Wednesday, June 29, 2005

Fourth Circuit finds arbitration agreement supported by consideration

In Hill v. PeopleSoft USA, Inc., No. 04-2187 (4th Cir 2005) (PDF), the Fourth Circuit held that arbitration of an employment discrimination claim should have been compelled because the arbitration agreement was supported by adequate consideration under Maryland law.

In August 2001, PeopleSoft offered plaintiff Hill a position of employment, and in her offer letter, PeopleSoft indicated that, as a condition of her employment, Hill would have to sign a separate arbitration agreement. The arbitration agreement was signed by both parties. It required arbitration of all claims arising out of the employment relationship, except for claims involving Workers’ Compensation, Unemployment Insurance, or administrative claims under the National Labor Relations Board, Department of Labor, or Equal Employment Opportunity Commission. The offer letter also indicated that Hill, by accepting PeopleSoft’s offer of employment was agreeing to be bound by the company’s “internal dispute solution” (“IDS”) program. This program was apparently a company policy generally applicable to all employees. Unlike the separate arbitration agreement, in the IDS program PeopleSoft reserved the right to “change” the program “without notice.”

Hill sued PeopleSoft for various acts of discrimination. When PeopleSoft moved to compel arbitration under the arbitration agreement, the District Court refused to compel arbitration because it found that the arbitration agreement was not supported by consideration because under the IDS program, PeopleSoft reserved the right to change the IDS program “without notice.” According to the Court, PeopleSoft’s retention in the IDS program of the right to change the IDS program without notice rendered PeopleSoft’s promise to arbitrate in the arbitration agreement illusory because PeopleSoft, in effect, could eliminate arbitration altogether.

On appeal, the Fourth Circuit found the District Court’s reasoning to be flawed because it looked beyond the “four corners” of the arbitration agreement. Had the district court confined its analysis to the arbitration agreement, the court likely would have found it to be supported by consideration. The court found that the agreement itself contained no illusory promise. “In sum, the District Court simply was not at liberty to go beyond the language of the arbitration agreement in determining whether the agreement contained an illusory promise.” The Fourth Circuit reversed the judgment of the District Court and remanded with instructions to grant PeopleSoft’s motion to compel arbitration.

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