Courts have repeatedly held that written mandatory arbitration provisions should be enforced. In fact, the Federal Arbitration Act, ("FAA") establishes a national policy favoring arbitration.1 Specifically, Section 2 of the FAA provides that:
"[A] written provision in any contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 2 (emphasis added)
While mandatory arbitration provisions appear in a vast array of agreements, the realm of employment law is arguably the most affected by such "agreements." In the context of employment law, pre-dispute mandatory arbitration contracts benefit employers by providing an adjudicatory process for employment disputes that is efficient, confidential and final. Ever since the Supreme Court ruled that mandatory arbitration agreements can preclude employees from pursuing discrimination claims in court,3 employers across the country have inserted boilerplate mandatory arbitration clauses into their employment contracts, leaving employees with the option of signing the agreement or not working.
The purpose of the FAA is to "reverse the longstanding judicial hostility to arbitration agreements and to place arbitration agreements upon the same footing as other contracts."4 The prevalence of such agreements in the employment setting, however, is posing increasingly more difficult hurdles for at-will employees, however, who do not have the negotiating strength of a collective bargaining unit and are thus often put in the position of choosing between their Constitutional right to a trial by jury and the need to work and earn income.
MANDATORY ARBITRATION AGREEMENTS IN ILLINOIS: THE KNOWING AND VOLUNTARY STANDARD
Like the federal courts, Illinois strongly favors the enforcement of arbitration agreements.5 However, the Fifth District case of Melena v. Anheuser-Busch, Inc., a case of first impression in Illinois, held that a person must knowingly and voluntarily agree to arbitrate their statutory causes of action.6 Thus, in Melena, an Illinois court has found that employees have a defense to mandatory arbitration provisions based on the unequal bargaining power they have in the process.
In Melena, the court held that an hourly wage employee in a large company did not voluntarily agree to arbitrate a statutory cause of action after her employer instituted a new dispute resolution policy and told her that she needed to sign the acknowledgment form or be terminated.7 Melena had been working for Anheuser-Busch for approximately one year before she received materials informing her of a new dispute resolution policy in February 2000.8 However, the employee handbooks including the program were not distributed until April 2001.9 In September 2002, Melena suffered a work-related injury and filed a claim for workers’ compensation and began receiving temporary total disability benefits.10 On March 23, 2003, Melena was terminated from employment with Anheuser-Busch.11
Melena subsequently filed her complaint against Anheuser-Busch alleging retaliatory discharge, to which Anheuser-Busch filed its motion to dismiss and compel arbitration. Because no Illinois courts had addressed the precise issue raised in Melena, the court looked to federal decisions, particularly from the Seventh and Ninth Circuits, to support its holding that such an arbitration "agreement" must be knowing and voluntary.12 The Court found that: "[W]here 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."13
Melena had been working for more than two years before she was forced to agree to a mandatory arbitration condition. The Court noted that when a plaintiff is a current employee, she has "even less volition in the matter than the typical job applicant."14 The court found that:
"When a job applicant is presented with an arbitration agreement as a condition of employment, the prospective employee is faced with a choice between accepting the arbitration agreement or continuing to search for a position that does not include such a requirement. That is a troubling enough scenario in its own right. Moreover, being forced from her position with the defendant by refusing to agree to the dispute resolution likely would have made it quite difficult for her to obtain a new job. Prospective employers might be disinclined to hire someone who was terminated for refusing to agree to an arbitration clause. Given the economic realities facing the plaintiff, we find that any so-called ‘choice’ she had in the matter was illusory. 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...We conclude that the ‘agreement’ here at issue was not knowing and voluntary and is thus unenforceable."15
The court went so far as to say that it had "serious reservations regarding whether an agreement to arbitrate offered as a condition of employment is ever voluntary,"16 suggesting that such an agreement is a "contract of adhesion"—a contract that is offered on a take-it-or-leave-it basis, leaving the employee with little choice and even less bargaining power. In such agreements, one party to the written arbitration provision—the employer—exerts a much stronger negotiating power over the other subservient party—the employee. In essence, the obsequious employee is forced to contract away his fundamental right to a jury trial for his claim against his employer in exchange for a job. While Melena gives current employees a potential argument against mandatory arbitration provisions, what about in the case of a prospective employee or a sophisticated employee?
