In Perry et al. v. Thomas, the U.S Supreme Court ruled in 1986 that federal law preempts state laws which invalidate arbitration agreements requiring parties to arbitrate their disputes outside of the state. The case involved a dispute between an employee and his former employer over unpaid commissions where both had signed an agreement stating any disagreements would be settled by arbitration in New York under New York law. However, California Labor Code Section 229 states that actions for collection of due and unpaid wages could be maintained without regard to such an agreement for arbitration out-of-state or under non-California law. The court held that this provision was preempted by section 2 of the Federal Arbitration Act (FAA), which makes enforceable written provisions for settling controversies through arbitration, thus favoring enforcement of private contractual arrangements.

In the dissenting opinion for Perry et al. v. Thomas, Justice Stevens argued that the Federal Arbitration Act (FAA) should not preempt state law when it comes to employment contracts. He believed that Congress did not intend for the FAA to apply in such cases and thus, states should be allowed to regulate these agreements as they see fit. Furthermore, he contended that applying federal arbitration laws could potentially undermine workers' rights by forcing them into binding arbitration without their consent or understanding of what this entails. This would place a significant amount of power in employers' hands and limit employees' ability to seek legal recourse if their rights are violated at work.