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Arbitration agreement in employee
handbook is unenforceable |
Coady v. Nationwide Motor
Sales (4th Cir 04/25/2022)
http://case.lawmemo.com/4/coady.pdf
Sent to Custom Alerts™
subscribers on 04/27/2022
Employees signed a receipt
acknowledging an employee handbook, and the handbook contained an
arbitration agreement.
When the employees sued, alleging
fraudulent payment practices, the employer moved to compel
arbitration. The trial court denied the motion, and the 4th
Circuit affirmed.
Why? Because the promise to arbitrate was
"illusory" under Maryland law. Why illusory? Because the employer
retained the right to change, abolish, or modify the handbook.
Under Maryland law, a promise to arbitrate is illusory—and
thus cannot constitute the consideration necessary to support a
binding contract—if the employer reserves the right to alter,
amend, modify, or revoke the arbitration agreement at any time
with or without notice.
The receipt the employees signed
stated: "I further understand that the employer has the right,
from time to time, to make and enforce new policies or procedures
and to enforce, change, abolish or modify existing policies,
procedures or benefits applicable to employees as it may deem
necessary with or without notice."
A big issue in the case
was whether the receipt was actually part of the arbitration
agreement (as distinguished from being part of the whole
handbook). This is because Maryland courts do not look beyond an
arbitration provision “into the underlying employment agreement to
determine whether consideration exists to support an agreement to
arbitrate.”
The court noted that the arbitration agreement
incorporates the receipt. Also, the receipt specifically mentions
the arbitration agreement. Therefore, the receipt is part of the
arbitration agreement itself.
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