Facts
- United Healthcare offered Ronnie E. Cheek employment; the offer letter made United’s Employment Arbitration Policy a condition of employment and provided policy summaries.
- Cheek accepted the offer in writing, agreeing to the offer letter’s terms.
- On Cheek’s first day, United provided an employee handbook with summaries of an internal dispute resolution policy and the arbitration policy; Cheek signed an acknowledgment stating the arbitration policy was a binding contract and the exclusive remedy for covered disputes.
- The arbitration policy required unresolved employment disputes to proceed to final and binding arbitration, and permitted either party to initiate arbitration.
- The policy also gave United, in its sole discretion, the right to alter, amend, modify, or revoke the arbitration policy at any time and without notice.
- After about seven months, United terminated Cheek’s employment; Cheek sued for breach of contract and related claims.
- The trial court granted United’s motion to compel arbitration; Cheek appealed, and the Maryland Court of Appeals reviewed whether a valid arbitration agreement existed.
Issues
- Whether an employer arbitration policy forms an enforceable agreement when the employer reserves an unrestricted unilateral right to alter, amend, modify, or revoke the policy at any time without notice.
- Whether continued or initial employment supplies consideration for an arbitration agreement when the employer’s promise to arbitrate is illusory.
Decision
- The Court of Appeals of Maryland reversed the order compelling arbitration and remanded.
- The court held no enforceable arbitration agreement existed because the policy lacked consideration.
- United’s promise to arbitrate was illusory due to its unilateral, unlimited power to change or revoke the arbitration policy at will.
- Cheek’s employment did not constitute consideration for the arbitration agreement.
Legal Principles
- Arbitration agreements are contracts and are enforced only if formed under ordinary state contract rules, including consideration.
- A promise is illusory, and cannot serve as consideration, when the promisor retains an unfettered right to avoid performance (including by unilaterally modifying or revoking the promise at any time without notice).
- Mutual obligation to arbitrate requires that both parties be meaningfully bound; an employer cannot enforce an arbitration policy while reserving unilateral power to nullify its own arbitration commitment.
- Making arbitration a “condition of employment” or labeling a policy “binding” does not cure lack of consideration when the employer’s arbitration promise is nonbinding in substance.
Conclusion
Because United reserved an unrestricted right to change or revoke its arbitration policy at any time without notice, its promise to arbitrate was illusory, leaving no consideration to support an enforceable arbitration agreement; the order compelling arbitration was reversed and the case returned to the trial court.