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Arbitration Clauses In Employment Contracts In Illinois

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 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 WL
5039865 (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 pay 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 Federal
Arbitration 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 Civil
Rights 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.3d
1126, 1130 (7th Cir. 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 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., 177
F.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 “cannot
read this language in a way that would bind
both [employee] and [employer] to submit
any and all of their claims to arbitration [and
as such employer] 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 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.

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