24 Hour Fitness operates health clubs and fitness facilities across the country. As part of its operations, 24 Hour Fitness employs sales representatives. As a condition of employment, employees are required to enter into arbitration agreements to arbitrate their employment disputes with their employer. FLSA claims (i.e., overtime and minimum wage claims) are covered within the scope of the arbitration agreement. John Carey was a sales representative for 24 Hour Fitness. He signed a handbook acknowledgment containing the arbitration agreement. Not only did the arbitration agreement require the arbitration of disputes, it further provided that disputes could not be brought as class actions or in representative capacities. Unfortunately for the employer, the handbook also included a provision that permitted it to revise, delete or add to the handbook at any time and that it would communicate those changes to the employees through official written notices. Nothing in the policy precluded the employer from applying changes to the arbitration agreement retroactively.
After Carey's employment ended, he filed an FLSA collective action seeking unpaid overtime on behalf of all similarly-situated employees. 24 Hour Fitness moved the court to compel arbitration. Carey, in response, argued that he agreement was illusory because the employer retained the right to unilaterally amend the agreement.
The Fifth Circuit Court of Appeals found against the employer holding that its arbitration agreement was unenforceable. The Court held that the arbitration agreement was illusory because: 1) 24 Hour Fitness retained the right to alter, amend or changes the policy at any time; 2) the policy did not foreclose the prospect of unilateral amendments to claims existing on or before the amendment; and 3) nothing in the policy precluded the employer from applying any of its changes retroactively. As a result, 24 Hour Fitness will be left to defend Carey's lawsuit in Court, with a jury, and potentially as a collective action.
The take-away form the opinion is that regardless of the type of ADR you use (e.g., arbitration, waiver of jury trial), if the agreement is contained in an employee handbook, ensure that the handbook's express contractual disclaimer contained in the handbook (You know, that provision that says nothing contained in this agreement is intended to create an express or implied contract) carves out those ADR procedures and specifically states that such provisions are intended to be contractual in nature; that the employer and employee are bound by such provisions and that neither party may alter or amend the contract unilaterally. At a minimum, if the employer wants to retain the right to unilaterally amend the policy, it should state that the employer cannot amend it to apply retroactively to claims that existed prior to the amendment and notice to the employee.
A full copy of Carey v. 24 Hour Fitness is available here.
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