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May 16, 2005
Modifiable agreement supported by consideration
Lots of cases say arbitration agreements are not enforceable (for lack of consideration) when the employer retains the unilateral right to modify the arbitration rules. Courts often refer to these deals as "illusory promises," which are not promises at all, and therefore cannot be consideration for the employee's promise to arbitrate.
The agreement between La'Tia Holloman and Circuit City Stores allowed the employer to modify the arbitration rules on March 1 of any year upon giving 30 days written notice.
The fact that the employer had to give notice distinguished Holloman's case from the other cases. The employer's promise was not illusory, and there was consideration. Holloman v. Circuit City Stores (Maryland Ct App 05/05/2005).
My view: The contract-formation doctrine of "consideration" is a question of state law that is not preempted by the Federal Arbitration Act (FAA), so there can be different results from state-to-state. The Maryland case follows the analysis given in the Restatement of Contracts, and is probably the general rule (at least in cases not involving employment arbitration).
Posted by Ross Runkel, Editor at LawMemo, publisher of Employment Law Memo. Try it.
