Several companies have mandatory arbitration programs, pursuant to which every employee must sign an agreement promising to submit every possible claim they might want to assert against the company to mandatory and binding arbitration. Much ink has been spilled in various court decisions concerning the circumstances pursuant to which these these types of agreements are enforceable.

But though the law on this issue can vary significantly from state to state, there is at least one universal principle that, one would think, should be pretty obvious: it must be an agreement.  A real, honest-to-goodness contract.

Which brings us to the Fifth Circuit’s new opinion in Carey v. 24 Hour Fitness USA, Inc.  Apparently, someone at 24 Hour Fitness thought that parachuting a mandatory arbitration “clause” in their handbook (but only the handbook) was a good idea, and that trying to enforce it against some employee who had the nerve to show up in court was an even better idea. The problem is that 24 Hour Fitness’s handbook – like most handbooks – had a disclaimer which emphasized that the handbook isn’t an “agreement” at all, and that the company is always free to change it:

I acknowledge that, except for the at-will employment, [the Company] has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO …

Every first year law student knows that you can’t have a true contract if one of the parties isn’t really agreeing to anything–that’s called an “illusory” bargain. And that was the problem with this “agreement.”  24 Hour Fitness was trying to reserve for itself the right to monkey with the handbook (including the arbitration clause), even on a retroactive basis, while at the same time pointing to the arbitration clause as a binding, enforceable “contract.”

The Fifth Circuit was having none of it:

the fundamental concern … is the unfairness of a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it. Requiring notice alone does not fully address this concern: … this [notice of modification] could still arguably allow [the company] to avoid its promise to arbitrate as to claims that were already in progress, unless there were some provision preventing changes from applying to in-progress disputes.

The Fifth Circuit did note a Texas Supreme Court case from 2002 (In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002)), where that Court had enforced an arbitration agreement which also allowed the company to modify the deal–but that other arbitration agreement contained a “savings clause” which essentially allowed only prospective changes to the agreement, and banned the company from changing the rules concerning claims that had already matured or had been asserted by the time of the change. No such savings clause was present in this case.  Whoops.

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