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Supreme Court Declares Mandatory Arbitration Agreement Enforceable

In a 5-4 decision, the U.S. Supreme Court held the Federal Arbitration Act of 1925, which requires enforcement of valid arbitration agreements, applies to employment contracts, and only exempts contracts involving transportation workers. Circuit City Stores, Inc. v. Adams, 121 S.Ct. 1302 (2001). While the court previously upheld the use of mandatory arbitration agreements, this decision is the first that specifically addressed their use in employment contracts. Although the holding may seem to be a victory for employers, because arbitration is a faster and cheaper dispute resolution mechanism than litigation, many employer concerns remain.First, the courts have to answer questions of due process and fairness that are sure to be raised by employees who enter these contracts. Second, employers that do not have many employment complaints must consider whether an arbitration program will encourage employees to file claims.

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