Legal Alert: Unilateral Right to Amend Arbitration Agreement Makes Employment Arbitration Clause Unenforceable

2/7/2012 ExecutiveSummary:TheFifthCircuitrecentlyallowedacollectiveaction claimforovertimepayundertheFairLaborStandardsAct(FLSA)to proceedandheldthatanarbitrationagreementwasunenforceablebecause theemployercouldunilaterallymodifythearbitrationagreement.John Carey v. 24 Hour Fitness USA, Inc. Whileemployedby24HourFitness,theplaintiff,Carey,receivedan employeehandbookthatincludedanarbitrationagreementprovidingthatall employment-relateddisputeswouldberesolvedbyanarbitratorthroughfinal andbindingarbitration.CareysignedanEmployeeHandbookReceipt AcknowledgmentindicatingthathehadreceivedtheHandbook.The Acknowledgmentreiteratedthearbitrationpolicyandalsostatedthatthe termsoftheHandbookaresubjecttochange(the"Change-in-Terms" clause).Specifically,theChange-in-Termsclausestated,"Iacknowledge that,exceptfortheat-willemployment,24HourFitnesshastherightto revise,delete,andaddtotheemployeehandbook.Anysuchrevisionsto thehandbookwillbecommunicatedthroughofficialwrittennoticesapproved bythePresidentandCEOof24HourFitnessortheirspecifieddesignee. Nooralstatementscanchangetheprovisionsoftheemployeehandbook." AfterCarey'semploymentended,hefiledacollectiveactionlawsuitagainst 24HourFitnessseekingcompensationforovertimeworkedbyemployees butallegedlynotpaid.Theemployerfiledamotiontostayandcompel arbitration;however,Careycounteredthatthearbitrationagreementwasnot validbecausetheemployerretainedtherighttoamendthehandbook.The trialcourtruledinfavorofCareyanddirectedthecasebetried.The employerappealeddecision,pointingtootherlanguageintheagreement thatrequiredthecompanytogivetheemployeenoticeofanychangesand furthertoobtaintheemployee'sacknowledgementofthechanges. TheFifthCircuitheldthattheChange-in-Termsclausepermittedthe employertounilaterallyamendthearbitrationagreementandapplythose changesretroactively.Ofthearbitrationclause,thecourtsaid: Ifa24HourFitnessemployeesoughttoinvokearbitrationwiththecompany pursuanttotheagreement,nothingwouldprevent24HourFitnessfrom changingtheagreementandmakingthosechangesapplicabletothe pendingdisputeifitdeterminedthearbitrationwasnolongerinitsinterest.

TheFifthCircuitagreedwiththetrialcourtthatthearbitrationagreement wasillusory: [T]hefundamentalconcerndrivingthislineofcaselawistheunfairnessofa situationwheretwopartiesenterintoanagreementthatostensiblybinds themboth,butwhereonepartycanescapeitsobligationsunderthe agreementbymodifyingit. Thecourtalsonotedthattherewasnoprovisioninthearbitrationagreement topreventtheamendmentbytheemployerafterademandforarbitration hadbeenmade,makingtheamendmentprocessretroactive. Note,thisisastatutoryrightscaseandthetermsofthearbitration agreementmustclearlyfallwithintheparametersrequiredbytheSupreme CourtinGilmer v. Interstate/Johnson Lanetopermitarbitrationofstatutory rights.TheCourtinGilmer confirmedthatstatutoryrightsconferredby Congresscanbearbitratedprovidedthatthearbitratorcanawardtherelief andremediesthesameasinacourtoflaw.Inotherwords,thearbitral forumcouldbesubstitutedforcourtenforcementsolongasthearbitral forumprovidedthesameprotectionsofthesubstantiverightsthatwere affordedunderthestatute.Providingtheemployerwiththeunilateralrightto retroactivelychangethearbitrationagreementdidnotaffordtheemployee theintendedprotectionsrequiredbyGilmer,thustheagreementwasnot enforceable. Employers' Bottom Line: Tohelpensuretheenforceabilityofarbitrationagreements,employers shouldmakesurethetermsoftheagreementsarefairanddonotappearto givetheemployeranadvantageoveremployees.Ifyouhaveanyquestions regardingthisdecisionorotherlabororemploymentrelatedissues,please contacttheauthorofthisAlert,JohnAllgood,jallgood@fordharrison.com,an attorneyinourAtlantaoffice,ortheFord&Harrisonattorneywithwhomyou usuallywork.