Legal Alert: Unilateral Right to Amend Arbitration Agreement Makes Employment Arbitration Clause Unenforceable

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The Fifth Circuit recently allowed a collective action claim for overtime pay under the Fair Labor Standards Act (FLSA) to proceed and held that an arbitration agreement was unenforceable because the employer could unilaterally modify the arbitration agreement. John Carey v. 24 Hour Fitness USA, Inc.

While employed by 24 Hour Fitness, the plaintiff, Carey, received an employee handbook that included an arbitration agreement providing that all employment-related disputes would be resolved by an arbitrator through final and binding arbitration. Carey signed an Employee Handbook Receipt Acknowledgment indicating that he had received the Handbook. The Acknowledgment reiterated the arbitration policy and also stated that the terms of the Handbook are subject to change (the "Change-in-Terms" clause). Specifically, the Change-in-Terms clause stated, "I acknowledge that, except for the at-will employment, 24 Hour Fitness has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO of 24 Hour Fitness or their specified designee. No oral statements can change the provisions of the employee handbook."

After Carey's employment ended, he filed a collective action lawsuit against 24 Hour Fitness seeking compensation for overtime worked by employees but allegedly not paid. The employer filed a motion to stay and compel arbitration; however, Carey countered that the arbitration agreement was not valid because the employer retained the right to amend the handbook. The trial court ruled in favor of Carey and directed the case be tried. The employer appealed decision, pointing to other language in the agreement that required the company to give the employee notice of any changes and further to obtain the employee's acknowledgement of the changes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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