W.Va. Supreme Court strikes down employment arbitration agreement

In State of West Virginia, ex rel. Saylor v. Wilkes, Judge 32042 (May 11, 2005), the state supreme court held Ryan's Steakhouse was not entitled to compel arbitration of a Human Rights Act claim filed by one of its former employees because the arbitration agreement was an illegal adhesion contract and because it lacked consideration.

Ryan's arbitration contract was atypical. Ryan's had separately contracted with a company called EDSI to provide arbitration services for all employment-related disputes between Ryan's and its employees. Ryan's Agreement with EDSI was executed some time before the plaintiff applied for a job at Ryan's. Although the employee's agreement "purports to be with EDSI, no signature of an EDSI representative is required on [the plaintiff's] Agreement and a signature line for someone from EDSI does not appear on the form."

The court found the contract to be a "take it or leave it" agreement the terms of which heavily favored EDSI. "EDSI retained the right to unilaterally modify rules governing arbitration without input or notice to Petitioner before, during or after amendments are made," the court noted. "Additionally, Petitioner's Agreement reflects gross disparity of the values exchanged between Petitioner and EDSI."

Following the lead of several federal courts that have examined the Ryan's/EDSI agreement, the court also held that "[a]n employer's promise merely to review an employment application in exchange for a job applicant's promise to submit employment-related disputes not associated with the application process to arbitration does not represent consideration sufficient to create an enforceable contract to arbitrate such employment disputes." C.f. Geiger v. Ryan's Family Steak Houses, Inc., 134 F. Supp. 2d 985, 1001-02 (S.D. Ind. 2001) (applying Indiana contract law); Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d at 381, 2005 WL 544353 at 8 (“Ryan's has failed to demonstrate that, under Tennessee law, an employer's promise to consider an employment application is adequate consideration for a promise to arbitrate employment disputes that are wholly unrelated to the application or hiring process.”); Penn v. Ryan's Family Steak Houses, Inc., 269 F.3d 753, 760 (7th Cir. 2001) (“[T]he defendants provide no evidence that any Indiana court has ever held that a mere promise to consider an application for employment would provide consideration for a separate contract.”).

I'm not too discouraged by this opinion because the Ryan's/EDSI contract is sort of an oddball agreement. The federal courts that have considered it are split on the issue of its enforceability. (The Respondent's brief (PDF) states that a majority of courts have found the agreement to be enforceable.) It is not surprising to me our court would tend to favor striking it down. I get the impression that this one was not even a close call.