Appellate Court Requires Strict "Knowing And Voluntary" Arbitration Waiver

In the last several years many employers have incorporated arbitration agreements in their employment policies and handbooks. These agreements request that employees waive their right to judicial relief for employment-based disputes and require arbitration of all employment-related claims. Many employers have eagerly adopted such provisions and have required employees to consent to arbitration or face termination. Employers favor these agreements because arbitration is often a faster and less expensive alternative to the judicial forum.

This practice, however, has not been without controversy. On September 22, 2004, an Illinois appeals court found that the arbitration agreement presented to JoAnn Melena by Anheuser-Busch, Inc., was unenforceable because "it left her with no viable options" she could sign the agreement or resign. The court stated that any "choice" she had in executing the agreement was "illusory" and that "to hold that she agreed to arbitrate her retaliatory discharge claim voluntarily would defy reason . . . it would also endorse an employment practice that is grossly unfair". Melena v. Anheuser-Busch Inc., Ill. App. Ct., No. 5-03-0805, 9/22/04.

JoAnn Melena was hired as a nonunion, hourly employee by the defendant, Anheuser-Busch, in February 1999. One year after she was hired, Anheuser-Busch developed a new dispute resolution policy, which included an arbitration provision. The company mailed materials to employees, including to Ms. Melena, informing them of the new policy. A representative from human resources gave a presentation explaining the policy, and posters describing the program were displayed throughout the workplace. The arbitration requirement then was formally set forth in a revised employee handbook which was distributed to all employees. Ms. Melena signed a form acknowledging receipt of the revised handbook.

Over a year later, Ms. Melena suffered a workplace injury, and she was terminated from her employment shortly thereafter. Following her termination, Ms. Melena promptly filed an action in the circuit court alleging retaliatory discharge for asserting rights to workers’ compensation. Anheuser-Busch moved to dismiss the complaint and compel arbitration pursuant to the arbitration agreement contained in its employee handbook.

The appellate court held the arbitration provision unenforceable and refused to dismiss the complaint, holding that the agreement was not a "knowing and voluntary" waiver to the judicial forum.

First, the court held that Ms. Melena did not knowingly relinquish her rights. On this point, the court noted that the record did not demonstrate the content of the dispute resolution presentation or the text of what was included in the posters that were displayed in the workplace. Also, all written materials that were distributed to Ms. Melena failed to expressly state that she was giving up a judicial forum for statutory claims; rather, they merely informed her that "the final level of the dispute resolution program would be binding arbitration".

Second, the court held that the waiver was not voluntary. In so finding, the court prefaced its determination with the broad sweeping commentary that it had "serious reservations regarding whether an agreement to arbitrate offered as a condition of employment is ever voluntary". Counsel for the company admitted that if Ms. Melena had refused to accept the arbitration agreement, Anheuser- Busch would have fired her. According to the court, "[h]er .choices. were to continue her employment, thereby automatically agreeing to the dispute resolution policy, or resign . . . This left her with no viable options". The court distinguished this scenario from that of a job applicant who is presented with an arbitration agreement, noting that, unlike a job applicant, Ms. Melena had not already begun a job search, did not have the benefit of having any other job leads, and did not have the ability to wait for a firm offer of employment before resigning. The court reasoned that "she would in essence be forced from her position with the Company by refusing to agree to the dispute resolution and that any so-called ‘choice’ she had in the matter was illusory". Based on this rationale, the court broadly held that "where an employee is told to ‘agree’ to arbitrate statutory claims or be fired, any agreement so obtained is not voluntary and violates the public policy of this state". Accordingly, the court held that the arbitration agreement was invalid because it was neither knowing nor voluntary.

This decision is a sharp blow to Illinois employers who have implemented (or would like to implement) arbitration programs. Under this decision Illinois employers can no longer condition continued employment on the acceptance of arbitration programs. The court, however, noted that it has not held that "employees may never prospectively agree to arbitrate statutory claims". It stated that it might find valid an employee’s consent to arbitrate all claims where the employee is highly skilled and is genuinely in a position to negotiate the terms of an employment contract.

In light of this opinion, it is not clear exactly what form of arbitration agreements will be enforceable in Illinois. However, to increase the odds of a valid agreement, Illinois employers should consider the following in adopting or amending their policies:

• Limit arbitration agreements to new employees and/ or highly skilled employees who regularly negotiate the terms of their employment, such as executives, high-level managerial employees, and white-collar professionals.

• If arbitration is offered to current employees generally, it should be an option employees can accept or reject without jeopardizing their employment. Employers should offer consideration (such as pay raises or extra money) other than continued employment in order to bind employees to arbitration agreements.

• Ensure that the arbitration provision clearly sets forth language informing employees that they are waiving rights to a judicial forum.

• Prepare the arbitration agreement as a separate document and not merely as part of an employee handbook (which would probably include a contract disclaimer).

• Track and document everything distributed and communicated to employees.

It is also important to note this: even if all of these guidelines are followed, there is no guarantee that arbitration agreements will be upheld in the future. The court has opened the door to skepticism and scrutiny. How subsequent decisions interpret these issues and whether the court’s reasoning will resonate with courts in other states will be instructive. In the meantime, Illinois employers may wish to review their arbitration programs and see how they can be modified based on the suggestions set forth above. Employers outside of Illinois should shape their arbitration programs to comply with state law and be cognizant of any shifting trends in their states caused by this decision.

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