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In 1925, the Congress that adopted the Federal Arbitration Act did not intend for it to cover any workers’ contracts. However, this changed dramatically when the Supreme Court determined in Circuit City Stores, Inc. v. Adams (2001) that all workers’ contracts were covered except for transportation workers. Thus, today, thousands of workers are forced into adhesion contracts requiring arbitration. However, the recent unanimous decision of the Supreme Court in New Prime v. Oliveira unequivocally declares that the proper way to interpret the Act is to give it the meaning it had when Congress enacted the statute. This very reasonable conclusion stands in sharp contrast to how the Circuit City Court interpreted the Act with reference to arbitration of workers’ contracts.

New Prime is the first decision in decades that limits the broad interpretive scope the Court has given to the Federal Arbitration Act. The Court found that the exemption in Section 1 of the Act, which had been interpreted to exclude from the Act’s coverage employees working in interstate transportation, also applied to independent contractors in the transportation industry.

Section 1 of the Federal Arbitration Act provides that the Act does not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” At the time the FAA was enacted in 1925, it was well understood that Congress did not have the power under the Commerce Clause to regulate contracts of employees who were not acting in interstate commerce. Thus, ordinary workers were understood NOT to be covered by the FAA. The exemption was added to the statute to appease labor organizations who did not want those workers who actually worked in interstate commerce, like transportation workers, to be covered by the FAA. For decades after 1925, courts interpreted the statute as it was understood by the 1925 Congress that adopted it – that the Act applied only to merchant-to-merchant contracts, and not to workers’ contracts of any kind.

However, in Circuit City, the Supreme Court, contrary to the statutory methodology endorsed in the unanimous decision in New Prime, ignored the meaning of the statute in 1925 and instead imposed an interpretation of its own making. It found that all workers were covered by the FAA except transportation workers. This article discusses how Circuit City was incorrectly decided and should be overruled. The Circuit City Court disregarded the 1925 Congress’s understanding of the Commerce Clause, which was the background against which it legislated, and which informed the legislation it adopted. The various justifications the Circuit City Court offered for its unique interpretation of the exemption are incompatible with the proper statutory interpretation mandated in the unanimous decision in New Prime.