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Employees Were Not Allowed to Use Courts

Circuit City Arbitration

SAN FRANCISCO, CA -- February 25, 2002 -- An arbitration contract that Circuit City job applicants were required to sign as a condition of employment was illegal, according to the 9th U.S. Circuit Court of Appeals (Circuit City v. Adams, February 4, 2002). Under the agreement, employees were forced to arbitrate any claims against Circuit City, but the company was allowed to resolve disputes against employees through the court system. The contract also unfairly limited employees' damages and required a worker to split arbitrator's fees with Circuit City.

"Circuit City has devised an arbitration agreement that functions as a thumb on Circuit City's side of the scale should an employment dispute ever arise between the company and one of its employees," Judge D.W. Nelson wrote. "We conclude that such an arrangement is unconscionable under California law."

The U.S. Supreme Court had considered the Circuit City case in March, 2001 and remanded or returned it to the Circuit Court of Appeals for a ruling consistent with the determination that the employee arbitration agreement did not violate the Federal Arbitration Act. As a result, the Circuit Court of Appeals acknowledged that the employment arbitration contract was enforceable under that Act. However, it concluded that such a "one-sided" agreement still violated California state contract law, which was not superseded by the Federal Arbitration Act.

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