law and its consequences.
That history includes opposition to the arbitration law from organized labor, which feared it would force courts to enforce unfair labor contracts, Stevens wrote for himself and Justices Ruth Bader Ginsburg and Stephen J. Breyer. Justice David H. Souter filed a separate dissent.
While arbitration has since become a favored employment tool and the Supreme Court has previously strengthened its enforcement, the majority decision Wednesday resurrects the reasons labor feared arbitration enforcement in 1925, Stevens wrote.
"When the court simply ignores the interest of the unrepresented employee, it skews its interpretation with its own policy preferences," Stevens wrote.
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