The impact of Melena v. Anheuser-Busch on mandatory arbitration agreements in employment contracts.

Author:Harris, Andrew N.

This article reviews the Illinois Supreme Court's arbitration-friendly decision in Melena and offers pointers for drafting or challenging arbitration clauses in its wake, then looks at the federal circuit split and how the United States Supreme Court might rule on the issue.

Mandatory arbitration agreements in employment contracts are increasingly common. courts enforce the agreements according to the Federal Arbitration Act (FAA), with the exception of employment contracts that deal with transportation workers. (1) court enforcement of the agreements is significant because employees must arbitrate employment-related disputes before arbitral panels and forego the opportunity to have their claims heard before a court.

Exactly which standard Illinois courts use to determine whether arbitration agreements are enforceable as binding contracts, however, was subject to dispute until the Illinois Supreme Court's decision last year in Melena v Anheuser-Busch, Inc. (2) Under Melena, arbitration agreements in employment contracts are enforceable according to fundamental principles of contract law. (3) Thus, in Illinois, arbitration agreements are enforceable except for state-law grounds for ordinary contract revocation. (4)

The United States Supreme Court has yet to rule, and the federal circuit courts are split on the issue of which standard courts should use. While some circuits follow the standard adopted in Melena, others follow a standard whereby arbitration agreements are enforced only if employees knowingly and voluntary agree to submit their disputes to arbitration. (5) Until the U.S. Supreme Court rules, Illinois practitioners should adhere to the decision in Melena.

This article discusses current law on arbitration agreements in employment contracts, with a particular emphasis on how Melena affects this area of the law. The article reviews the Illinois Supreme Court's decision in Melena and offers pointers for drafting arbitration clauses in its wake, then looks at the federal circuit split and how the United States Supreme Court might rule on the issue.

A summary of Melena v Anheuser-Busch

In Melena, the issue before the Illinois Supreme Court was whether the mandatory arbitration provisions of a dispute resolution program instituted by the employer, Anheuser-Busch, constituted an enforceable contract binding on its employee, Joann Melena. (6) The importance of the court's decision is its discussion about which standard to use to determine the enforceability of arbitration provisions in employment contracts.

Melena was already an at-will employee at Anheuser-Busch when she was informed of the company's new mandatory alternative dispute resolution program. (7) The policy statement of the program explained that "'by continuing or accepting an offer of employment'" with Anheuser-Busch, all employees to whom the policy was applicable "'agree as a condition of employment to submit all covered claims to the dispute resolution program.'" (8) The policy statement defined "'covered claims' as 'employment-related claims against the company and individual managers acting within the scope of their employment, regarding termination and/or alleged unlawful or illegal conduct on the part of the company.'" (9)

Melena later suffered a work-related injury and filed a claim for workers' compensation with the Illinois Industrial Commission. (10) Anheuser-Busch terminated her at-will employment while she was receiving temporary total disability benefits. (11) She then filed a claim in the circuit court of Jefferson County, alleging retaliatory discharge under the Illinois Workers' Compensation Act. (12)

Anheuser-Busch moved to dismiss her complaint and compel arbitration or, in the alternative, to stay the proceedings and compel arbitration. (13) After the circuit court denied the motion without comment, the appellate court affirmed the circuit court's order and ruled that "in order to be enforceable, an agreement to arbitrate claims like the one at issue must be entered into knowingly and voluntarily." (14)

The Illinois Supreme Court acknowledged the federal circuit split on which standard courts should use, then said, "[a]fter careful consideration we agree with those federal circuit courts of appeal which base their analysis upon principles of fundamental contract law because we believe that approach is more faithful to the FAA." (15) The court stated that the "heightened 'knowing and voluntary' standard was [] inconsistent with the FAA" and "agree[d] with the Eleventh Circuit Court of Appeals that, by 'knowing' and 'voluntary,' plaintiff [Joann Melena] means 'much more than a general understanding that a binding agreement or contract is being entered into.'" (16)

The court thus ruled that "the FAA's plain language makes clear that arbitration agreements are enforceable except for state-law grounds for ordinary contract revocation." (17) The ruling was in reference to section 2 of the FAA, which provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (18)

Applying its ruling to the facts, the court held that the mandatory arbitration agreement was enforceable. Anheuser-Busch's mailing of the dispute resolution program materials to its employees was the offer, and Melena's continued employment with Anheuser-Busch was both her acceptance and consideration because, in Illinois, continued employment is...

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