The Melena court indicated that if the person being asked to agree to arbitrate was someone in the midst of a job search, the consent may be knowing and voluntary because of the other viable options.17 Further curtailing this new requirement, the court stated that "[w]here, for example, a highly skilled employee is genuinely in a position to negotiate the terms of an employment contract that contains an arbitration agreement, we might find that the employee’s consent was knowing and voluntary."18 That point is exactly what a subsequent Northern District case addressed.19
In Maroney v. Triple "R" Steel, Inc, a prospective employee entered into an employment agreement with Triple R to become Vice President of the corporation.20 The agreement included an arbitration clause stating that "[a]ny differences, claims, or matters in dispute arising between [Triple R] and [Maroney] out of or connected with this Agreement shall be submitted to arbitration."21 The employee eventually brought a three-count complaint against the corporation, including statutory claims. Unlike the employee in Melena, however, who was an hourly wage employee in a large company, the court in Maroney recognized that Maroney was a highly skilled employee "in a position to genuinely negotiate his contract as Vice President of Triple R, a relatively small corporation."22 The Maroney court, therefore, expanded upon Melena’s job-status distinction and found that no inference was created by Maroney indicating that the signing was not knowing and voluntary because of his sophistication in the workforce.
The court in Campbell v. Sterling Jewelers, Inc., held similarly.23 In Campbell, a prospective employee completed and signed an employment application containing an arbitration clause. After then working for Sterling for almost two years, Campbell filed for a medical leave of absence and was subsequently discharged by Sterling. Campbell filed a two-count complaint alleging retaliatory discharge, and Sterling filed a motion to dismiss, arguing that the case should be arbitrated in accordance with the mandatory arbitration provision in the employment application.24 Campbell relied upon Melena for her contention that she did not know what the arbitration clause meant and did not enter into it voluntarily. The court, however, held that it was entered into knowingly and voluntarily.25
Unlike the employee in Melena, the court found that Campbell was made aware of the arbitration agreement before she began her employment with Sterling by completing the pre-employment application containing the arbitration clause and by subsequently executing a second document containing an arbitration agreement.26 Thus, because Campbell signed the papers stating that she agreed to be bound to the terms of the arbitration agreement before she began her employment with Sterling, Campbell had a choice regarding the arbitration clause and could not benefit from the holding of Melena.27
Other jurisdictions have similarly found employment arbitration agreements to be unconscionable in numerous circumstances. In Shankle v. B-G Maintenance Management of Colorado, Inc., the Tenth Circuit held that a mandatory arbitration agreement that requires an employee to split the cost of arbitration is unenforceable under the FAA because such an agreement effectively deprives the employee of an adequate and accessible forum to resolve his or her federal claims and to vindicate his or her statutory rights.28 In Circuit City Stores v. Adams, the Ninth Circuit found that the mandatory arbitration agreement signed by an employee was unconscionable because it was one-sided and forced the employee into arbitration while the employer’s right to a judicial forum was reserved.29 Additionally, in Ingle v. Circuit City Stores, Inc., the same court found procedural unconscionability where a former employee brought an action alleging that Circuit City presented the arbitration agreement on a take-it-or-leave-it basis and the employee had no power to negotiate the terms of the contract.30
Most courts have held otherwise. In 2001, the Supreme Court held in Circuit City Stores, Inc. v. Adams, that employment claims are subject to the FAA and that the act requires courts to enforce the arbitration clauses in employment contracts.31 In May v. Higbee Co., the Fifth Circuit found that the plaintiff assented to arbitration based on continuation of her employment after signing an acknowledgment form indicating receipt of an arbitration agreement that specified continued employment constituted acceptance.32 Thus, the plaintiff was bound to arbitrate her Title VII sexual harassment claim.33 And, while the Ninth Circuit in Ingle, above, found that "take it or leave it" cases are unconscionable, the Eight Circuit in Bailey v. Ameriquest Mortgage Co., rejected the very same idea.34
