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A Legal History of Work Place Arbitration: The Gilmer and Circuit City Precedents

Wednesday, December, 19, 2012


In 1925, Congress passed the first Federal Arbitration Act, requiring judicial enforcement of arbitration agreements between commercial enterprises and their employees.  In the wake of this legislation, arbitration became a method some businesses used to resolve workplace disputes that arise, although its prevalence at that point wasn’t nearly as high as it is in today’s business practices. 

One reason for the time it took for this legislation to become mainstream is that before 1991, the risks and costs associated with litigation in work place disputes was considered minimal.   Another reason was lingering doubt as to the true enforceability of such agreements, even if they were part of the contractual relationship between and employer and employee. 

In 1991, however, several rulings provided the incentive for more companies to adopt arbitration as their most common way of handling work place disputes.  In Gilmer vs. Interstate/Johnson Lane, the Supreme Court ruled that arbitration was binding when used to resolve employment claims, including claims of discrimination.  That same year, Congress passed the Civil Rights Act of 1991, a piece of legislation that included the following phrase: “When appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including. . . arbitration, is encouraged to resolve disputes arising under the Acts or provisions of federal law amended by this title.”

Then, ten years later, in 2001, the Supreme Court’s decision in Circuit City Stores, Inc. vs. Adams held that arbitration contracts signed by most employees were under the umbrella of the FAA.  The only employees who were exempt were seamen, railroad employees and other transportation workers.  In that decision, the Supreme Court praised the benefits of arbitration, including its ability to help lower the costs associated with resolving work place disputes.