WealthManagement Magazine

Employees Bound by Arbitration Agreements, Supreme Court Says

The U.S. Supreme Court yesterday made clear that employees are bound by agreements to arbitrate employment disputes. The case, Circuit City Stores v. Adams, involved a retail clerk who had to sign an arbitration agreement as a condition of employment. A 5-4 majority in the court held that the Federal Arbitration Act (FAA) applied to employment agreements as well as other commercial contracts. The

The U.S. Supreme Court yesterday made clear that employees are bound by agreements to arbitrate employment disputes.

The case, Circuit City Stores v. Adams, involved a retail clerk who had to sign an arbitration agreement as a condition of employment. A 5-4 majority in the court held that the Federal Arbitration Act (FAA) applied to employment agreements as well as other commercial contracts. The FAA generally requires that arbitration agreements be upheld.

Registered reps will be impacted by the case. As a condition of becoming registered, brokers must agree to arbitrate employment disputes at a self-regulatory organization.

Federal courts have split over whether brokers and other employees must arbitrate disputes.

In the Circuit City decision, the court relied on its past decisions, as well as the particular placement of language within the FAA that exempts “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The court held that the “any other class” language referred only to transportation workers.

Dissenting justices disagreed with that reading of the statute. Justice John Paul Stevens, in dissent with Justices Ruth Bader Ginsburg and Steven Breyer, wrote, “History amply supports the proposition that … no one interested in the enactment of the FAA ever intended or expected that [it] would apply to employment contracts.”

The “any other class” language was intended to eliminate union opposition to the FAA when it was passed in 1925, the dissenting justices said.

Editor's note: For any comments regarding this article, or to suggest a story idea for RR Online or Registered Representative magazine, contact Editor in Chief Dan Jamieson at [email protected], Online Editor Rick Weinberg at [email protected], Online Managing Editor Cheryl Cooper at [email protected] or Senior Editor Michael Hayes at [email protected]

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