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Melena v. Anheuser-Busch — Class Action Defense Issues

Employment Arbitration Agreement Under FAA (Federal Arbitration Act) Enforceable By Employer Illinois Supreme Court Holds

As discussed in a separate article, Circuit Courts of Appeal and state courts do not agree on the enforceability of arbitration agreements in employment contracts. This issue may be of critical importance in the defense of class actions, because a class action waiver in an employment arbitration agreement cannot possible be enforceable if the court would refuse to enforce the arbitral forum even without a class action restriction. On March 23, 2006, in an opinion that should have direct and positive impact in the defense of class action waivers in arbitration agreements in the state, the Illinois Supreme Court cast its vote on the issue, holding that under the FAA (Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1994)), employment arbitration agreements are enforceable under “principles of fundamental contract law because we believe that approach is more faithful to the FAA.” Melena v. Anheuser-Busch, Inc., 847 N.E.2d 99, 107 (Ill. 2006).

In Melena, Anheuser-Busch hired plaintiff in February 1999. One year later, it mailed to employees a letter announcing a new “Dispute Resolution Program” that included a requirement for arbitration under the FAA. Employees were informed 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.’” 847 N.E.2d at 101. Plaintiff was injured in September 2002, and fired in March 2003. She filed suit against Anheuser-Busch in state court in May 2003. ANHEUSER-BUSCH moved to compel arbitration, but the trial court denied the motion without explanation. The appellate court affirmed, concluding that “’even if the plaintiff entered into the agreement knowingly, she did not do so voluntarily,’” and expressing doubt “about whether an agreement to arbitrate, offered as a condition of employment, ‘is ever voluntary.’” Id., at 102 (quoting appellate court opinion).

The Illinois Supreme Court reversed, holding: “In our view, the FAA’s plain language makes clear that arbitration agreements are enforceable except for state-law grounds for ordinary contract revocation.” 847 N.E.2d at 107 (italics added, citations omitted). Importantly, the Illinois Supreme Court did not make any distinction between arbitration agreements in an employment context or in a commercial setting, and did not suggest that a class action waiver provision would be interpreted under different contract principles.

Turning to the case before it, the Court held at page 109,

By continuing her employment with ANHEUSER-BUSCH, plaintiff both accepted the offer and provided the necessary consideration. [Citation.] As ANHEUSER-BUSCH correctly notes, under Illinois law, continued employment is sufficient consideration for the enforcement of employment agreements. (Italics added.)

The Court also rejected the theory that the arbitration agreement was unenforceable because it was “offered on a ‘take it or leave it’ basis.” 847 N.E.2d at 109. The Court also rejected utilizing a heightened standard for establishing a “knowing and voluntary” entry into a contract, finding that such a standard would be “inconsistent with the FAA.” Id., at 108.

NOTE: Some cases dealing with the enforceability of arbitration clauses in class action and mass action cases have stressed the cost to the plaintiff in determining whether a class action or mass action waiver is enforceable. In Melena, the Illinois Supreme Court observed “the employer is to pay all costs, with the employee paying only a $125 fee” and stated, “We do not believe such a fee would have the effect of precluding litigants from effectively vindicating their rights under the Worker’s Compensation Act.” 847 N.E.2d at 111. Care should be taken, then, to ensure that any arbitration requirement is not prohibitively expensive to the employee.

Download PDF file of Melena v. Anheuser-Busch