Right to retroactively amend handbook makes arbitration clause unenforceable

When one party can escape its obligations, arbitration cannot be enforced, 5th Circuit says

Online Exclusive: 4 key elements of an enforceable arbitration clause

Since the Supreme Court’s landmark ruling last year in AT&T v. Concepcion, companies have increasingly adopted mandatory arbitration agreements that require employees to settle disputes outside of court. However, a recent 5th Circuit decision put some limits on businesses’ ability to do this.

“In effect, the agreement allows 24 Hour Fitness to hold its employees to the promise to arbitrate while reserving its own escape hatch,” the 5th Circuit said. The court reasoned the arbitration clause could be interpreted so that if an employee tried to force the company to arbitrate a disagreement, 24 Hour Fitness could change the agreement and make the changes apply to the pending dispute.

“You must say to your employees, and they must understand, that amendments cannot be applied retroactively. They can only be applied going forward,” Allgood says.

Beverly Caley

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