Should Concepcion Apply to Employment Agreements?
This is the third installment in a four-part series on mandatory arbitration in employment agreements. In this segment, we look at the tools employed by the Supreme Court in Concepcion to depart from the judicial reasoning in Armendariz, and its applicability to arbitration of employment agreements. The cornerstone of the decision in Concepcion was the Supreme Court’s broad application of two constitutional clauses — the commerce clause and federal pre-emption.
Congress’s Commerce Clause
The Commerce Clause provides Congress with the authority to regulate interstate commerce. The Federal Arbitration Act (FAA) was passed using this authority, but the way it impinges on disputes that do not obviously affect interstate commerce has been a matter for judicial consideration. In Citizens Bank v. Alafabco, the notion of regulating interstate commerce was given a broad application by the U.S. Supreme Court when considering whether the FAA should apply. The effect of the Alafabco ruling is that the provisions of the FAA apply even in individual cases in which no aspect of interstate commerce is discernible, as long as the activity in question reflects a practice that is subject to federal regulation. As a result, federal courts have applied the FAA to virtually all employment contracts, with the exception of contracts for employees that transport goods or services, which are specifically excluded from the FAA.
In addition to the applicability of the FAA due to the Commerce Clause, the court in Concepcion also relied on a broad interpretation of federal pre-emption. The Supremacy Clause in the U.S. Constitution provides that in matters of conflict between federal and state law, federal law is supreme. This principle, known as federal pre-emption, was employed in the broadest possible way by the court in Concepcion, asserting that the FAA pre-empts even implied obstacles created by state laws and judgments. As a result, the judicial reasoning in Armendariz which restricted the enforceability of arbitration clauses cannot survive the ruling in Concepcion.
In the next and final installment, we consider the effect of Concepcion and subsequent rulings.