Fifth Circuit Court of Appeals Rules on Arbitration Provision in an Employee Handbook
The Fifth Circuit Court of Appeals recently ruled on an arbitration provision in an employee handbook. Carey v. 24 Hour Fitness, USA, Inc., No. 10-20845 (5th Cir. Jan. 25, 2012), available at http://www.ca5.uscourts.gov/opinions/pub/10/10-20845-CV0.wpd.pdf. The defendant employer issued an employee handbook that contained a provision requiring all employment-related disputes to be resolved through arbitration. The plaintiff employee signed an acknowledgment indicating that he received the handbook.
Later, the plaintiff filed an employment-related class action lawsuit against his former employer. The employer requested that the district court compel arbitration. The district court denied this request because it agreed with the plaintiff that the arbitration agreement was illusory. The employer appealed.
On appeal, the Court affirmed the judgment. Under Texas law, an arbitration clause is illusory if one party can avoid its promise to arbitrate by amending the provision or terminating it. Here, the acknowledgment signed by the plaintiff gave the employer the right to revise, delete, and add to the employee handbook. Because the employer could thus alter the arbitration agreement unilaterally, the agreement was illusory and the employer could not compel arbitration.
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