## Facts

- Blyden A. Davis, an African-American equipment operator, worked for Joseph J. Magnolia, Inc. from March 2005 until his termination in May 2006.
- Davis alleged a white supervisor used a racial slur in July 2005 and that Davis experienced a racially hostile work environment.
- Davis complained to human resources in October 2005 and was transferred to another supervisor about a week later.
- In January 2006, Davis filed a discrimination and retaliation charge with the District of Columbia Office of Human Rights, cross-filed with the EEOC; he alleged subsequent reprimands were retaliatory.
- On April 20, 2006, Davis was called to receive his paycheck and sign a “Receipt and Acknowledgment” form stating he received the company’s employment manual and agreed to be bound by its contents, including a mandatory arbitration policy.
- The manual characterized arbitration as a contractual agreement to arbitrate disputes, but also stated the company reserved the right to change any policies at any time.
- Davis asserted he was pressured to sign (including that his paycheck was withheld until signature) and did not understand he was agreeing to arbitrate statutory discrimination claims.
- About two weeks later, Davis was terminated and added a retaliation claim to his administrative charge.
- After the administrative agencies dismissed the charge, Davis sued in federal court under Title VII and the D.C. Human Rights Act.
- The parties conducted limited discovery on arbitrability and filed cross-motions for summary judgment on whether Davis was bound to arbitrate.

## Issues

1. Whether a handbook-based arbitration policy was an enforceable agreement where the employer reserved the unilateral right to change policies at any time, rendering its promise to arbitrate illusory and unsupported by consideration.
2. Whether, even if an agreement existed, the arbitration provision applied retroactively to discrimination and retaliation claims that accrued before the employee signed the acknowledgment form.

## Decision

- The court granted Davis’s motion for summary judgment on arbitrability and denied Magnolia’s cross-motion seeking dismissal or a stay under the Federal Arbitration Act (FAA).
- The court held no enforceable arbitration agreement existed because the employer’s promise was illusory given its retained unilateral power to modify or rescind policies, including arbitration.
- The court also held that, even assuming an agreement could be inferred, the arbitration provision did not apply retroactively to already-accrued claims absent clear contractual language.
- Because there was no enforceable agreement requiring arbitration, the FAA did not require dismissal or a stay, and Davis could proceed in court.

## Legal Principles

- Arbitration is a matter of contract; a party may be compelled to arbitrate only where there is a clear, mutual agreement to do so.
- Ordinary contract principles govern formation and enforceability of arbitration agreements, including the requirements of mutual assent and consideration.
- A promise is illusory, and cannot serve as consideration, when the promisor retains unfettered discretion to perform or withdraw the promise (such as by reserving the unilateral right to change the policy at any time).
- An arbitration clause generally will not be applied retroactively to disputes that accrued before execution absent unmistakably clear contractual language showing that intent.
- The FAA enforces valid arbitration agreements but does not itself create an obligation to arbitrate in the absence of an enforceable contract.

## Conclusion

The court refused to compel arbitration because the employer’s handbook arbitration policy lacked consideration due to the employer’s unilateral modification clause and, separately, did not reach claims that accrued before the employee signed the acknowledgment; the discrimination and retaliation case therefore proceeded in federal court.


Davis v. Joseph J. Magnolia, Inc., 640 F. Supp. 2d 38 (D.D.C. 2009)