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Illinois Supreme Court Endorses Enforcement of Arbitration Agreements

Date

April 1, 2006

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4 minutes

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Summary

On March 23, 2006, the Illinois Supreme Court in Melena v. Anheuser-Busch, Inc. issued an important decision upholding the enforceability of arbitration agreements between employers and their at-will employees. Among other things, the court held that no special “knowing and voluntary” requirement applies to such agreements. The Melena decision reversed a decision by the Fifth District of the Illinois Court of Appeals in the same case that had cast doubt on the enforceability of the arbitration agreements used by many Illinois employers.

Action Item(s)

Employers in Illinois that do not require arbitration agreements as a condition of employment may want to reconsider their position now that such agreements rest on a firm legal footing. Employers should consult with their legal counsel concerning the distinct advantages and disadvantages of such agreements.

Employers that do require such agreements as a condition of employment should take this opportunity to confirm the validity of the agreements’ terms.

Discussion

Melena v. Anheuser-Busch, Inc. arose from an arbitration program implemented by Anheuser-Busch for non-union employees at its Mt. Vernon, Illinois distribution center. In February 2000, Anheuser-Busch mailed a letter to those employees announcing the implementation of a mandatory “Dispute Resolution Program.” The Company also gave a brief presentation and put posters in its facility explaining the program. Employees were told that, if they continued employment with the Company, they would be deemed to have consented to the program. Approximately one year later, Anheuser-Busch issued a new handbook containing a description of the program. The handbook acknowledgment included a consent by the employee to follow the arbitration program.

In 2002, the plaintiff in Melena was terminated shortly after injuring herself at work. Following her termination, the plaintiff sued Anheuser-Busch alleging that she was discharged in retaliation for filing a workers’ compensation claim, in violation of both the Illinois Workers’ Compensation Act and Illinois public policy. Anheuser-Busch moved to dismiss the plaintiff’s complaint and compel arbitration pursuant to the employment arbitration program.

The circuit court judge denied the Company’s motion to compel arbitration and the Fifth District of the Illinois Court of Appeals affirmed, holding for the first time in Illinois that employment arbitration agreements are unenforceable unless employees enter into them “knowingly and voluntarily.” The appellate court found that because the plaintiff was required to consent to the arbitration agreement as a condition of her continued employment, her choice to accept the agreement was “illusory.” The appellate court stated:

To hold that [the plaintiff] agreed to arbitrate her retaliatory discharge claim voluntarily would defy reason. It would also endorse an employment practice that is grossly unfair.

The sweeping nature of this language put many arbitration agreements in Illinois in jeopardy, as well as other agreements that relied upon continued at-will employment as consideration.

On March 23, 2006, in a 6-1 decision, the Illinois Supreme Court reversed the lower courts’ rulings and held that the enforceability of an employment arbitration agreement is governed by general contract principles, not a heightened “knowing and voluntary” standard.

In reaching its decision, the Illinois Supreme Court noted that the U.S. Supreme Court had not addressed the issue, and therefore weighed the split decisions of various federal appellate courts. The court considered the Ninth Circuit’s decision in Prudential Ins. Co. of America v. Lai (the decision relied upon by the Fifth District), in which the Ninth Circuit held that employees were not bound by an arbitration agreement because they had not “knowingly” relinquished their right to go to court. The court also considered the Third Circuit’s decision in Seus v. John Nuveen & Co. There the Third Circuit rejected the “knowing and voluntary” standard in determining the enforceability of an arbitration agreement in favor of an approach based on the fundamental principles of contract law.

The Illinois Supreme Court adopted the reasoning in Seus because it was considered to be “more faithful” to the Federal Arbitration Act, which applies to most arbitration agreements. Then, after dropping the heightened “knowing and voluntary” requirement applied by the Fifth District, the court analyzed Anheuser-Busch’s employment arbitration program under Illinois contract law and deemed it to be an enforceable contract with all of the proper elements (i.e., offer, acceptance, and consideration).

In a portion of the opinion that will be very helpful to employers in subsequent cases, the court specifically rejected the Fifth District’s argument that agreements based on continued at-will employment are somehow inherently coercive. The court stated that “by continuing her employment with Anheuser-Busch, plaintiff both accepted the offer [to arbitrate] and provided the necessary consideration.”

Furthermore, the court found that arbitration did not contravene public policy in this case because it allowed the plaintiff to pursue her retaliatory discharge claim without limiting her remedies. The court also noted with approval that the agreement used by Anheuser-Busch did not impose burdensome arbitration costs on the plaintiff.

The Melena decision eliminates the debate and uncertainty that had been created by the Fifth District’s earlier decision. Illinois employers should now have an easier time enforcing arbitration agreements premised upon at-will employment relationships and compelling arbitration of claims brought by employees who have consented to such agreements. To the extent you have questions about whether arbitration agreements are appropriate for your business, please feel free to contact Peter Donati, leader of Levenfeld Pearlstein’s Employment Service Group.


Filed under: Employment & Executive Compensation

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