Circuit City Stores, Inc. v. Adams
Does the Federal Arbitration Act's Section 1 exemption for contracts of employment of 'seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce' apply narrowly to transportation workers only, or does it exempt all employment contracts from the FAA's reach?
The Decision
5-4 decision · Opinion by Anthony M. Kennedy · 2001
Majority Opinion— Anthony M. Kennedyconcurring ↓dissent ↓
In a 5–4 decision authored by Justice Anthony M. Kennedy, the Supreme Court reversed the Ninth Circuit and held that the FAA's Section 1 exemption applies only to transportation workers — not to all employment contracts. This meant that Adams's arbitration agreement with Circuit City was covered by the FAA and could be enforced.
The majority's reasoning relied heavily on a principle of statutory interpretation called ejusdem generis, a Latin phrase meaning 'of the same kind.' Under this principle, when a law lists specific examples followed by a general catch-all term, the general term should be interpreted to cover only things similar to the specific examples. Here, Section 1 specifically mentioned 'seamen' and 'railroad employees' — both categories of transportation workers — before using the broader phrase 'any other class of workers engaged in foreign or interstate commerce.' The Court concluded that this general phrase should be read to include only other classes of transportation workers, such as truckers or airline employees, rather than all workers everywhere.
The majority also argued that reading the exemption broadly to exclude all employment contracts would create serious practical problems with the statute's structure. If every employment contract were exempt, then a huge and important category of agreements would be carved out of the FAA entirely — a result the Court said Congress did not intend. The FAA was designed to overcome longstanding judicial hostility to arbitration and to put arbitration agreements on equal footing with other contracts. Exempting all employment contracts would undermine that core purpose.
Additionally, the majority addressed the meaning of the phrase 'engaged in commerce.' While acknowledging that Congress's power to regulate interstate commerce has expanded enormously since 1925, the Court noted that the specific phrase 'engaged in commerce' has historically been given a narrower meaning than the broader phrase 'affecting commerce.' The Court read 'engaged in commerce' as referring to workers who are actually involved in the flow of interstate commerce — that is, those who physically transport goods or people across state or national borders — rather than workers who merely have some connection to interstate economic activity.
The practical effect of this decision was sweeping. By holding that the FAA covers most employment contracts, the Court upheld the enforceability of mandatory arbitration clauses that millions of American employers include in their hiring paperwork. Workers like Adams who signed such agreements would generally be required to take their disputes to private arbitration rather than to court.
Concurring Opinions
There were no separate concurring opinions filed in this case; all five justices in the majority joined Justice Kennedy's opinion without writing separately.
Dissenting Opinions
John Paul Stevensjoined by Ruth Bader Ginsburg, Stephen G. Breyer, David H. Souter
Justice Stevens argued that the majority misread the statute and ignored its historical context. He contended that when the FAA was enacted in 1925, Congress understood 'engaged in commerce' broadly enough to encompass all employment contracts, and that the legislative history clearly showed Congress intended the FAA to apply to disputes between businesses — not to force individual workers into arbitration.
- The original proponents of the FAA, including the American Bar Association, explicitly assured Congress that the statute would not apply to employment contracts, and this understanding was essential to the bill's passage
- The phrase 'engaged in commerce' had a much broader meaning in 1925 than the majority acknowledged, and the Court should have interpreted the exemption in light of Congress's original intent rather than imposing a modern, artificially narrow reading
- The ejusdem generis canon is a guide to interpretation, not a rigid rule, and should not be used to override clear evidence of what Congress actually meant when it drafted the statute
- The majority's ruling would have the practical effect of allowing powerful employers to strip workers of their access to courts, which was exactly the outcome Congress sought to prevent when it included the Section 1 exemption
David H. Souterjoined by John Paul Stevens, Ruth Bader Ginsburg, Stephen G. Breyer
Justice Souter wrote separately to emphasize that even under a purely textual analysis — without looking at legislative history — the majority's narrow reading of the exemption was unjustified. He argued that the text itself supports a broader interpretation that would exclude all employment contracts.
- The phrase 'any other class of workers engaged in foreign or interstate commerce' is most naturally read as a broad residual category, and applying ejusdem generis too rigidly here distorts rather than clarifies the statute's meaning
- If Congress had wanted to limit the exemption to transportation workers, it could easily have said so explicitly, rather than using the expansive phrase 'any other class of workers'
Background & Facts
In 1995, Saint Clair Adams applied for a job as a sales counselor at a Circuit City electronics store in Santa Rosa, California. As part of the application process, Adams was required to sign a 'Dispute Resolution Agreement' — a standard condition of employment at Circuit City. This agreement stated that any and all employment disputes, including claims of discrimination, would be resolved through binding arbitration rather than through the court system. Adams signed the agreement and was hired.
Two years later, in 1997, Adams filed an employment discrimination lawsuit against Circuit City in California state court. He brought claims under California's Fair Employment and Housing Act, alleging discrimination. Circuit City responded by filing a lawsuit in federal district court, asking the judge to compel Adams to submit his claims to arbitration as he had agreed to do when he was hired. Circuit City relied on the Federal Arbitration Act (FAA), a 1925 federal law that generally makes arbitration agreements enforceable. The federal district court sided with Circuit City and ordered Adams to arbitrate his claims.
Adams appealed to the United States Court of Appeals for the Ninth Circuit, which reversed the district court's decision in a dramatic ruling. The Ninth Circuit held that the FAA did not apply to any employment contracts at all. The appeals court pointed to Section 1 of the FAA, which exempts 'contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.' The Ninth Circuit read the phrase 'any other class of workers engaged in foreign or interstate commerce' broadly — concluding it meant that all employment contracts were excluded from the FAA's coverage.
This created a significant split among the federal appeals courts. Most other circuits had interpreted Section 1's exemption narrowly, applying it only to workers in the transportation industry. Because this disagreement among the circuits had enormous practical consequences — millions of American workers had signed mandatory arbitration agreements as a condition of employment — the Supreme Court agreed to hear the case and resolve the conflict.
The Arguments
Circuit City argued that the FAA's Section 1 exemption applies only to workers directly involved in transporting goods across state lines or international borders — like seamen and railroad workers — and does not exempt all employment contracts. Because Adams was a retail sales associate, not a transportation worker, his arbitration agreement was fully enforceable under the FAA.
- The specific examples in Section 1 — 'seamen' and 'railroad employees' — are both categories of transportation workers, and under the well-established legal principle of ejusdem generis, the general catch-all phrase that follows should be limited to workers of a similar type
- Reading the exemption to cover all employment contracts would effectively render the FAA's broad pro-arbitration mandate meaningless in the employment context, contradicting the statute's purpose of making arbitration agreements widely enforceable
- The majority of federal appeals courts had already adopted the narrow reading, and Congress had not acted to change that interpretation, suggesting it was the correct one
Adams argued that when the FAA was enacted in 1925, Congress intended to exclude all employment contracts from the statute's reach. He contended that the phrase 'any other class of workers engaged in foreign or interstate commerce' was a broad residual clause meant to cover all workers, not just those in the transportation industry.
- At the time the FAA was passed in 1925, the phrase 'engaged in commerce' was commonly understood to encompass all workers whose employment touched interstate commerce, which by the modern era includes virtually everyone
- The legislative history of the FAA showed that the statute was designed primarily to enforce arbitration agreements between merchants and businesses, not to force individual workers to give up their right to sue their employers
- Reading the exemption narrowly to cover only transportation workers would leave most American employees without meaningful choice, as employers could simply make arbitration a non-negotiable condition of getting a job