The enforceability of arbitration agreements in Illinois courts was discussed in this article written by Mr. Fish that was published in the Illinois State Bar Association’s newsletter governing alternative dispute resolution. Click here for the article on the enforceability of arbitration clauses in Illinois.
Here is the article:
I recently litigated an employment dispute in the United States District Court for the Northern District of Illinois in which we challenged the enforceability of an arbitration clause. Chief Judge Holderman refused to enforce the arbitration clause on the basis that it lacked sufficient consideration. The case provides a valuable lesson–remember the basic elements of contract law when drafting arbitration agreements. In Domin v. River Oaks Imports, Inc., 2011 WL5039865 (N. D. Ill. Oct. 24, 2011) the plaintiff/employee sued the defendant/employer alleging a violation of Title VII of the Civil Rights Act of 1964. The Employer filed a Motion to Stay Pending Arbitration which, if granted, would have forced the Employee to resolve his dispute in binding arbitration along with the baggage that this brings to a plaintiff—i.e, no jury, considerable arbitrator fees, limited discovery, and comfort to the employer.
The basis for demanding arbitration was that Employee received a handbook and had also signed an “Acknowledgement of Receipt and Understanding” that contained an arbitration clause that stated in part: I understand and voluntarily agree that any disputes regarding the terms of this payment plan or my employment or termination from employment (including claims of discrimination and/or harassment) will be resolved exclusively in accordance with binding arbitration governed by the FederalArbitration Act…. I further understand and voluntarily agree that this alternative dispute resolution program shall also cover claims of discrimination or harassment under Title VII of the CivilRights Act of 1964, as amended. Although I understand that signing this arbitration agreement is not required as a condition of my employment, I desire to take advantage of the benefits of arbitration and understand that I give up the right to trial by jury and instead will have my claims resolved by a retired court Judge.
The Employer argued that by signing the understanding (which expressly identified title VII claims as being subject to arbitration), the Employee was required to arbitrate his disputes.
The Court recognized that an employer and employee may contractually agree to submit Title VII claims to arbitration. Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d1126, 1130 (7thCir.1997). The Court focused on whether the parties had entered into a legally binding and enforceable contract under Illinois law. To determine the arbitration clause's enforceability, the Court looked to Illinois law which requires an enforceable contract to have an exchange, and its elements include offer, acceptance, and consideration. All American Roofing, Inc. v. Zurich American Ins. Co., 404 Ill.App.3d 438, 449, 343 Ill.Dec. 355, 934 N.E.2d 679 (1st Dist. 2010).
The Court focused upon whether there was consideration for the arbitration agreement.“Consideration is defined as a bargained-for exchange, whereby one party receives a benefit or the other party suffers a detriment.” Id. While the Court recognized that “employment itself” can be a consideration for an arbitration agreement, the Court focused on one sentence in the arbitration provision that provided: “this arbitration agreement is not required as a condition of my employment….” Based upon this language, the Court found that “it is clear that[the Employer] did not offer employment to[the Employee] in exchange for [his] agreement to arbitrate.”
The employer argued that there was, in fact, consideration because there was a mutual agreement to arbitrate. The Court acknowledged that a mutual agreement to arbitrate can constitute sufficient consideration. Michalski v. Circuit City Stores, Inc., 177F.3d 634, 636 (7th Cir.1999). However, in this case, the arbitration agreement “did not bind the [employer] in the same manner that it seeks to bind [the employee].” Id at * 2. Rather, the arbitration was one-sided in that it was worded entirely in terms of the employee’s agreement to arbitrate (i.e., “I agree”, “I am waiving”). Id.
As such, the Court held that it “can not read this language in a way that would bind both [employee] and [employer] to submit any and all of their claims to arbitration [andas suchemployer] did not provide sufficient consideration for [employee’s] agreement to arbitrate, and [the arbitration agreement] is therefore unenforceable.” Id. at * 2.
Domin v. River Oaks Imports, Inc. illustrates the importance of properly wording and–just as important–implementing an arbitration agreement. To begin with, employment or continued employment should be conditioned upon the execution of the arbitration agreement. While the River Oak arbitration agreement said “signing this arbitration agreement is not required as a condition of my employment”, the message that needs to be sent is: ‘you will not work for us unless you sign.’ Likewise, depending upon the facts of the employment situation, it may be appropriate to give something (i.e., money) in exchange for having the employee sign the arbitration agreement. Finally, if an employee wants to rely upon mutuality of arbitration to provide consideration, the employer should take care to make sure that the plain language of the arbitration agreement actually binds both parties.