Illusory Arbitration Clause Voids Employee’s Duty to Submit Employment Dispute to Binding Arbitration

Date: May 4, 2004
In November 2000, United Healthcare of the Mid-Atlantic, Inc., offered Ronnie Cheek a position as senior sales executive, conditioned on his acceptance of United’s “Employment Arbitration Policy.” Cheek received a handbook summarizing the policy, which provides that arbitration is the “final, exclusive and required forum for the resolution of all employment related disputes which are based on a legal claim.” The policy also reserved to United the sole and absolute discretion to alter, amend or revoke the policy. After his employment was terminated in August 2001, Cheek filed suit in the Circuit Court for Baltimore City, seeking damages for breach of contract, negligent misrepresentations, and violations of various sections of Maryland’s Labor and Employment article. United filed a Motion to Dismiss and/or Compel Arbitration, which was granted by the circuit court in May 2002. After Cheek appealed to the Court of Special Appeals, Maryland’s highest court, the Court of Appeals, took over the case on its own motion – to decide the sole question of whether a valid and enforceable agreement existed to submit the dispute to arbitration. According to the Court, an agreement to submit employment-related disputes to arbitration is unenforceable where the employer reserves the right to alter, amend, revoke or modify the agreement at any time, without notice. Though the employment contract was valid as a whole, the court found the arbitration agreement failed for lack of consideration. “We disagree with cases from other jurisdictions that determine that the consideration for an underlying contract also can serve as consideration for an arbitration agreement within the contract,” Judge Lynne A. Battaglia wrote for the majority. “The plain and unambiguous language of the clause appears to allow United to revoke the Employment Arbitration Policy even after arbitration is invoked, and even after a decision is rendered, because United can ‘revoke’ the Policy at any time,” Battaglia noted. “United’s ‘promise’ to arbitrate employment disputes is entirely illusory, and therefore, no real promise at all.” The decision, according to the lone dissenting judge, Glenn T. Harrell, Jr., places Maryland “in the company of the decidedly minority view” among jurisdictions deciding similar cases. While Courts often favor the arbitration of employment disputes over protracted litigation within the judicial system, such agreements requiring arbitration must be carefully worded, especially from the employee’s perspective, in order to pass judicial review. Certainly, a clause such as the one at issue herein is to be totally avoided if an employer has any hope of seeing its arbitration agreement survive.