OTHER RESTRICTIVE COVENANTS IN EMPLOYMENT AGREEMENTS
One issue that does not appear to have been raised or addressed in Melena is how the court’s decision should be reconciled with how Illinois treats the enforceability of other clauses in employment agreement, such as non-compete and non-solicitation provisions. Illinois courts have repeatedly held that, when a restrictive covenant is part of an employment agreement, an offer of continued employment generally constitutes adequate consideration, and the courts have thus enforced such agreements, notwithstanding the possibility of unequal bargaining power as between the parties.35
The courts are more likely to enforce non-soliciation agreements, which prohibit an employee from soliciting or servicing the former employer’s customers, than non-competition agreements, which prohibit an employee from seeking employment with a competitor or starting a competing business. But, under Melena, both of these provisions would be more likely to be enforced than one which requires arbitration, since it has been held that employees cannot use job-status distinction or unequal bargaining power as defenses to the enforceability of such provisions:36 "[D]espite the rhetoric of unequal bargaining power, courts almost never inquire into the quality of the employee’s consent."37
It may be that the courts have simply not had occasion to consider unequal bargaining power as an issue in non-compete and non-solicitation cases, because most employees subject to non-competes are believed to be "‘highly skilled’ and ‘relatively sophisticated’ and find it ‘puzzling’ that the law ‘protect[s] persons who are able, ex ante, to assess the desirability of the terms, who are able to foresee the consequences of such terms, and who are free not to contract if the terms are sufficiently unfavorable.’"38
The decision in Melena may therefore serve to usher in a new debate in employment cases, one over whether unconscionability or bargaining power should be a factor, not only in cases involving arbitration provisions, but in cases involving other provisions, such as non-compete and non-solicitation clauses. On the other hand, it is also possible that Melena will not survive as precedent for very long. In January, 2005, the Illinois Supreme Court agreed to review the findings of the Fifth District’s decision in Melena. 39
1 9 U.S.C. §§ 1-16.
2 9 U.S.C. §§ 2.
3 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). Infra note 8.
5 See Maroney v. Triple "R" Steel, Inc., 2005 WL 1950404 (N.D. Ill. 2005).
6 Melena v. Anheuser-Busch, Inc., 352 Ill.App.3d 699, 816 N.E.2d 826 (5th Dist. 2004)
7 See id. at 833-34.
8 See id.
9 See id.
10 See id.
11 See id.
12 See, e.g. Prudential Insurance Co. of America v. Lai, 42 F.3d 1299 (9th Cir. 1994) (holding that prospective agreement to arbitrate statutory employment claims must be entered into knowingly in order to be enforceable."); Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126 (7th Cir. 1997) (stressing the advantage of arbitration agreements that are the product of an employee’s knowing and voluntary consent.").
13 Supra note 6 at 833-844.
14 Id at 833.
15 Id. at 833-844.
16 Id. at 833.
17 See id.
19 Supra note 5.
20 See id.
21 Id. at *1.
22 Id. at *3.
23 See Campbell v. Sterling Jewelers, Inc., 2005 WL 991771 (N.D. Ill. 2005).
24 See id.
25 See id.
26 See id.
27 See id.
28 Shankle v. B-G Maintenance Management of Colorado, Inc., 163 F.3d 1230 (10th Cir.1999).
29 Circuit City Stores v. Adams, 279 F.3d 889 (9th Cir. 2002), cert. denied, 535 U.S. 1112 (2002).
30 Ingle v. Circuit city Stores, Inc., 328 F.3d 1165 (9th Cir. 2002).
31 Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
32 May v. Higbee Co., 372 F.3d 757, 764-65 (5th Cir.2004).
33 See id.
34 Bailey v. Ameriquest Mortgage Co., 346 F.3d 821 (8th Cir. 2003).
35 See, e.g., Special Prods Mfg. Inc. v. Douglass, 159 A.D. 2d 847, 553 N.Y.S. 2d 506, 509 (3d Dep’t 1990).
36 See supra note 48.
37 Id. at n. 31.
38 Maureen B. Callahan, Post-Employment Restraint Agreements: A Reassessment, 52 U. Chi. L. Rev. 703, 721-722 (1985).
39 Supra note 6, appeal docketed, NO. 99421 (Ill. Jan. 25, 2005).
Christina Schmucker is an attorney with Donner & Company Law Offices LLC in Wheaton. She received her J.D. from the University of Miami School of Law, where she served as Senior Articles and Comments Editor for the International and Comparative Law Review. She received her B.A. from Vanderbilt University and is a member of the DuPage County Inns of Court.